PP 7767/09/2010(025354)

13 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts / B ri e f i ng N o t e
13 August 2010
MARKET DATELINE

EON Capital Share Price

Fair Value
:
:
RM6.98
RM8.33
Another Strong Performance Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (EONCAP; Code: 5266) Bloomberg: EON MK

Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM) (x) (sen) (sen) (%) (%)
2009 421.9 341.1 49.2 155.0 14.2 5.13 1.4 - 0.0 0.0 10.1
2010f 561.6 421.2 60.8 23.5 11.5 5.66 1.2 55.5 10.0 1.4 11.3
2011f 641.7 481.2 69.4 14.3 10.1 6.28 1.1 64.6 10.0 1.4 11.6
2012f 701.2 525.9 75.9 9.3 9.2 6.96 1.0 73.5 10.0 1.4 11.5
Main Board Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 2QFY10 results beat expectations ... EON Cap’s 2QFY10 results were
RHBRI Vs.
Above
Consensus

above our and consensus expectations with 1HFY10 net profit of RM211m
In Line
(+3.4% yoy) making up 55-56.5% of our and consensus full-year net Below
profit forecasts. Overheads were well-contained and as a result, 1H CIR
stood at 53.1%, as compared to our initial full-year projection of 57.5%. Issued Capital (m shares) 693.2
Market Cap (RMm) 4,838.6
As expected, EON Cap did not declare any dividend.
Daily Trading Vol (m shs) 0.5
♦ … with pre-tax profit up 13.4% qoq and 33% yoy. 2Q pre-tax profit 52wk Price Range (RM) 4.50 - 7.22
rose 13.4% qoq and 33% yoy mainly due to stronger net interest income Major Shareholders: (%)
(+6.5% qoq, +14.7% yoy) while absolute overheads and impairment Primus Pacific Partners 20.2
levels remained broadly stable qoq and yoy. 2Q net profit, however, R.H. Development Corp 16.3
EPF 13.1
contracted by 9.1% yoy mainly due to the impact of one-off reversals of
Kualapura 11.1
RM39.4m for overprovision of tax expenses. Stripping this out, yoy net
Khazanah 10.0
profit growth would have been 33%. In fact, qoq and yoy net profit growth
could have been even stronger if not for the RM32m impairment charge FYE Dec FY10 FY11 FY12
EON Cap made in the quarter in relation to its exposure to CapOne CLO. EPS chg (%) 12.9 13.9 12.2
Var to Cons (%) 9.5 7.5 3.3
♦ Result highlights. After the initial impact of the OPR cuts, net interest
income has now registered qoq growth for four consecutive quarters. This PE Band Chart
was on the back of 4.3% qoq (+12.8% yoy) loan growth, which continued
PER = 25x
to be driven by consumer loans (mortgages: +7% qoq, +27% yoy; PER = 20x
PER = 15x
personal use: +8% qoq, +38% yoy; and credit cards: +4% qoq, +17% PER = 10x
yoy). Unadjusted NIM also expanded by 11bps qoq and yoy, aided by the
two rounds of OPR hikes in 1HFY10. Non-interest income remained
healthy, supported mainly by sustainable transactional fee income while
CIR improved to 51.9% (1Q10: 54.3%; 2Q09: 56.1%) as overheads were
kept well in check.
Relative Performance To FBM KLCI
♦ Asset quality. EON Cap’s gross impaired loans ratio as at end-Jun ’10
improved further to 3.8% vs. 4.2% as at end-Mar ’10. We note that only
EON Cap’s absolute NPL level as at 31 Dec 2009 is lower than the current
EON Capital
figure over the past five years. This achievement is all the more impressive
after taking into account the more stringent classification criteria for
impaired loans under FRS139 (includes both non-performing loans in
FBM KLCI
arrears of three months and performing loans where borrowers show signs
of stress) as compared to GP3 (mainly non-performing loans).
♦ Forecasts. We raised our FY10-12 net profit forecasts by 12.2-13.9%
largely after cutting our FY10-12 projections for overheads by 6-7% p.a..
♦ Investment case. Indicative fair value raised to RM8.33 (from RM7.92)
but Market Perform call is unchanged as we believe share price David Chong, CFA
performance is likely to be capped by HL Bank’s offer to acquire the assets (603) 9280 2186
and liabilities of EON Cap. david.chong@rhb.com.my

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Highlights From Analyst Briefing

♦ Strong deposit growth helps support loan growth. While management has seen a slight slowdown in the
applications pipeline for business loans, loan demand from consumers remains robust (loans to individuals form
around 60% of gross loans). 1H09 gross loan growth (+13.4% annualized, on track to achieve management’s 13-
14% full-year target) was well supported by deposit growth (+6.6% qoq; +15.9% yoy), specifically, term
deposits (+7.9% qoq; +14.5% yoy), which form 70% of total deposits. The growth in term deposits was driven
by both the business and consumer segments and consequently, the LD ratio improved further to 91.9% as at
end-Jun ’10 (end-Mar ’10 and end-Jun ‘09: 93.8%). Although management is comfortable with the current LD
ratio as it allows for an efficient use of deposits, management’s target is to lower the ratio further to 85%.

♦ OPR hike should be positive for NIMs. Generally, management expects the hikes in OPR would be positive for
NIMs. At the asset side, EON Cap has continued to diversify away from fixed rate to floating rate loans, which
now account for 58.9% of total gross loans (end-1Q10: 57.7%; end-2Q09: 55%). Pricing for mortgages and HPs
have also been quite disciplined in 1H2010. Coupled with the focus on term deposit growth, this has helped
provide EON Cap with a stable source of funding as rates go up and thus, should be beneficial for NIMs ahead.

♦ Improving asset quality may provide opportunities for impairment writebacks ahead. As noted above,
asset quality has continued to improve in tandem with improved economic conditions in 1H10. Going forward,
while the festive season ahead could lead to “seasonal” deterioration in asset quality, management believes asset
quality should generally be on an improving trend. Also, EON Cap has now provided for 86.4% of its exposure in
CapOne CLO while for the three Middle East loans, provisions of between 25-75% have been made for the
individual loans although these loans are still performing. Thus, management indicated the possibility that there
could be some loan impairment writebacks ahead in 4Q10.

♦ Non-interest income – putting foundation in place for stronger contribution ahead. Non-interest income
is another area that management is working on for improved contribution ahead. Potential growth areas include
bancassuarance, treasury and wealth management.

♦ FY10 targets. Management remained upbeat that 2H10 operating income should, at least, be no lower than that
registered in 1H10. In addition, operating costs have been well controlled leading to overheads to total income
ratio reaching 50.1% in 1HFY10 (1HFY09: 54.6%, as per management’s computation), well ahead of the targeted
time frame of 2011. With that, management now targets to improve its efficiency ratio further to 48% by end-
2010, which was previously a 2012 target, and believes the group would be on track to achieve an ROE of 11-
12% this year (11% target previously).

Risks

♦ Risks to our view. The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and
3) changes in market conditions that may adversely affect investment portfolios.

Forecasts And Assumptions

♦ Forecasts. We raised our FY10-12 net profit forecasts by 12.2-13.9% largely after cutting our FY10-12
projections for overheads by 6-7% p.a.. Our revised overheads projections now translate to FY10-12 CIR of 52.2-
53.5%, as compared to 56-57.4% previously while our revised FY10 ROE projection of 11.3% is at the lower-end
of management’s 11-12% targeted range.

Valuations And Recommendation

♦ Fair value raised and recommendation maintained. Our indicative fair value has been raised to
RM8.33/share (from RM7.92) after incorporating: 1) the revision in earnings above; and 2) a revised target CY11
PER of 12x (from 13x) due to the stock’s lower liquidity of late. EON Cap’s 2QFY10 results have helped to
reinforce our view that its fundamentals are improving and hence, we continue to hold the view that HL Bank’s
offer is too low. That said, in the near term, we believe investors focus would likely be on the offer by HL Bank to
acquire the assets and liabilities of EON Cap and this could cap EON Cap’s share price performance. On the back
of such qualitative factors, we are, thus, keeping our Market Perform recommendation unchanged.

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 13 August 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 2Q09 1Q10 2Q10 (%) (%) Comments
Net Interest Income 280.5 302.1 321.7 6.5 14.7 Higher due to +4.3% qoq and +12.8% yoy loan growth (see
(+ Islamic Banking) Table 5) and 11bps expansion in unadjusted NIM (excluding
Islamic income) following the OPR hikes in Mar and May this
year.

Non-interest Income 69.0 77.9 73.3 (5.9) 6.2 Higher yoy mainly due to:
(+ Impairment 1. Higher fee income of RM77.5m (2Q09: RM63.7m);
losses on securities) 2. Higher gains from available-for-sale securities of
RM10.8m (2Q09 gain: RM2.6m); and
3. Unrealised losses from revaluation of securities of
RM3.4m (2Q09 loss: RM8.7m)
partly offset by impairment losses on securities of RM32m
(2Q09 loss: RM2m).

Slightly lower qoq mainly due to impairment losses on

securities (1Q10 loss: RM4.2m), cushioned by stronger fee
income, gain from sale of securities and higher forex gains.
Operating Income 349.6 380.0 395.0 4.0 13.0

Less: Overheads (191.9) (206.5) (204.9) (0.8) 6.8 YoY change mainly due to higher personnel costs (+15.2%
yoy).
Pre-impairment 157.7 173.5 190.1 9.6 20.5
Profit

Less: Impairment (45.3) (41.6) (40.6) (2.4) (10.4) Lower yoy mainly due to higher recoveries (2Q10: RM60.6m
losses on loans, vs. 2Q09: RM19.4m) and lower individual impairment
advances and allowance of RM66.1m (2Q09 SP: RM107.6m), partly offset by
financing higher collective impairment allowance of RM65.2m (2Q09
GP: RM6.2).

Stable qoq with lower collective impairment allowance (1Q10:

RM100.1m) and higher recoveries (1Q10: RM40.5m), partly
offset by higher individual impairment allowance of RM66.1m
(1Q10: RM21m).

Operating Profit 112.4 131.9 149.5 13.4 33.0

Associates 0.0 0.0 0.0 nm nm

Pre-tax Profit 112.4 131.9 149.5 13.4 33.0

Less: Tax 12.2 (34.1) (36.2) 6.3 >100 Lower ETR for 2Q09 due to the impact of one-off reversals of
RM39.4m for overprovision of tax expenses.
Effective Tax Rate (10.8) 25.8 24.2
(%)
Net Profit 124.6 97.8 113.3 15.8 (9.1)
Source: Company, RHBRI

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 13 August 2010

Table 3 : Cumulative Results

YoY
FYE Dec (RMm) 1HFY09 1HFY10 (%) Comments
Net Interest Income 550.6 623.8 13.3 Primarily driven by strong loan growth of +12.8% yoy (mainly driven by
(+ Islamic Banking) retail - see Table 5 for breakdown) and +15.5% growth in Islamic income.

Non-interest Income 131.1 151.2 15.3 Led by higher fee income (+16.1% yoy) and gain from sale of available-for-
(+ Impairment sale securities (RM11m vs. 1HFY09: RM2m), partly offset by impairment loss
losses on securities) on securities of RM36m (1HFY09 loss: RM10m).
Operating Income 681.8 775.0 13.7

Less: Overheads (377.4) (411.4) 9.0 Higher due to higher staff cost (+11.4% yoy).
Pre-impairment 304.4 363.6 19.5
Profit

Less: Impairment (84.9) (82.2) (3.2) 1. Lower individual allowance of RM87m vs. SP of RM224.2m due to
losses on loans, improvement in asset quality.
advances and 2. Higher collective allowance of RM165m vs. GP of RM8.6m.
financing
Operating Profit 219.5 281.4 28.2

Associates 0.0 0.0 nm

Pretax Profit 219.5 281.4 28.2

Less: Tax (15.3) (70.3) >100

Effective Tax Rate 7.0 25.0
(%)
Net Profit 204.2 211.1 3.4
Source: Company, RHBRI

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 13 August 2010

Table 4 : Ratio Analysis

FYE Dec 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Asset Quality (%)
Gross impaired loans/NPL Ratio 4.8 5.2 4.5 4.3 3.8 4.2 3.8
Net impaired loans/NPL Ratio 2.5 3.1 2.6 2.5 2.3 3.1 2.7
Individual allowance/impaired loans (SP / NPL) 53.5 49.1 49.5 51.8 47.6 27.7 30.0
Collective allowance/net loans (GP / Net Loans) 1.5 1.5 1.5 1.5 1.5 2.4 2.3
Loan Loss Coverage 79.6 70.6 74.7 77.8 78.5 83.9 89.5
Core Capital Ratio 9.2 9.5 9.7 10.9 11.2 10.6 10.7
RWCAR 12.6 12.0 12.3 13.5 14.4 14.7 13.8

Margins (%)
Yields On Earning Assets 5.15 4.43 4.14 4.13 4.08 3.94 4.15
Avg. Cost of Funds 2.65 2.37 2.12 2.07 2.05 1.92 2.03
Interest Spread 2.51 2.06 2.02 2.06 2.03 2.01 2.12
Net Interest Margins (ex-Islamic Inc) 2.62 2.19 2.16 2.20 2.17 2.16 2.27
Adjusted Net Interest Margins (+ Islamic Inc) 3.10 2.64 2.73 2.76 2.70 2.69 2.80

Profitability (%)
ROE 8.3 9.8 14.9 8.8 7.0 10.9 12.3
ROA 0.61 0.74 1.17 0.69 0.54 0.84 0.95
Cost / Income Ratio 54.2 55.9 54.9 57.3 64.6 54.3 51.9
Expenses / Avg. Assets 1.9 1.7 1.8 1.9 2.1 1.8 1.7
Provisions / Avg. Net Loans 0.87 0.53 0.60 0.73 0.40 0.51 0.48

Liquidity (%)
Loan Deposit Ratio 91.5 99.3 93.8 96.4 92.9 93.8 91.9
Net Loan Growth (qoq) 1.2 1.1 1.2 2.6 3.4 3.1 0.9
Deposit Growth (qoq) 11.3 (7.3) 7.2 (0.3) 7.5 1.4 6.6
Source: Company, RHBRI

Table 5 : Gross Loan Book Breakdown

FYE Dec 2Q09 3Q09 4Q09 1Q10 2Q10 qoq (%) yoy (%)
Purchase of securities 490.9 482.7 503.8 477.7 518.4 8.5 5.6
Purchase of transport vehicles 10,781.7 10,833.0 10,733.7 10,797.2 10,947.6 1.4 1.5
Purchase of residential property 6,199.0 6,400.8 6,769.9 7,178.7 7,635.6 6.4 23.2
Purchase of non-residential property 2,257.1 2,388.4 2,608.1 2,845.7 3,128.6 9.9 38.6
Purchased of fixed assets 324.2 360.3 396.2 423.5 490.8 15.9 51.4
Personal uses 947.9 1,024.0 1,109.2 1,209.0 1,305.5 8.0 37.7
Credit cards 1,292.8 1,364.0 1,446.0 1,454.8 1,510.3 3.8 16.8
Purchase of consumer durable goods 0.4 0.3 0.4 0.3 0.2 (21.5) (41.0)
Construction 805.1 776.3 781.5 784.4 830.7 5.9 3.2
Working capital 7,371.3 7,621.6 7,694.6 7,639.3 7,877.8 3.1 6.9
Other purpose 854.5 887.2 1,069.3 1,086.3 1,093.1 0.6 27.9
Total 31,324.9 32,138.8 33,112.6 33,896.9 35,338.6 4.3 12.8
Source: Company, RHBRI

Table 6 : Impaired Loans/NPLs By Sector

FYE Dec Gross Impaired Loans/NPLs (RMm) Gross Impaired Loans/NPL Ratio (%)
Sep 09 Dec 09 Mar 10 Jun 10 Sep 09 Dec 09 Mar 10 Jun 10
Purchase of securities 16.0 16.0 15.7 13.7 3.3 3.2 3.3 2.6
Purchase of transport vehicles 210.2 202.8 203.0 158.8 1.9 1.9 1.9 1.5
Purchase of residential property 355.1 332.0 325.4 293.8 5.5 4.9 4.5 3.8
Purchase of non-residential property 87.1 68.2 83.6 73.0 3.6 2.6 2.9 2.3
Purchased of fixed assets 16.7 15.3 14.1 18.6 4.6 3.9 3.3 3.8
Personal uses 38.1 36.8 39.0 31.9 3.7 3.3 3.2 2.4
Credit cards 29.4 30.6 34.3 33.7 2.2 2.1 2.4 2.2
Purchase of consumer durable goods 0.0 0.0 0.0 0.0 2.0 3.3 2.2 8.1
Construction 16.7 26.6 23.1 26.2 2.2 3.4 2.9 3.2
Working capital 600.1 505.9 668.1 634.3 7.9 6.6 8.8 8.1
Other purpose 25.6 19.6 27.5 29.9 2.9 1.8 2.5 2.7
Total 1,394.9 1,253.8 1,433.8 1,314.1 4.3 3.8 4.2 3.8
Source: Company, RHBRI

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 13 August 2010

Table 7 : Earnings Forecasts Table 8 : Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income 1,139.5 1,264.0 1,345.0 1,418.9 Asset Quality (%)
(+ Islamic Banking) Gross impaired loans ratio 3.8 3.3 2.8
Non-interest Income 283.7 318.8 343.7 370.6 Net impaired loans ratio 2.9 2.5 2.2
Operating Income 1,423.3 1,582.7 1,688.6 1,789.5 Ind. allow / Impaired loans 30.0 30.0 30.0
Collective allow. / Net Loans 2.2 2.2 2.2
Less: Overhead Loan Loss Coverage 81.3 89.9 101.4
Expenses (837.8) (846.8) (889.1) (933.6) Core Capital Ratio 11.0 11.2 11.5
Pre-impairment RWCAR 14.8 15.0 15.2
Profit 585.4 736.0 799.5 855.9
Margins (%)
Less: Impairment Yields On Earnings Assets 4.40 4.35 4.30
losses on loans (163.5) (174.3) (157.8) (154.7) Avg. Cost Of Funds 2.40 2.41 2.42
Operating Profit 421.9 561.6 641.7 701.2 Interest Spread 2.00 1.94 1.88
Un-adj NIM (ex-Islamic Inc) 2.15 2.08 2.01
Adj to goodwill 0.0 0.0 0.0 0.0 Adjusted NIM (+Islamic Inc) 2.67 2.59 2.54
Pretax Profit 421.9 561.6 641.7 701.2
Profitability (%)
Less: Tax (80.8) (140.4) (160.4) (175.3) ROE 11.3 11.6 11.5
Effective Tax Rate 19.2 25.0 25.0 25.0 ROA 0.9 0.9 0.9
(%) Cost / Income Ratio 53.5 52.7 52.2
Profit After Tax 341.1 421.2 481.2 525.9 Expenses / Avg. Assets 1.73 1.66 1.62
Provisions / Avg. Net Loans 0.51 0.41 0.37
Minorities 0.0 0.0 0.0 0.0
Net Profit 341.1 421.2 481.2 525.9 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 93.1 93.3 93.5
Net / Gross Loan Growth 14.8 9.1 8.1
Deposit Growth 15.0 9.0 8.0
Source: RHBRI estimates
IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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