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

RHB Research Institute

RHB Equity 360°

20 July 2010 (KLK, Axis REIT; Technical: L&G)

Top Story : KLK – Value and growth – Our preferred sector pick Outperform
Visit Note
- Five key points: 1) Strong FFB growth to continue for rest of FY9/10 coming from existing plantations and
contribution from Indonesian JV; 2) Continued double digit growth expected for FY11 3) CPO price view
unchanged; 4) More details on new Germany plant acquisition;; and 5) More land acquisitions coming?
- KLK’s recent acquisition of the 150,000-tonne Uniqema oleochemical plant in Emmerich, Germany is a
step in the right direction, in our view. Although this plant reported an operating loss of €2.1m in 2009, KLK
expects to be able to turn around the operations to record a profit within the first year of operations. This
confidence stems from its plans to: 1) upgrade the old technology that the plant currently runs on; 2)
implement a hedging policy on its sales and purchases contracts, which is non-existent currently; and 3)
integrate its upstream operations with the downstream operations in EU to achieve operational synergies.
One of the main advantages of this Uniqema plant is the ownership of its own jetty and its ample storage
tanks and warehousing facilities, as KLK intends to now send all its oil destined for the European market to
Emmerich instead of Rotterdam. This will not only save KLK storage costs, given that currently, all of its oil
is stored in third party tanks in Rotterdam, but will also give it a competitive advantage against other
downstream players.
- All in, we have revised our forecasts upwards by 0.9-1.7 for FY11-12, while our FY10 forecasts remain
unchanged. Post-earnings revision, we raised our SOP-based fair value for KLK to RM20.70 (from
RM20.55) and maintain our Outperform rating.

Corporate Highlights

Axis REIT : 1HFY12/10 net property income grows 18% yoy Outperform
2QFY10 Results
- Excluding RM12.3m property fair value and derivative gains, normalised 1HFY12/10 net profit of RM23.8m
came in within expectations at 47-48 of our full-year forecast and the full-year market consensus.
- Axis REIT declared income distribution of 4sen for 2QFY12/10. Cumulatively, for 1HFY12/10, Axis REIT
has declared income distribution of 7.7sen that makes up 47% of our full-year forecast of 16.4sen.
- Fair value is RM2.55. Maintain Outperform.

Technical Highlights

Daily Trading Strategy : Sustaining at above the 10-day SMA key to positive short-term sentiment…
- Encouragingly, the FBM KLCI managed to survive yesterday’s fall, due to external volatilities i.e. the
sudden plunge in US markets on Friday, at above key short-term support of the 10-day SMA near 1,326.
- Closed with a “hammer-like” candle, though the candle size is small, the FBM KLCI may still recover if
buying momentum continues today, given the improved daily turnover to the healthy 800m – 1.0bn shares
mark yesterday.
- Optimistically, we expect the rotational plays centred on lower liners to continue attracting the retail
participation in the near term, hence potentially lifting the market sentiment a notch higher.
- On the technical perspective, the FBM KLCI will remain short-term positive as long as it sustains at above
the 10-day SMA. A medium-term support is seen near the psychological level of 1,300, closer to the 40-day
SMA of 1,306.
- Having said that, the broader market sentiment will still be influenced by the key US and regional markets’
performance in the near term, in our opinion.

Daily Technical Watch: L&G – Surpassing RM0.50 will accelerate its upward momentum towards RM0.56…
- 10-day SMA: RM0.4145
- 40-day SMA: RM0.3996
- Support: IS = RM0.425 S1 = RM0.36 S2 = RM0.28
- Resistance: IR = RM0.50 R1 = RM0.56 R2 = RM0.635
 Bulletin Board
Co/Sector News
Power The Government will only make a final decision
on nuclear power as a source of electricity after
studying the findings of the Nuclear Power
Infrastructure Development Plan, which is
scheduled for completion in 2013. (Financial
Daily)
Healthcare Healthscope yesterday announced that its board
had unanimously recommended a A$2bn
(US$1.72bn) takeover offer from a consortium
comprising US private equity firms, Carlyle Group
and TPG. (Associated Press)
Timber The SarawakTimber Industry Development Corp
(STIDC) are now in South Korea to gather more
information on the probe that eight Sarawakian
plywood exporters are dumping their products in
South Korea. This has resulted in Korea slapping
anti-dumping duties on Malaysian plywood to
33.8% (from 5.1%). (The Star)
Faber UEM Group Managing Director, Datuk Izzaddin
Idris has denied the sale of Faber, which remains
as one of UEM’s core businesses in the near
future (StarBiz).
MAS MAS has picked Pratt & Whitney to supply 34 Neutral. This is part of MAS’s order of up to 25 UP, FV =
engines worth US$680m (RM2.2bn) for its 17 A330-300 and 4 A330-200F worth US$4.5bn RM2.01
new Airbus aircraft. (Financial Daily) (RM14.6bn) at list price which includes the cost
of the engines.
Important Dates
Impact Recom
Assuming nuclear power gets the green light, it OW
appears that the earliest the nuclear plant can be
commissioned would be sometime mid-2020-30.
In the mean time, approximately 6,000MW
additional capacity is planned for commissioning
by 2020. Other options that could be considered
include: 1) renewable energy; and 2) electricity
demand management.
The offer price was increased from Carlyle and OW
TPG’s initial proposal of A$1.82bn, and the
competing bid of A$1.84bn from an unidentified KPJ, OP,
bidder (believed to be US private equity group FV =
Kohlberg Kravis Roberts). The recommended RM4.25
takeover offer values Healthscope at 16.8x
consensus FY11 EPS. Separately, the continuing
tussle for Parkway will likely result in an increase
in Khazanah’s partial takeover offer price from
the current S$3.78/share, which compares
against Fortis’ full takeover offer of S$3.80. The
two offers currently value the stock at around 20x
consensus FY11 EPS. We believe the rise in
takeover valuations for both Healthscope and
Parkway is positive for the healthcare sector, in
particular KPJ which is currently trading at 13.3x
FY11 EPS. Our fair value for KPJ of RM4.25 is
based on 16x target PER, or around 10%
discount to the regional peers’ average of 18x.
Negative. This would have a direct impact to N
companies which have exposure to Korea such
as Shinyang (non-listed), Lingui and Jaya Tiasa.
As these companies would now have to try to
channel their products to other markets like
Japan, the other timber players such as Ta Ann
and WTK with significant exposure to Japan of
>90%, may now face more intense competition.
Neutral. The fundamental outlook for Faber OP, FV =
remains intact given the company has strong RM3.54
growth potential in India and UAE, and we expect
the government concession for hospital support
services to be renewed given the strong
operating track record for the last 14 years. The
company is thus already operating independently
without significant support from its parent, UEM
Group.
 Company Entitlement details Ex-date Payment date
New entitlements
Biosis Group Renounceable two-call rights issue of shares and detachable warrants 30-Jul-10 -
Tasek Corp Capital repayment and share consolidation 30-Jul-10 -
Axis REIT 2nd interim dist. of 3.95 sen taxable + 0.05 sen non taxable 30-Jul-10 30-Aug-10

Going “ex” on 21 Jul

LPI Capital Single tier interim dividend of 10 sen 21-Jul-10 29-Jul-10
MWE Holdings Final dividend of 4 sen tax exempt 21-Jul-10 3-Aug-10
Tanjung PLC First interim gross dividend of 2 sen less 25% tax 21-Jul-10 5-Aug-10
Bandar Raya Devts First and final dividend of 7.5% less 25% tax 21-Jul-10 18-Aug-10
Choo Bee Metal Industries Distribution of treasury shares on the basis of 1-for-25 21-Jul-10 20-Aug-10
Choo Bee Metal Final dividend of 6 sen less 25% tax 21-Jul-10 20-Aug-10
Kinsteel Final dividend of 1 sen tax exempt 21-Jul-10 20-Aug-10
Ipmuda First and final dividend of 5 sen less 25% tax 21-Jul-10 20-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
strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

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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