PP 7767/09/2010(025354)

15 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Com pany Upda te

15 July 2010
MARKET DATELINE

PLUS Expressways Share Price

Fair Value
:
:
RM3.59
RM4.23
FY12/10 Likely To Grow Higher Than 3% Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (PLUS; Code: 5052) Bloomberg: PLUS MK

Net Core 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 3,179.0 1,186.4 23.7 23.7 9.9 15.1 - 2.9 1.4 19.5 4.6
2010f 3,318.6 1,202.8 24.1 24.1 1.4 14.9 24.5 2.8 1.5 18.8 5.0
2011f 4,296.5 1,841.8 36.8 36.8 53.1 9.7 33.0 2.5 1.3 25.4 5.6
2012f 4,428.0 1,874.2 37.5 37.5 1.8 9.6 34.9 2.2 1.2 23.4 6.1
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Upside potential to our projected 3% traffic volume forecast in Issued Capital (m shares) 5,000
Market Cap (RMm) 17,950
FY12/10. We believe there is a strong likelihood that the core expressways’
Daily Trading Vol (m shs) 4.6
traffic volume could come in higher than our forecast, as: 1) FY12/10 traffic
52wk Price Range (RM) 3.14 – 3.60
volume will be cushioned by the strong 9.8% growth registered in Jan-May
Major Shareholders: (%)
10; and 2) the strong 28.6% growth registered in passenger car sales in Jan-
Khazanah Nasional 60.6
May 2010 will help boost PLUS’s traffic volume growth in the remaining
EPF 11.5
months. To pre-empt the higher-than-expected traffic volume, we are raising
KWAP 6.9
our FY12/10 traffic volume growth assumption at PLUS’s core expressways
from 3% to 4%. Beyond FY12/10, we are keeping our traffic volume forecast FYE Dec FY10 FY11 FY12
unchanged, i.e. 3% per annum. EPS chg (%) +1.8 +1.5 +1.5

♦ Guidelines on IFRIC 12 to be released soon. We understand that

Var to C.EPS (%) -2.1 10.1 6.7

Malaysia Institute of Accountants (MIA) is in the midst of finalising the PE Band Chart
guidelines on toll concessionaires’ amortisation method, and the guidelines
are expected to be announced soon. While the new accounting guidelines
PER = 15x
from the MIA will likely require concessionaires (including PLUS) to switch PER = 13x
their amortisation method from “revenue method” to either “straight line” or PER = 11x

“use of volume” method, PLUS is still hopeful that it could continue to adopt
“revenue method”, which has the lowest amortisation expense (hence
highest net profit) relative to both “use of volume” and “straight line”
methods.
♦ Bucking the market trend? After having underperformed the market for
the 1H, PLUS started to outperform the market in end-Jun (see Chart 3).
Relative Performance To FBM KLCI
This is unsurprising given that PLUS’s share price movement tends to
outperform the market when the market movement is volatile and vice
FBM KLCI
versa. Looking forward, we believe PLUS’s share price movement will
continue to outperform the market over the near-term, as the market is
likely to remain volatile on the back of external factors. PLUS

♦ Risks. These include: (1) FY12/10-12 traffic volume growth rate of PLUS’s
core expressways coming in below our assumption of 4.0% (for FY12/10)
and 3.0% (for FY12/11 and FY12/12) respectively; (2) Higher-than-expected
maintenance cost; and (3) Operating risks in overseas ventures (in
particular, Indonesia and India).
♦ Earnings forecasts. We are raising our FY12/10-12 net profit forecasts by
1.5-1.8% to RM1,202.8m, RM1,841.8m, and RM1,874.2m respectively, to
reflect a 1%-pt raise in our FY12/10 traffic volume growth assumption from
3% to 4%.
♦ Investment case. Following the revision in our FY12/10 traffic volume Chye Wen Fei
forecast, our DCF-derived fair value for PLUS has been revised upwards by (603) 92802172
2.4% from RM4.13 to RM4.23 based on WACC of 7.7%. Maintain chye.wen.fei@rhb.com.my
Outperform.

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 15 July 2010

Company Update

♦ Upside potential to our projected 3% traffic volume forecast in FY12/10. Traffic volume at PLUS’s core
expressways (consisting of North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2,
and Seremban-Port Dickson Highway) grew by 9.8% yoy in Jan-May 2010, significantly higher than
management’s guidance of 4% as well as our forecast of 3%. We believe there’s a strong likelihood that the core
expressways’ traffic volume could come in higher than our forecast, as:

1. FY12/10 traffic volume will be cushioned by the strong 9.8% growth registered in Jan-May 10. Assuming
traffic volume for the remaining months of FY12/10 to remain flattish yoy, PLUS’s core expressways would
still register a 3.8% growth in FY12/10 and this is already higher than 3% that we projected; and

2. The strong 28.6% growth registered in passenger car sales in Jan-May 2010 will help boost PLUS’s traffic
volume growth in the remaining months.

Chart 1: Traffic Volume Trend At PLUS’s Core Expressways Chart 2: Traffic Volume Vs. Passenger Car Sales Trend

m P C U- k m m P C U- k m Unit s

1,500.0 30% 1,500 55,000

25% 1,400
1,400.0 50,000
20% 1,300
1,300.0 45,000
15% 1,200
1,200.0 10% 1,100 40,000

1,100.0 5% 1,000 35,000

0% 900
1,000.0 30,000
-5% 800
900.0 25,000
-10% 700
800.0 -15% 600 20,000

Traffic Vo lume Yo Y Change Traffic Vo lume P assenger Car Sales

Source: Company Source: Company & Malaysia Automotive Association

To pre-empt the higher-than-expected traffic volume, we are raising our FY12/10 traffic volume growth
assumption at PLUS’s core expressways from 3% to 4%. Beyond FY12/10, we are keeping our traffic volume
forecast unchanged, i.e. 3% per annum, which is slower than the previous years’ traffic volume growth and this is
mainly because of:

1. The high base effect; and

2. Potential traffic diversion, assuming the fourth lane expansion works are to commence from FY12/11.

♦ Guidelines on IFRIC 12 to be released soon. We understand that Malaysia Institute of Accountants (MIA) is in
the midst of finalising the guidelines on toll concessionaires’ amortisation method, and the guidelines are
expected to be announced soon. While the new accounting guidelines from the MIA will likely require
concessionaires (including PLUS) to switch their amortisation method from “revenue method” to either “straight
line” or “use of volume” method, PLUS is still hopeful that it could continue to adopt “revenue method”, which has
the lowest amortisation expense (hence highest net profit) relative to both “use of volume” and “straight line”
methods (see Table 2). Nevertheless, we note that the change in amortisation method (if it happens) will not
affect our DCF-derived NPV for PLUS, given that amortisation expense is a non-cash item.

Table 2: Earnings Impact

Amortisation Method
Revenue Use of Difference Straight Line Difference
Volume
(RMm) (RMm) (%) (RMm) (%)
FY12/10 Depreciation & Amortisation Expenses 383.9 480.2 +25.1 626.3 +63.1
FY12/10 Net Profit 1,202.8 1,106.6 -8.0 960.5 -20.1

FY12/11 Depreciation & Amortisation Expenses 450.0 510.6 +13.5 649.6 +44.4
FY12/11 Net Profit 1,841.8 1,781.2 -3.3 1,642.2 -10.8
Source: RHBRI

♦ Bucking the market trend? After having underperformed the market for the 1H, PLUS started to outperform
the market in end-Jun (see Chart 3). This is unsurprising given that PLUS’s share price movement tends to
outperform the market when the market movement is volatile and vice versa. Looking forward, we believe PLUS’s

Page 2 of 5

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 15 July 2010

share price movement will continue to outperform the market over the near-term, as the market is likely to
remain volatile on the back of external factors, such as the debt issues in the European region and economic
growth in China.

Chart 3: Relative Share Price Performance of PLUS vs. FBM KLCI

( %)

12.0

10.0

8.0

6.0

4.0

2.0

0.0

-2.0

-4.0

FB M KLCI P LUS

Earnings Forecasts & Assumptions

♦ Earnings forecasts. We are raising our FY12/10-12 net profit forecasts by 1.5-1.8% to RM1,202.8m,
RM1,841.8m, and RM1,874.2m respectively, to reflect a 1%-pt raise in our FY12/10 traffic volume growth
assumption from 3% to 4%.

♦ Assumptions. In our forecasts, we are projecting a traffic volume growth of 4% for FY12/10, and 3% p.a. for
the subsequent years for PLUS’s core expressways. For now, we are also assuming that PLUS will continue to
adopt revenue method as we are still unsure as to the new amortisation that will be adopted. In any case, the
amortisation method is merely an accounting entry and it will not affect its earnings fundamentals, hence our
DCF-derived NPV for PLUS.

Risks

♦ Risks to our view. The risks include: (1) FY12/10-12 traffic volume growth rate of PLUS’s core expressways
coming in below our assumption of 4% (for FY12/10) and 3.0% (for FY12/11 and FY12/12) respectively. Ceteris
paribus, our sensitivity analysis indicates that PLUS’s DCF-derived NPV and FY12/10 earnings will fall by 2.4%
and 1.8% for every 1%-pt shortfall to our FY12/10 traffic volume growth assumption; (2) Higher-than-expected
maintenance cost; and (3) Operating risks in overseas ventures (in particular, Indonesia and India).

Investment Case

♦ Investment case. Following the revision in our FY12/10 traffic volume forecast, our DCF-derived fair value for
PLUS has been revised upwards by 2.4% from RM4.13 to RM4.23 based on WACC of 7.7%. We continue to like
PLUS for its defensive earnings quality and decent dividend yield of 5-6% per annum. Maintain Outperform.

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 15 July 2010

Table 3: Earnings Forecasts Table 4: Forecast Assumptions

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

Turnover 3,179.0 3,318.6 4,296.5 4,428.0 Traffic Volume Growth

Turnover growth (%) 7.1 4.4 29.5 3.1 - Core expressways 4.0% 3.0% 3.0%
- ELITE 5.0% 4.5% 4.0%
EBITDA 2,607.3 2,646.8 3,564.9 3,631.1 - Linkedua 3.0% 3.0% 3.0%
EBITDA margin (%) 82.0 79.8 83.0 82.0 - KLBK 0.0% 0.0% 0.0%

Depreciation & -362.2 -383.9 -450.0 -473.0 Risk free rate 4.6%
amortisation
EBIT 2,245.1 2,262.9 3,114.8 3,158.1 Beta 59.4%
EBIT margin (%) 70.6 68.2 72.5 71.3 Equity risk premium 7.5%
Cost of equity 9.1%
Net interest expense -621.5 -659.1 -659.1 -659.1
Pretax profit 1,623.6 1,603.8 2,455.7 2,499.0 Average cost of debt 7.0%
Pretax margin (%) 51.1 48.3 57.2 56.4
Targeted debt-to-equity
Tax expense -438.5 -400.9 -613.9 -624.7 Debt 65.0%
Minorities 1.3 0.0 0.0 0.0 Equity 35.0%
Net profit 1,186.4 1,202.8 1,841.8 1,874.2
Net profit margin (%) 37.3 36.2 42.9 42.3 WACC 7.7%
Source: RHBRI Source: RHBRI

Chart 4 : Plus Technical View Point

♦ PLUS has been trading on an uptrend and along the
uptrend line (UTL) since Nov 2008.

♦ The stock stumbled onto a tough resistance level

from May 2009 to Jan 2010 at RM3.28, but
penetrated the level successfully in Mar 2010.

♦ It accelerated towards the RM3.50 level in May

2010, but the move triggered a steep pullback to
the UTL and a support near RM3.28, before slowly
regaining its upward momentum in recent weeks.

♦ On Tuesday, the stock pierced through the RM3.50

level with a huge bullish candle, suggesting a fresh
bullish breakout into the uncharted territory.

♦ But it registered a “hangman” candle on yesterday,

pointing to a potential profit-taking dip in the
immediate term.

♦ However, we see a mild support at RM3.50, and a

stronghold at the UTL and the RM3.28 support
level.

♦ On the medium term, in our view, so long as it can

sustain at above the UTL, its uptrend will remain
intact and the stock will keep its chances to chalk
new high on the chart.

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IMPORTANT DISCLOSURES

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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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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