9 April 2010

PP 7767/09/2010(025354)
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Com pany Upda te 9 April 2010

MARKET DATELINE

Sino Hua-An International Share Price :

Fair Value :
RM0.485
RM0.59
Valuations Remain Undemanding Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (HUAAN; Code: 2739) Bloomberg: HUAAN MK

Net Net
Turnove
FYE Profit EPS# Growth PER C.EPS* P/NTA ROE Gearing GDY
r
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009f 1,280.3 -20.6 -1.8 NM -26.4 - 0.7 Cash 0.5 -
2010f 1,707.1 55.0 4.9 >100 9.9 6.7 0.7 Cash 6.7 -
2011f 1,942.2 53.6 4.8 -2.4 10.1 8.7 0.6 Cash 6.1 -
2012f 2,062.4 50.9 4.5 -5.1 10.7 - 0.6 Cash 5.5 -
Main Market Listing /Trustee Stock/Non-Syariah Approved Stock By The SC * Consensus Based On IBES

Issued Capital (m shares) 1,122.3

♦ Price gap to remain narrow. Despite rising crude steel output in China Market Cap(RMm) 544.3
will boost metallurgical coke consumption in China, we believe the Daily Trading Vol (m shs) 12.5
depressed price gap between metallurgical coal (input) and metallurgical 52wk Price Range (RM) 0.205 – 0.59
coke will remain over the medium term, as rising metallurgical coke Major Shareholders: (%)
capacity in China that will continue to cap the pricing power of the Rock Point Alliance 25.4
independent metallurgical coke producers. Not helping either is the acute Liu Guo Dong 16.0

shortage of metallurgical coal, which boosts prices of metallurgical coal and

weakens metallurgical coke players’ bargaining power. FYE Dec FY10 FY11 FY12
EPS Revision (%) -21.0 -98.2 -
♦ Better by-product prices to partly offset depressed metallurgical Var to Cons (%) -26.9 -45.1 -
coke prices. On a brighter note, we believe prices of by-products are likely
to inch up further on the back of the rising crude oil prices, which will in Share Price Chart
turn help alleviate the depressed margins for metallurgical coke.

♦ Expanding market reach to Malaysia? According to TheEdge weekly,

Sino Hua-An is mulling to set up a coke manufacturing plant in Malaysia to
increase its capacity and tap into the rising demand for metallurgical coke in
the Southeast Asia (SEA) region. While there is no further details on the
expansion plan as mentioned by TheEdge weekly, we believe the above
mentioned move, if it is true, will make sense to Sino Hua-An.
Nevertheless, we note that Sino Hua-An will need to fulfill several conditions Relative Performance To FBM KLCI
before investing into a metallurgical coke plant in Malaysia.

♦ Risks. These include: (1) Increases in China’s export tariff for steel that will
Sino Hua-An International

hurt demand for metallurgical coke; (2) Higher-than-expected metallurgical

coal (input) prices that will erode metallurgical coke producers’ margins;
and (3) Lower contribution from high-margin by-products.
FBM KLCI
♦ FY12/10-11 net profit forecasts slashed. We are cutting our FY12/10-
11 net profit forecasts by 21.0-98.2% to RM55.0m and RM53.6m
respectively, to reflect narrower price gap between metallurgical coal and
metallurgical coke.

♦ Investment case. Following the downgrade in our net profit forecasts,

indicative fair value is lowered by 16.9% from RM0.71 to RM0.59, based on
12x revised FY12/10 EPS of 4.9 sen. Despite having downgraded our Chye Wen Fei
indicative fair value, we are maintaining our Outperform rating on the (603) 92802172
stock as valuations remain undemanding even after our fair value chye.wen.fei@rhb.com.my
downgrade.

Please read important disclosures at the end of this report. Page 1 of 4

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 9 April 2010

♦ Price gap to remain narrow. Despite rising crude steel output in China will boost metallurgical coke consumption
in China, we believe the depressed price gap between metallurgical coal (input) and metallurgical coke will remain
over the medium term, as rising metallurgical coke capacity in China that will continue to cap the pricing power of
the independent metallurgical coke producers. Not helping either is the acute shortage of metallurgical coal, which
boosts prices of metallurgical coal and weakens metallurgical coke players’ bargaining power. While the Chinese
government has intention to further eliminate obsolete metallurgical coke capacity in the country, we believe this
will only show meaningful results over the longer term, as total capacity in the metallurgical coke industry is still
rising. A case in point is the 37m additional new metallurgical coke capacity that outpaced 23m tonnes of
metallurgical coke capacity eliminated in 2009.

Chart 1: Price Gap of Metallurgical Coal (Input) and Metallurgical Coke (Output)

RM B/ tonne
2,000

1,800

1,600

1,400

1,200

1,000

M etallurgical Co al M etallurgical Co ke

Source: Bloomberg

♦ Better by-product prices to partly offset depressed metallurgical coke prices. On a brighter note, we
believe prices of by-products, such as crude benzene and tar oil, are likely to inch up further on the back of the
rising crude oil prices, which will in turn help alleviate the depressed margins for metallurgical coke. RHBRI projects
crude oil prices to hover between US$80-100/barrel in 2010-2011 respectively, underpinned by global economic
recovery that will boost consumption.

♦ Expanding market reach to Malaysia? According to TheEdge weekly, Sino Hua-An is mulling to set up a coke
manufacturing plant in Malaysia to increase its capacity and tap into the rising demand for metallurgical coke in the
Southeast Asia (SEA) region. While there is no further details on the expansion plan as mentioned by TheEdge
weekly, we believe the above mentioned move, if it is true, will make sense to Sino Hua-An, given:

1. The growing restrictions on capacity expansion in China that caps Sino Hua-An’s ability to further expand its
capacity in China. Although Sino Hua-An could still expand its capacity through acquiring other existing
metallurgical coke producers, but this may not be appealing to Sino Hua-An as most of these plants are highly
inefficient and require heavy capex in order to improve their efficiency; and

2. The ready demand in Malaysia as well as the rising demand potential in Vietnam in the longer term,
underpinned by several large-scale steel investment projects by several foreign steel players.

♦ Nevertheless, we note that Sino Hua-An will need to fulfill several conditions before investing into a metallurgical
coke plant in Malaysia, such as the completion of an Environmental Impact Assessment (EIA) report.

Earnings Forecasts
♦ FY12/10-11 net profit forecasts slashed. We are cutting our FY12/10-11 net profit forecasts by 21.0-98.2% to
RM55.0m and RM53.6m respectively, to reflect narrower price gap between metallurgical coal and metallurgical
coke.

Page 2 of 4

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 9 April 2010

Risks
♦ Risks to our view. These include: (1) Increases in China’s export tariff for steel that will hurt demand for
metallurgical coke; (2) Higher-than-expected metallurgical coal (input) prices that will erode metallurgical coke
producers’ margins; and (3) Lower contribution from high-margin by-products.

Investment Case
♦ Investment case. Following the downgrade in our net profit forecasts, indicative fair value is lowered by 16.9%
from RM0.71 to RM0.59, based on 12x revised FY12/10 EPS of 4.9 sen. Despite having downgraded our indicative
fair value, we are maintaining our Outperform rating on the stock as valuations remain undemanding even after
our fair value downgrade.

Table 2: Earnings Forecasts Table 3: Forecast Assumptions

FYE Dec (RMm) 2009a 2010f 2011f 2012f FYE Dec 2010f 2011f 2012f

Turnover 1,280.3 1,707.1 1,942.2 2,062.4 Average Selling Prices

Turnover growth -12.0 33.3 13.8 6.2 Coke (RMB/tonne) 1,955 2,043 2,145
Tar (RMB/tonne) 2,957 2,957 2,957
EBITDA 17.1 100.6 99.6 96.7 Crude benzene (RMB/tonne) 5,412 5,412 5,412
EBITDA margin (%) 1.3 5.9 5.1 4.7 Ammonium sulphate 680 680 680
(RMB/tonne)
Depreciation -37.9 -27.4 -28.1 -28.8 Coal gas (RMB/ 10,000 m3) 3,990 3,990 3,990

EBIT -20.9 73.3 71.5 67.9 Production Capacity For Coke

EBIT margin (%) -1.6 4.3 3.7 3.3 ('000 tonnes) 1,800 1,800 1,800
Interest expense 0.0 0.0 0.0 0.0 Sales Volume For Coke
Exceptionals 0.0 0.0 0.0 0.0 ('000 tonnes) 1,560 1,620 1,650
Utilisation Rate 87% 90% 92%
Pretax profit -20.9 73.3 71.5 67.9
Pretax margin (%) -1.6 4.3 3.7 3.3
Taxation 0.2 -18.3 -17.9 -17.0

Net profit -20.6 55.0 53.6 50.9

Net profit margin (%) -1.6 3.2 2.8 2.5
Source: Company data, RHBRI estimates

Chart 2: HuaAn Technical View Point

♦ After staging a successful rebound from a support
region of RM0.185 (Apr 2009), to a high of RM0.59
in Jun 2009, the share price of HuaAn began to
trade sideways.

♦ Thereafter, the stock launched few attempts to

breakout from the RM0.56 resistance level but all
failed.

♦ In the recent trading, the stock rebounded from a

low of RM0.445 and surpassed both the 10-day and
40-day SMAs, painting a fresh chance of a technical
rebound soon.

♦ Closing at around RM0.485 on Thursday, the stock

could stage further rally if it maintains at above the
SMAs in the near term.

♦ However, due to the weak momentum readings, we

expect some short-term volatilities before it can
remove the recent high of RM0.505. Only by then,
it can retest the tough hurdle at RM0.56.

♦ Immediate support is seen near RM0.435.

Page 3 of 4

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 9 April 2010

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.

Page 4 of 4

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com