Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

2 July 2010 (B-Toto/Tanjong, Telecom, Semicon, Oil & Gas; Technical: Sinotop)

Top Story : Gaming – Pool betting duties raised by 2%-points Neutral (down from OW)
B-Toto : Struck by pool betting duty hike Market Perform (down from OP)
News Update
- BToto announced that the Ministry of Finance has raised the pool betting duty (PBD) for all NFOs to 8%
(from 6%), to be applicable retroactively from 1 June 2010. Recall the PBD is applicable on gross turnover,
after deduction of gaming tax of 8%.
- We understand this move by the Government comes as a surprise to the NFO players, and as such, there
is no intention to revise the prize pool downwards for the moment. However, we believe this would be a
matter of discussion among the NFOs as they will have to agree upon the quantum of change, if any, and
apply to the Government to change it. Assuming an unchanged prize pool and no changes to our sales
volume assumptions, the impact of the 2%-pt hike to BToto’s net profit is -12% p.a..
- We think that an additional risk has emerged for the gaming sector as a whole, as this move by the
Government, as well as the recent abortion of the sports betting licence deal, could potentially signify a
turnaround in policy with regards to the gaming sector and could mean a further crackdown on industry
players. This could also potentially spell an oncoming hike in casino gaming duties (now at 25%). We
estimate every 1%-pt hike in casino gaming tax would impact earnings by 2-3% p.a..
- We have revised down our forecasts by 12-12.1% for FY11-13 to take into account the PBD hike. We have
also reduced our DPS forecasts accordingly, to maintain our 80-85% net payout ratio assumption,
translating to lower net yields of 5.7-6.2% p.a. (from 6-7% previously). Post-earnings revision, we reduce
our DCF-based fair value to RM4.45 (from 5.05). Due to the higher risks involved in the sector, we are
downgrading our recommendation to a Market Perform (from Outperform).

Tanjong : Gaming hit by a spate of negatives Market Perform

News Update
- Tanjong announced yesterday that Pan Malaysian Pools, its wholly-owned subsidiary, had been notified by
the Ministry of Finance of a revision in betting duties to 8% from 6% currently. The new rate applies to
draws held from Jun 2010.
- One possible move to mitigate the higher betting duties is for the NFOs to reduce the prize pool. However,
a lower prize pool could, in turn, adversely affect top line. For now, we understand that the prize pool is
likely to stay unchanged.
- Recall, Tanjong recently declared a first interim gross DPS of 20 sen (1QFY10: 17.5 sen). While we believe
Tanjong would keep its quarterly dividends at this level, we think it is increasingly likely that a lower final
gross DPS would be declared, as compared to FY10’s 30 sen.
- FY11-13 net profit forecasts lowered by 2.3-3.5%, after incorporating the hike in betting duties.
- SOP-derived fair value lowered to RM18.55 from RM19.20 but Market Perform call is unchanged.

Sector Call

Telecom : MCMC announces new termination rates Overweight

Sector News Update
- MCMC announced that the new interconnection rate (which applies to all voice calls that originate and
terminate on fixed network and mobile network) will be reduced to 5 sen/minute from existing rates of 8.36
sen/minute (for mobile termination rate) and 6.07 sen/miute (for fixed termination rate) respectively
effective from 15 Jul 10.
- We believe both TM and Digi will benefit from the revision in interconnection rate (albeit impact is likely to
be insignificant). On the other hand, both Celcom and Maxis are at the losing end.
- The lower interconnection rate would translate to lower direct cost for the telco operators and this could
raise concerns about the possibility of a price war. Among the players, we believe the smaller operators
would be more inclined to cut rates while the larger players would likely adopt a wait-and-see approach.

Oil & Gas : Petronas reports disappointing FY10 results Neutral

Sector Update
- Petronas’ FY03/10 revenue declined 18.8% yoy to US$62.5bn. This was mainly due to a drop in revenue
from crude oil exploration & production (E&P), LNG sales, and sales of downstream refined petroleum
products. As a result, net profit fell 24% yoy to US$11.6bn.
- Petronas’ FY10 capex fell 16.3% yoy although this was mainly due to a 42.4% pullback in international
spending. Domestic capex actually rose by 1.4% yoy. We expect this to continue for FY11, in line with
earlier statements by Petronas’ new CEO. Although 58-71% of capex since 2007 has flowed to the E&P
division, we expect the downstream refinery and petrochemicals businesses to receive more attention in
coming years as the company looks to expand its downstream capability.
- We believe the oil & gas industry is still facing some uncertainty as the near-term direction of crude oil
prices remains unconvincing. Sharper-than-expected global slowdown, and especially China and US, could
have a negative impact on demand for petroleum products.
- Our Neutral call on the sector thus remains unchanged for now. Nevertheless, beyond this “normalisation”
of economic growth, we remain bullish on the longer-term outlook. Dialog (OP, FV = RM1.30) is our top
pick given the potential for more EPCC projects ahead.

Technical Highlights

Daily Trading Strategy : The FBM KLCI to retest 1,300 soon…

- As we reiterated, the attempt to stage a rebound yesterday was quickly overwhelmed by the resumption of
selling momentum due to fear of a slower recovery pace in the global economy.
- Investors, as a result, decided to seat on the bench pending more market-friendly newsflow before
returning back to the trading floor. In our view, this will cause the daily turnover to stay pathetically low for a
while.
- Also, given the poor momentum and the failure to launch a technical rebound, the FBM KLCI may face
more selling pressure and may even threaten the supportive 40-day SMA and to retest the 1,300
psychological level today.
- With another day of retreat in the overnight US market, we expect trading sentiment to stay on a negative
mode.
- A fall to below 1,300 will mean a revisit to the critical stronghold of 1,250 even sooner.
- Note that the 1,250 level is also the trigger for the major Head & Shoulders formation of the FBM KLCI.
Losing this level will swing the index into the bearish zone.

Daily Technical Watch: Sinotop – Losing the 10-day SMA marks a short-term bearish outlook ahead…
- 10-day SMA: RM0.4716
- 40-day SMA: RM0.2705
- Support: IS = RM0.325 S1 = RM0.24 S2 = RM0.17
- Resistance: IR = RM0.47 R1 = RM0.605 R2 = RM0.69

Bulletin Board

Co/Sector News Impact Recom

KPJ Fortis launched a full takeover of Parkway at Fortis’s full takeover offer for Parkway values the OP, FV =
S$3.80, which is 0.5% higher than Khazanah’s shares at an effective FY10-11 PER of 27x and RM4.25
offer at S$3.78 (Bloomberg). 19x respectively. This is very much higher than
the average FY10-11 PER for regional peers of
18x and 15x respectively. Currently, KPJ is
trading at FY10-11 PER of 14-13x. The ongoing
news flow on M&A in the healthcare sector
continues to support our view that there is
substantial growth in the sector. As such, we
reiterate our view that this will be a re-rating
catalyst for KPJ, further narrowing its discount to
the regional peers’ PER.
 Kurnia Kurnia Insurance has appointed Wong Kim Teck Neutral. We believe that with his extensive OP, FV =
as its new CEO effective Thursday. Wong who is experience in the industry, Wong Kim Teck is RM0.63
a member of the EC in Persatuan Insurans Am well suited to lead Kurnia through its
Malaysia has over 26 years of experience in the transformation programmes and maintain growth
insurance industry.(Bursa) in premiums.
YTLP YTLP is confident that it would be able to roll out Neutral. This is consistent with management’s MP, FV =
its WiMAX network by 4QCY10. (StarBiz) earlier-mentioned target. RM2.15

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
None

Going “ex” on 5 Jul

SP Setia Interim dividend of 6 sen less 25% tax 5-Jul-10 28-Jul-10
Heitech Padu Final dividend of 12 sen less 25% tax 5-Jul-10 6-Aug-10

...For more details, see individual reports attached

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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