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

RHB Research Institute

RHB Equity 360°

10 June 2010 (Market, O&G, HSL; Technical: Kumpulan Europlus)

Top Story : Shifting Trends – Six months on, focus is back on risk
Market Update
- We are nearly six months into 2010, and the focus is clearly back on risk. We believe investors’ confidence
especially for exporters has been shaken by economic concerns in Europe and China, while incidents such
as BP’s deepwater drilling accident in the Gulf of Mexico and Australia’s proposed resources tax will not
help the outlook for resources sectors.
- On a sectoral basis, we note that the timber sector has been one of the hardest hit in the 2Q10 so far.
Building materials, oil & gas stocks and glove manufacturers generally also posted double-digit declines for
the 2Q. We note that these sectors are heavily driven by external factors.
- Among the companies under our coverage, we note that Sino Hua An, ILB, Parkson, Unisem and MPI have
the highest earnings exposure to China, while YTL Power, KNM and MPI have the highest earnings
exposure to Europe. For now, we do not anticipate any significant downgrades to our earnings forecasts for
these companies.
- We reiterate our view that domestic plays with little or no exposure to overseas markets are likely to be
more resilient in the current market environment. In our view, these stocks include Maxis, TNB, PLUS,
Allianz, AEON, KFC, KPJ and B-Toto.
- In the absence of major catalysts, risk premiums will likely continue to drift in the near term. We
downgraded our sector call on oil & gas today, and the plantation stocks are also under review. With
shortened investment horizons, and expected volatile markets over the next 3-4 months, the key would be
to re-balance portfolios during market pullbacks. We have highlighted the more risky sectors where we see
potential earnings disappointment, and we continue to advocate a bottom-up investment strategy in the
near term.

Sector Call

Oil & Gas – Taking a more cautious view Neutral (down from OW)
Sector Update
Dialog : Fair value trimmed to RM1.23 on 15x FY06/11 PER Outperform
Kencana : Fair value trimmed to RM1.52 on 13x FY08/11 PER Market Perform (down from OP)
SapuraCrest : Fair value trimmed to RM2.16 on 13x FY01/12 PER Market Perform (down from OP)
Wah Seong : Fair value trimmed to RM2.38 on 13x FY12/11 PER Market Perform
Petronas Gas : Fair value maintained at RM10.71 on DCF Market Perform
EPIC : Fair value raised slightly to RM2.72 on 10x FY12/11 PER Outperform
KNM : Fair value raised to RM0.49 on 10x FY12/11 PER Underperform
Petra Perdana : Fair value raised to RM1.15 on 10x FY12/11 PER Underperform
- While anticipation of stronger crude oil demand has previously helped to support oil price above
US$65/barrel, we believe the near- to medium-term outlook has turned cautious. Demand for crude oil
remains relatively lacklustre, while supply remains ample. Moreover, financial demand has dwindled due to
credit tightening. In the absence of fundamental catalysts for crude oil prices to move higher, we have
assumed prices will continue to hover at current levels of US$65-75 at least through the 2H10, before
picking up slightly in 2011 to a range of US$75-85.
- While we are positive on Petronas’ shift back to domestic investments, instead of overseas exploration, we
believe sizeable offshore contracts in Malaysia and overseas would likely see delays in the near term given
the uncertainties caused by the BP oil spill in the Gulf of Mexico as well as by Australia’s proposed
Resources Super-Profit Tax.
- We thus believe the market is already looking at uninspiring medium-term earnings growth for the O&G
service providers. Already, Singapore peers are trading average FY11 PER of 12.7x, which compares to its
high of 15.5x in mid-April 2010. In our view, there could be further de-rating of the sector, or at best share
prices will remain stuck at current levels for the next six months.
- Although the longer-term earnings visibility for O&G service providers remains intact on the back of reserve
replenishment activities, we believe the focus will be on the near-term uncertainties and risk of earnings
disappointment. Against this backdrop of uncertainty, we downgrade the sector to Neutral from overweight.
Corporate Highlights

HSL : Secures a RM72.5m road job in Sarawak Outperform

News Update
- HSL has secured the RM72.5m construction contract for the access road linking Technology Park
Samarahan to Tanjong Bako, Kuching.
- Assuming an EBIT margin of 15-18%, the contract will fetch a total EBIT of RM10.9-13.1m over the
construction period of 30 months ending Dec 2012.
- Including the latest contract, HSL has secured about RM310m worth of new jobs YTD. The latest contract
has boosted HSL’s outstanding construction orderbook to about RM1.2bn.
- Forecasts maintained as we have assumed HSL to secure RM600m new contracts p.a. in FY10-12.
- Fair value is upgraded from RM1.61 to RM1.95 as we roll forward the base year from FY12/10 to FY12/11.

Technical Highlights

Daily Trading Strategy : Lukewarm sentiment to continue…

- The local benchmark finished with a potential “hangman-like” candle yesterday, although the mild rebound
took place for a second day.
- Based on the candlestick reading, the FBM KLCI could risk a pullback today. What more, if the 1,300 level
is still expected to cap the near-term upside.
- This means the market could face more selling pressure, despite continuous attempt to rebound higher.
- Potentially, another pullback will lead the index to the immediate support at the 10-day SMA near 1,282.
- Breaching the 10-day SMA will signal the end of the recent rebound, and it may kick start another round of
selldown. The critical support at 1,250, followed by the recent low of 1,243.86 will be the next stronghold.
- While selective penny stocks enjoyed further rebound on rotational plays, we doubt the rebound can be
sustained, as more market players are likely to shift their focus to the FIFA 2010 World Cup kick-off
tomorrow, in our view.
- As such, we expect the index to move sideways at best for the near term given the current lukewarm
sentiment.

Daily Technical Watch: Kumpulan Europlus – Profit taking could increase as it moves closer to RM0.95…
- 10-day SMA: RM0.80
- 40-day SMA: RM0.55
- Support: IS = RM0.79 S1 = RM0.65 S2 = RM0.46
- Resistance: IR = RM0.95 R1 = RM1.08

Bulletin Board

Co/Sector News Impact Recom

CIMB According to CIMB’s CEO, the listing of the group Neutral. Assuming all the 100m IPO shares are OP, FV =
on the Stock Exchange of Thailand is likely to new shares issued, we estimate this would only RM8.12
take place by the end of the year. (Financial increase the Group’s paid up capital by less than
Daily) 1.5% and dilute EPS by a similar amount.
SP Setia SP Setia hopes to launch its much-delayed This is very much in line with our expectation. In MP, FV =
RM6bn KL Eco City by Dec 2010. Located our forecasts, we assume maiden contribution RM4.66
opposite Mid Valley Megamall, this JV project from the project in FY10/12.
with land owner DBKL on a 24-acre land in
Kampung Haji Abdullah Hukum will comprise
office towers, condominiums and a retail mall, to
be developed in three phases over ten years.
(Business Times)
Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Rubberex Corp Interest payment on 4% 5-year ICULS 2007/2012 23-Jun-10 30-Jun-10

Going “ex” on 11 Jun

APB Resources Single tier interim dividend of 3.5 sen 11-Jun-10 22-Jun-10
AV Ventures Corporation Final dividend of 2 sen less 25% tax 11-Jun-10 22-Jun-10
Glomac Interim dividend of 4 sen less tax 11-Jun-10 22-Jun-10
Luxchem Corporation Special div of 2 sen + final div of 3 sen, single-tier 11-Jun-10 30-Jun-10
JCY International Interim single tier exempt dividend of of 3.91 sen 11-Jun-10 30-Jun-10
Negeri Sembilan Oil Palms First interim dividend of 15 sen less 25% tax 11-Jun-10 30-Jun-10
Maxis Interim single-tier tax exempt dividend of 8 sen 11-Jun-10 30-Jun-10
Engtex Group Final dividend of 1 sen less 25% tax 11-Jun-10 2-Jul-10
Amalgamated Industries First and final tax exempt dividend of 0.75 sen 11-Jun-10 12-Jul-10
Media Prima Final single tier dividend of 5.6 sen 11-Jun-10 14-Jul-10

...For more details, see individual reports attached

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.