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

RHB Research Institute

RHB Equity 360°

31 March 2010 (Market, Banks, Telecom, TNB, Pos, HL Bank, EON Cap, Astro, Hiap Teck, VS; Technical:
KUB)

Top Story : New Economic Model – Broad framework unveiled

Market Update (published 30 Mar 2010)
- The PM unveiled the broad framework for the New Economic Model (NEM) yesterday.
- While the PM talked about the subsidy system, introduction of the GST and also pledged to carry out
economic reforms, we note that the market may be disappointed by the lack of actual policy changes.
- The GLCs appear to be in the driving seat, especially with regards to public-private partnerships.
Government land in Sungei Buloh will be developed in a jv with the EPF, while other prime land in Kuala
Lumpur will be tendered out and developed by the private sector.
- Sustainability of natural resources also appeared to be a key focus including palm oil and oil & gas, with the
emphasis on downstream activities.
- As for the subsidy system, the PM mentioned Pos Malaysia in relation to improving wages although we
believe this can only come from an increase in postal rates. We think TNB will also be in the running for a
revision to its electricity tariffs.
- We believe the NEM is a long-term plan and more importantly consistent implementation will still be crucial.

Sector Update

Banks : More licences, but competition should not deter growth Overweight
Sector Update
- More competition but local banks can thrive as they are already very competitive (as reflected by the
increasing share of total assets in the system as well as venturing overseas) while the new licenced banks
are not allowed to compete in the domestic retail business.
- Thus, earnings growth momentum to pick up steam and not expected to be weighed down by competition.
- Regulatory adoptions (FRS139 and Basel II IRB approach) neutral to slightly positive while Basel III still
uncertain.
- Capital management possible, pending Basel III which is likely to be watered down from the initial concept
paper and banks will be given more time to comply and phase in the changes.
- Valuations still have room for upside, foreign shareholding relatively low and M&A excitements.
- Maintain Overweight rating on the sector. Top pick is Maybank. For exposure to big cap and highly liquid
stocks, we also like CIMB, AMMB and Public Bank. AFG, EON Cap and RCE Cap are also rated as
Outperform while Affin and HL Bank are Market Perform.

Telecom : Focus still on data traffic Overweight

Sector Update
- According to MCMC, mobile subscriptions rose 9.6% yoy in 2009, resulting in a penetration rate of 106.2%
as at end-2009. Going forward, we expect subscription growth would continue to slow and project FY09-12
mobile subscription CAGR of 5.7%, bringing Malaysia’s mobile penetration rate to 120% by end-2012.
- Going forward, we see three investment themes for the telecoms sector this year. Firstly, while we expect
voice revenue to see slower growth ahead, we are more optimistic with respect to the growth prospects for
broadband and data revenue given factors such as a large gap between the number of mobile and internet
users as compared to broadband customers as well as the rising popularity of smartphones.
- Secondly, cash flows for both Digi and Maxis remain strong while we expect TM’s cash flows would be
sufficient to cover its capex requirements. Based on their respective dividend policies, we project FY10 net
yields of between 4.7% and 5.8%.
- Finally, we believe capital management would be a recurring theme for the sector this year. Digi remains
committed to moving towards a more efficient balance sheet while the management of Maxis has
reassured investors that the balance sheet would not be left idle.
- No change to our forecasts for now. Maintain Overweight stance on the sector.
Corporate Highlights

TNB : NEM – A positive for TNB? Outperform

Company Update
- In our view, two measures of the NEM that could potentially impact TNB are: 1) more divestments of
Government holdings in listed companies; and 2) reform of the subsidy policy.
- For TNB, we believe a base tariff hike would whet investors’ appetites for the stock and could facilitate
Khazanah paring down its stake further. We estimate that every 1%-pt increase in tariffs could raise our
FY11 net profit projection by 5-6%.
- As for the reduction of subsidies, we believe this would largely be earnings neutral to TNB as changes in
the price of natural gas would be followed correspondingly by electricity tariff adjustments. However, should
the reform of subsidies lead to a more frequent review of tariffs (bi-annual currently) or a tariff formula, this
could be positive for TNB as it would help minimise the time lag in passing on rising coal cost to
consumers.
- Fundamentally, TNB appears on the mend. Jan ’10 electricity demand jumped 13.2% yoy while YTD (Sept
’09-Jan ’10), electricity demand was up 5.7% yoy. Thus, there could be some upside potential to our FY10
demand growth assumption of +3.8%.
- No change to earnings forecasts for now. Fair value of RM9.50 (14x CY10 EPS) maintained.

Pos Malaysia : Government to study & review postal services Not Rated
Company Update
- Khazanah Nasional will divest its 32.2% stake in Pos Malaysia (POSM) to new investors in two stages after
detailed study and review of postal services and raise wages of POSM’s employees.
- We believe Khazanah Nasional will only divest POSM upon the implementation of the transformation plan.
- To kick start the transformation plan, POSM will need to raise wages of its employees as human capital is
the main driving force in succeeding the transformation plan. Given its deteriorating financial position and
thus its ability to support 16k staff and postal services for 6.0m households as well as the higher expected
transportation costs going forward, a postal tariff hike is required to raise its employees’ wages.
- Our sensitivity analysis indicates that POSM’s postal tariff will have to increase by 25.5% across the board
in order to raise staff average salary by 30%.
- POSM is currently trading at FY12/10 PER of 17.4x (after having adjusted for POSM’s 15% stake in
Transmile at current share price of 38.5sen), which is relatively stretched compared to Singapore Post.
- However, we highlight that there could be further upside in POSM’s share price, if a hike in base tariffs and
automatic pricing mechanism is approved.

Hong Leong Bank : Revived offer to acquire EON Cap Market Perform (up from UP)
News Update
- Revived offer to EON Cap at exactly the same price.
- Terms largely the same except that it reserved the right to withdraw the offer if EON Cap enters into M&A
talks with third party(s).
- EON Cap has until 5 Apr to accept or reject the offer.
- Positive to EPS and ROE as its previous excess capital would be better utilised for higher returns.
- Good deal due to the cheap acquisition price and ensures its long-term status as an anchor bank.
- Even if we assumed a rights issue, there will be EPS and ROE enhancement.
- Will trigger BAFIA’s single shareholder limit at HL Bank and may also trigger the clause at HLFG.
- Thus, potential merger between HL Bank and HLFG coupled with new strategic partner(s) could be in the
pipeline if the EON Cap deal is successful.
- Given that EON Cap is likely to table the offer to shareholders, chances of a successful deal is now high.
- Raised our fair value on the stock from RM8.48 (15x CY10 EPS) to RM9.05 (16x) and upgraded our rating
from Underperform to Market Perform.

EON Capital : HL Bank revived offer but at same price Outperform

News Update
- Maintain our view that the takeout offer is too low vis-à-vis historical transactions and improving
fundamentals of EON Cap as well as hidden value within the group (unabsorbed tax loss and Section 108
tax credit).
- However, “new board” likely to table it to shareholders – outcome uncertain but skewed towards
acceptance.
- Potential appreciation in EON Cap share price will likely be capped at the offer price but the latest
development does not alter our view that EON Cap’s fundamentals are improving.
- There is also the possibility of shareholders rejecting the offer in an EGM, thereby “forcing” HL Bank to
increase its offer price.
- Maintain Outperform and indicative fair value of RM8.07 (at 15x FY10 EPS).

Astro : Results in line but dividend surprises on the upside Market Perform
4QFY10 Results
- Astro’s 4QFY01/10 results were in line with our but below consensus estimates.
- 4Q revenue was up marginally qoq but operating profit fell 31% qoq largely due to a combination of a
reorganisation charge of RM25m for the Library, Licensing and Distribution segment as well as higher
depreciation expense and lumpy legal expenses.
- Astro declared a 4th interim tax exempt DPS of 5 sen (4QFY09: final DPS of 2.5 sen, net), which was
above our expected TE DPS of 2.5 sen. This amount also represents the maximum DPS that shareholders
can receive without affecting the privatisation offer price of RM4.30/share.
- Management guided for FY11 net adds of 250-300k while ARPUs are expected to stay at current levels.
Margins however would be impacted by higher content cost. These are broadly in line with our FY11
assumptions. Therefore, no change to our earnings forecasts.
- Our fair value of RM4.30, which is based on Astro Holdings’ offer price to privatise Astro, is unchanged.

Hiap Teck : 2QFY07/10 net profit dips qoq Outperform

2QFY10 Results
- 1HFY07/10 net profit came in below expectations, at 29.1-32.6% of our full-year forecast and full-year
consensus estimates. We believe the variance against our forecast came largely from the lower-than-
expected sales volumes.
- We are lowering our FY07/10-12 net profit forecasts by 2.3-13.7% to RM62.5m, RM69.6m and RM71.3m
respectively to reflect lower sales volume assumptions at the manufacturing division.
- Fair value is cut by 10.4% from RM2.01 to RM1.80, based on 9x revised CY2010 EPS of 20.0 sen.
However, we maintain our Outperform call given the positive 2H outlook as global steel prices continue to
set the direction.

VS Industry : Disappointing 1HFY10 Results Market Perform (down from OP)

2QFY10 Results
- 2QFY07/10 net profit of RM4.4m was below our and consensus estimates with 1HFY10 net profit of
RM8.5m accounting for 28.6% and 33.6% of our and consensus full-year estimates respectively. The key
variances were: 1) slower-than-expected pick-up in demand; and 2) lower-than-expected 1H EBIT margin
of 5.6% vs. our full-year EBIT margin of 6.5%.
- QoQ, revenue grew 2.4% as orders continued to recover. Net profit, however, grew 9.3% qoq mainly due to
a lower effective tax rate of 37.1% (1QFY10: 42.9%).
- VSI declared a single-tier interim DPS of 1.5 sen (2Q09: nil). This translates to net payout ratio and net
yield of 23.7% and 0.9% respectively.
- We have cut our FY10-12 earnings projections by 3.4-23.4% after cutting our FY10-12 revenue projections
by 1.4-9.5% and lowering our FY10-12 EBIT margin assumptions by 0.2-0.8%-pts to reflect the 1H results.
- We have lowered our indicative fair value to RM1.33 (from RM1.59) based on unchanged target CY10 PER
of 7.5x and downgraded our recommendation to Market Perform from Outperform.

Technical Highlights

Daily Trading Strategy : The weaker turnover may cause a short-term pullback…
- Based on yesterday’s sluggish closing on the chart, the FBM KLCI is facing a high risk to kick-start a profit-
taking leg after the recent run-up.
- Clearly, this was due to the weak “doji” candle on the chart, and the weakening momentum readings from
the “overbought” region. The shrinking daily turnover added to the negative feel on the market’s near-term
 sentiment.
- If the FBM KLCI fails to resume its rally today beyond yesterday’s high of 1,323.70, a revisit to the previous
high of 1,334.34 may take a longer while from now, in our view.
- Nevertheless, the market is expected to stay resilient, unless the index breaches the supports near the 10-
day SMA of 1,307 and the solid breakout point at the 1,300 psychological level.
- Meanwhile, we reiterate that the longer-term outlook on the FBM KLCI remains firmly intact. Any pullback is
likely to be brief with the medium-term uptrend target pegged at 1,390.

Daily Technical Watch: KUB Malaysia – Hopeful for a breakout of RM0.535 resistance level soon…
- 10-day SMA: RM0.502
- 40-day SMA: RM0.4789
- Support: IS = RM0.44 S1 = RM0.37 S2 = RM0.30
- Resistance: IR = RM0.535 R1 = RM0.65

Bulletin Board

Co/Sector News Impact Recom

Insurance Finance Minister II said the decision to introduce
a new basic motor insurance coverage will be
finalised by the middle of the year. He added the
formation of a special company to oversee the
new insurance scheme is being studied by Bank
Negara Malaysia. (The Star)
Genting Genting Singapore has announced that the world
Singapore premiere of its circus theatre resident production,
Voyage de la Vie, will be on 17 June 2010, and
will be staged indefinitely at its purpose-built
1,600 seat Festive grand theatre. Tickets will go
on sales from 31 March, with ticket prices
ranging from S$68 to S$188. The show will be
playing five times a week, on Wednesdays and
Thursdays at 5.30pm and 8.30pm, on Fridays
and Saturdays at 7pm and 10pm, and on
Sundays at 5.30pm. (Resorts World Singapore
website)
Genting Datuk Justin Leong, head of strategic
investments and corporate affairs said that
Genting is looking quite extensively and
aggressively at a variety of investments in the
US, although he did not mention anything
specifically. (Business Times)
KPJ KPJ would likely acquire another hospital in
Indonesia. It will also be spending a total capex
of RM200m p.a. i.e. RM150m to acquire or build
new hospitals and RM50m to upgrade hospital
equipment. (Business Times)
Parkson Parkson will be spending RM250m (China: The target number of store openings was above MP, FV =
RM150-175m; Malaysia: RM20-25m; and our expectations of 8-9 stores for 2010. RM6.40
Positive. This sets a timeline for the introduction OW
of the new scheme which will improve the
profitability of 3rd party coverage via a separate
pool, thus reducing the cross-subsidy from
comprehensive coverage.
Positive, as this show will be yet another OP, FV =
attraction to bring in the crowds to Resorts World S$1.35
Sentosa and the casino. As we had not imputed
revenue from this show into our forecasts, any
incremental revenue and earnings from this show
would give further upside to our earnings
forecast, although we do not expect the impact to
be very significant.
Neutral, depending on what assets or OP, FV =
investments they are looking at and the price of RM8.90
the potential investments. One such investment
we believe Genting could be looking at would
include MGM’s 50%-owned Atlantic City Borgota
casino, given MGM’s recently announced plan to
exit the Atlantic City market in favour of its MGM
Macau operations and the agreement with the
regulators to sell its stake within the next 30
months.
We have yet to input the acquisition of an OP, FV =
Indonesia hospital in our earnings forecasts and RM3.20
would only do so once such acquisition is
announced. The total capex of RM200m p.a. is
within our forecast.
 Vietnam: RM15-25m) in 2010 to add 12 new Parkson’s new capex guidance was also above
stores, bringing total no. of stores by 97 by year- our forecasts of RM150m, which we believe was
end. SSS growth in China, Vietnam and Malaysia due to the higher no. of store openings in China.
expected to grow by 10%, 20-25% and 5-6% While SSS guidance was mostly in line / higher
respectively in 2010. (Business Times) than our forecasts of China: 10%; Vietnam: 15-
18% and Malaysia: 4-5% for 2010, we remain
conservative for now and maintain our forecasts
pending further clarification from management.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Astro Fourth interim tax-exempt dividend of 5 sen 12-Apr-10 26-Apr-10
TDM 1st and final div of 4 sen less 25% tax + 9 sen single tier tax exempt 21-May-10 15-Jun-10
Yeo Hiap Seng (M) Final dividend of 6 sen less 25% tax 18-Jun-10 8-Jul-10
Hwang-DBS (M) Interim dividend of 2.5 sen less 25% tax 14-Apr-10 4-May-10
Ken Holdings 1st and final div of 2 sen (tax exempt) + franked div of 2 sen (less tax) 8-Jun-10 23-Jun-10

Going “ex” on 1 Apr

UEM Land Holdings Renounceable rights issue of "ULHB" shares on 1-for-2 basis 1-Apr-10 -
Dutaland Payment of 2.8% annual interest on ICULS 2007/2013 1-Apr-10 12-Apr-10
Dutaland Payment of 4% annual interest on ICB 2007/2013 1-Apr-10 12-Apr-10
Dutaland Payment of 4% annual interest on RULS 2007/2013 1-Apr-10 12-Apr-10
Olympia Industries Payment of 2.8% annual interest on ICULS 2007/2013 1-Apr-10 12-Apr-10
Olympia Industries Payment of 4% annual interest on ICB 2007/2013 1-Apr-10 12-Apr-10
Olympia Industries Payment of 4% annual interest on RULS 2007/2013 1-Apr-10 12-Apr-10
Unico-Desa Plantations Single tier interim dividend of 2 sen 1-Apr-10 23-Apr-10

...For more details, see individual reports attached

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