PP 7767/09/2010(025354)

1 March 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 N o t e
1 March 2010
MARKET DATELINE

Perwaja Holdings Share Price

Fair Value
:
:
RM1.41
RM1.79
Expecting Margin Boost in 1HFY12/10 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PERWAJA; Code: 5146) Bloomberg: PERH MK

Net FD EPS Net
FYE Turnover Profit EPS EPS Growth PER# C.EPS* P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009A 1,571.2 -115.5 -20.6 -13.0 n.m. n.m. - 0.8 0.9 -12.4 -
2010F 2,187.2 84.2 15.0 14.9 >100 9.5 - 0.8 0.8 8.3 -
2011F 2,284.9 127.9 22.8 21.0 40.9 6.7 - 0.7 0.6 11.1 -
2012F 2,298.1 135.5 24.2 22.1 5.1 6.4 - 0.6 0.4 10.6 -
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Below expectation. FY12/09 net loss of RM115.5m came in larger than our RHBRI Vs. Consensus
projected net loss of RM105m. We believe the variance against our forecast Above -
came largely from: In Line -
Below -
1. Lower-than-expected selling prices; and
2. Higher-than-expected depreciation expenses. Issued Capital (m shares) 560.0
Market Cap (RMm) 789.6
♦ YoY. FY12/09 reversed to a net loss of RM115.5m from a net profit of
Daily Trading Vol (m shs) 1.2
RM90.1m a year ago mainly due to: 52wk Price Range (RM) 0.59 – 1.78
1. A sharp drop in demand for steel products; and Major Shareholders: (%)
2. Significantly lower steel product prices, while raw material costs Kinsteel 37.3
remained high in 1HFY12/09 due to Perwaja’s high inventory cost carried Equal Concept 31.4
forward from FY12/08.
♦ QoQ. Despite operating profit increased by 12.9% qoq from RM28.6m to FYE Dec FY10 FY11 FY12
RM32.2m in 4QFY12/09, net profit declined by 2.4% to RM12.7m from EPS Revision (%) -9.0 -3.1 -
RM13.1m in the previous quarter. This was mainly due to higher finance cost Var to Cons (%) - - -
arising from higher net debt to finance its raw material purchases, in
Share Price Chart
particular, iron ore pellets and scraps.
♦ Expecting margin expansion in 1HFY12/10. We believe Perwaja will
benefit from the recent rise in global steel prices (which is likely to sustain
until 1HFY12/10 on the back of the cost push factor) as its production cost in
1HFY12/10 will only increase marginally given its contracted iron ore
shipment at low prices will last until 2QFY12/10.
♦ Risks. (1) Oversupply in China that results in dumping activities by Chinese
steel producers in the international market; (2) Steep contraction in global
steel consumption that will weigh down on international steel prices; and (3) Relative Performance To FBM KLCI
Higher-than-expected energy costs, in particular, natural gas and electricity.
♦ Earnings forecasts. We are revising down our FY12/10-11 net profit Perwaja Holdings
forecasts by 3.1-9.0% to RM84.2m and RM127.9m to reflect higher raw
material cost assumptions, in particular, scrap and iron ore pellets, which
FBM KLCI
more than offset our higher selling price assumptions.
♦ Investment case. Correspondingly, indicative fair value is lowered by 7.3%
from RM1.93 to RM1.79 based on 12x revised FY12/10 EPS of 14.9 sen, in
line with our 1-year forward target PER of 12x for the long steel product
sector. Maintain Outperform. Chye Wen Fei
(603) 92802172
Please read important disclosures at the end of this report. chye.wen.fei@rhb.com.my

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Table 2: Earnings Review (YoY Cumulative)

FYE Dec 2008 2009 % YoY Observations/ Comments
(RMm) 12M 12M Chg
Revenue 2,319.5 1,571.2 -32.3 Due to lower selling prices.
Operating income/ (loss) 128.2 -55.3 NM Hit by lower selling prices.
Finance costs -66.1 -87.3 31.9 Due to: (1) Higher cost of financing; and (2) Higher net debt, which
increased to RM891.7m from RM852.2m in FY12/08.
Pretax profit/ (loss) 62.1 -142.5 NM Filtered down from operating loss.
Taxation 28.0 27.0 -3.6
Net profit/ (loss) 90.1 -115.5 NM Filtered down from pretax loss.
EPS (sen) 16.1 -20.6 NM

Operating margin (%) 5.5 -3.5 -9.0 pts

Pretax margin (%) 2.7 -9.1 -11.7 pts
Net profit margin (%) 3.9 -7.4 -11.2 pts
Effective tax rate -45.1 18.9 64.0 pts

Table 3: Earnings Review (QoQ)

FYE Dec 2009 2009 2009 2009 % QoQ Observations/ Comments
(RMm) 1Q 2Q 3Q 4Q Chg
Revenue 318.5 432.3 409.6 410.8 0.3 Lower sales volume was more than offset
by higher billet prices.
Operating income/ (loss) -47.6 -68.5 28.6 32.2 12.9 Margin expansion arising from higher billet
prices.
Finance costs -25.8 -26.4 -15.5 -19.6 26.6 Net debt increased to RM891.7m from
RM857.5m in the previous quarter.
Pretax profit/ (loss) -73.4 -94.9 13.1 12.6 -3.3 Eroded by higher finance costs.
Taxation 16.9 10.0 0.0 0.1 NM
Net profit/ (loss) -56.4 -84.9 13.1 12.7 -2.4 Filtered down from pretax profit.
EPS (sen) -10.1 -15.2 2.3 2.3 -2.4

Operating margin (%) -14.9 -15.8 7.0 7.8 0.9 pt

Pretax margin (%) -23.0 -21.9 3.2 3.1 -0.1 pt
Net profit margin (%) -17.7 -19.6 3.2 3.1 -0.1 pt
Effective tax rate 23.1 10.5 0.0 -0.9 -0.9 pt

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec 2009A 2010F 2011F 2012F 2010F 2011F 2012F

Revenue 1,571.2 2,187.2 2,284.9 2,298.1 Annual Capacity ('000 tonnes)

Growth (%) -32.3 39.2 4.5 0.6 DRI 1,650 1,800 1,800
Billet 1,950 2,600 2,600
EBITDA -129.2 249.5 263.5 257.4
EBITDA margin -8.2 11.4 11.5 11.2 Production Volume ('000 tonnes)
DRI 1,450 1,500 1,500
Depreciation & amortisation 73.9 -70.4 -68.4 -66.5 Billet 1,200 1,300 1,300
Net interest expense -87.3 -94.9 -67.2 -55.4
Average Selling Price (US$/tonne)
Pretax profit -142.5 84.2 127.9 135.5 DRI 400 400 400
Tax expense 27.0 0.0 0.0 0.0 Billet 520 525 525
Net Profit -115.5 84.2 127.9 135.5
Source: Company data, 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.

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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.

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securities, subject to the duties of confidentiality, will be made available upon request.

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