Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

30 September 2010 (Plantation, Kencana, SapuraCrest, VS, Hai-O; Technical: MMC)

Top Story : Plantation – The knock-on effect Neutral

Sector Update
- Although not much has changed in terms of the fundamental demand and supply factors of CPO in the last
few months, changes in the dynamics of other vegetable oils have had a knock-on effect on CPO prices.
Since Jun, soyoil prices have risen 25%, while rapeseed oil prices have risen 20% and CPO prices by
14.4% to current levels.
- The La Niña event has strengthened further over the past two weeks and the majority of weather models
predict that it will persist into at least early 2011. This has had negative effects on planting and harvesting
activities of soybean in South America and of sunflower seed and rapeseed production in Russia and the
Ukraine. Global stock/usage ratio for the 17 oils and fats is now expected to fall to 10.6% in 2011 from
11.4% in 2010, quite a significant reduction from our previous estimate of 11.2% for 2011.
- We believe CPO will need to fill the gap in supply and any disappointment in CPO production could result
in a larger-than-expected spike in prices. As it stands, global CPO stock/usage ratio estimates are
expected to be relatively flat in 2011, at 15.5%, which means that while CPO prices would be affected by
the anticipated bullish trend of the other vegetable oils, the increase could be capped given the as yet
unaffected fundamentals of CPO.
- Our CPO price forecasts are unchanged. However, as current CPO prices are slightly higher than
expected, we believe companies with non-calendar financial year-ends (like IOIC, Sime Darby and IJMP)
would be able to take advantage of this to achieve higher average prices in FY11. As such, we have raised
our FY11 average CPO price assumptions for IOIC, Sime Darby and IJMP by RM50-100/tonne to reflect
this timing advantage. We have also raised our PE valuation targets by 1-1.5x, taking into account the
more positive fundamentals of the vegetable oil industry. No change to our Outperform calls on IOIC, KLK,
First Resources and CBIP, Market Perform call on Sime Darby and Underperform call on Genting
Plantations. However, post-target price upgrade, we raise our call on IJMP to Market Perform (from UP).
Maintain NEUTRAL on the sector.

Corporate Highlights

Kencana : Ending the year within our expectations Market Perform

4QFY10 Results
- FY07/10 core net profit of RM135.8m was in line with both our full-year expectations (RM131.4m) and
consensus estimates (RM136.6m).
- EBIT and net profit improved by 36.8% and 33.6% respectively mainly due to the company's contract mix
that included more hook-up and commissioning (HUC) projects that typically fetch better net margins.
- No changes to our FY11-12 forecasts at this juncture as 4QFY10 results were in line with our assumptions
but we introduce FY13 net profit estimate of RM253.1m.
- Things look increasingly positive for Kencana despite our concerns about near-term prospects for the oil
and gas sector. We thus lift our target FY7/11 PER to 15x, and raise our fair value to RM1.80. Maintain
Market Perform.

SapuraCrest : 2Q results within expectations Market Perform

2QFY11 Results
- 6MFY11 net profit of RM103.9m was comfortably within our expectations, accounting for 48.2% and 47.7%
of our and consensus full-year estimates respectively.
- Qoq revenue was up 35% mainly on the back of better performance from the IPF division (+54%) but EBIT
rose only marginally (+12%) as the marine division continued to post losses (RM4.4m) and there was some
margin pressure from both the IPF and O&M divisions.
- The company’s forward earnings look flattish but its significant order-book ensures earnings visibility for at
least the next two years. This is a big plus point, given that some of the Malaysian oil and gas service
providers’ earnings have deteriorated due to the lack of contracts to replenish their order books.
- No change to earnings estimates given quarterly results were within expectations.
- We like SapuraCrest as it is a leader in its business segments (i.e. offshore installations and charter of
 drilling rigs) and while we have no doubt that the company has a strong chance of being awarded new
contracts under more robust market conditions, we are nonetheless still uncertain on the overall oil and gas
environment. Maintain Market Perform and fair value of RM2.41 based on 13x FY1/12 PER.

VS Industry : FY10 core net profit 197.6% yoy Outperform

4QFY10 Results
- 4QFY07/10 core net profit of 14.2m brought FY10 net profit to RM35.2m (+197.6% yoy), accounting for
154.8% of our full-year estimate. The key variance was the better-than-expected margins and lower-than-
expected effective tax rate.
- Qoq, revenue grew 29.5% on the back of stronger demand for its products while 4Q core net profit jumped
66.7% thanks to lower effective tax rate, lower interest expense and higher MI.
- We have revised our FY11 and FY12 earnings forecasts by 13.4% and 4.9% after revising our FY11 and
FY12 revenue forecasts and raised our EBIT margins assumptions. We introduce our FY13 numbers.
- Our fair value has been raised to RM2.24 (from RM1.87 previously) based on CY11 target PER of 7.5x.
Maintain Outperform.

Hai-O : MLM division slowdown worse than expected Underperform

1QFY11 Results
- 1QFY04/11 net profit was below our and consensus estimates, accounting for only 11.2% and 12.2% of our
and consensus full year net profit forecasts respectively. The drop was mainly attributed to its MLM
division, which experienced a contraction in revenues of 73% yoy, while accounting for only 8% of our full
year revenue estimate for the division
- We are thus cutting our FY11-13 core distributor force (CDF) assumption by 8.1%-15% to 122k, 110k, and
122k respectively. We are also further cutting our revenue per member assumption for FY11 to -25% (from
-10% previously), while we are maintaining a 1% p.a. growth for FY12-13.
- Our FY11-13 forecasts are reduced by 18.7-23.5% after adjusting CDF and revenue/member assumptions.
- Our fair value is thus reduced to RM2.84 (from RM3.63 previously), based on unchanged target PER of
10x CY11 EPS. Maintain Underperform.

Technical Highlights

Daily Trading Strategy : A penetration of the 10-day SMA is crucial to trading sentiment …
- Once again, the FBM KLCI failed to remove the key short-term resistance at the 10-day SMA near 1,466
yesterday. This suggests that the recent profit-taking pressure remains strong.
- In fact, the risk of further consolidation has actually increased following the formation of another negative
candle yesterday, shrinking daily turnover as well as the declining 10-day SMA.
- And without a quick penetration of the 10-day SMA, FBM KLCI is likely to lose its steam and retreat back to
the technical gap of 1,453.99-1,456.30 and even to retest the crucial technical support at 1,450 soon.
- We reiterate that the technical outlook of the FBM KLCI will remain positive in the near term so long as it
can sustain at above 1,450. But, we warn that the slowly declining trend on the 10-day SMA could be a
potential source of deteriorating chart readings going forward.
- On the brighter side, the strong rotational plays yesterday were pretty encouraging, signaling that the
buying interests remain robust in the local bourse.
- We maintain our positive outlook on the FBM KLCI in the medium- to long-term period.

Daily Technical Watch: MMC – Clearing the recent high of RM2.97 will spell more upside signals ahead…
- 10-day SMA: RM2.845
- 40-day SMA: RM2.672
- Support: IS = RM2.80 S1 = RM2.55 S2 = RM2.30
- Resistance: IR = RM3.08 R1 = RM3.40 R2 = RM3.68

Bulletin Board

Co/Sector News Impact Recom

Berjaya For the first time since the game started, BToto’s Negative for BToto, as this would mean average MP, FV =
 Sports Toto Supreme 6/58 lottery has been struck at an sales per draw for the Supreme 6/58 game could RM4.35
astounding RM47.8m, which was the amount go back to low levels of RM0.7-0.8m instead of
accumulated after six months. (Company’s the RM1.5-2m it was garnering before it was
website) struck. However, we believe this could have a
longer-term positive effect on BToto, as it would
prove to cynics that winning the Supreme 6/58 is
possible, despite the small odds of 1 in 40m.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Advance Information Bonus issue on the basis of 1-for-3 11-Oct-10 -
ES Ceramics Technology 1-for-1 rights issue of free warrants and 1-for-1 bonus issue 11-Oct-10 -
SapuraCrest Single tier interim dividend of 3 sen 16-Nov-10 15-Dec-10
Berjaya Land Final dividend of 2 sen less 25% tax 19-Nov-10 10-Dec-10

Going “ex” on 1 Oct

Help International Corp Bonus issue on the basis of 3-for-5 1-Oct-10 -
MISC Entitlement to MMHE IPO on a restricted ballot basis 1-Oct-10 -
Jasa Kita First and final dividend of 5% less 25% tax 1-Oct-10 15-Oct-10
Aeon Credit Services Interim dividend of 11.50 sen less 25% tax 1-Oct-10 20-Oct-10
Unico-Desa Plantations Single tier final dividend of 2 sen 1-Oct-10 22-Oct-10
Complete Logistic Services Final tax-exempt dividend of 3 sen 1-Oct-10 28-Oct-10

...For more details, see individual reports attached

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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

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