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

RHB Research Institute

RHB Equity 360°

9 August 2010 (Market, Notion, Kurnia; Technical: CBIP, HSL)

Top Story : Shifting Trends – Potholes and speedbumps

Market Update
- The results season thus far has been relatively bumpy in our view with major potholes for some companies
(Notion Vtec), while others have warned of speedbumps ahead (Kossan). Some results have come in
within expectations (e.g. Faber and Amway) or above (e.g. Unisem). We expect the remaining results to be
relatively mixed, although investors should be wary of more potential earnings disappointments for some
sectors, which are not yet reflected in the share price performance over the last month.
- Some of the issues that we think investors should watch out for include the impact of the weaker USD on
exporters’ revenues and translated earnings from overseas subsidiaries. We also note there could be the
risk of provisioning, especially for companies with heavy capex or big investments.
- Looking ahead, we believe there will a number of speedbumps or profit warnings if there is a sharper-than-
expected global economic slowdown. Other than the semicon and HDD sector which has already been
affected, we also see potential earnings risk with the O&G, plantation and timber producers.
- In the near term, we see the potential for more negative rather than positive news flow, which suggests that
the market will continue to be volatile. This will likely persist until a clearer picture emerges on the strength
of the global economic recovery. Nevertheless, beyond the 2Q potholes, and the potential 2H2010
speedbumps, we remain positive about the longer-term outlook given our expectation of sustained
economic earnings growth.

Commodities Corner

Coal : Benchmark coal prices continue to fall

- According to GlobalCoal, benchmark Newcastle thermal coal prices fell to US$91.87/tonne, from US$94.15
a week earlier. Thermal coal prices have been on a weekly downward trend since May, and in our view,
this is due to the lower demand from China’s manufacturers.
- The lower coal prices will be positive for TNB, which is negotiating for FY8/11 coal supply contracts. For
FY8/10, TNB’s average coal cost is around US$90/tonne. Our FY11-12 forecasts assume coal costs are
maintained at US$90/tonne. Maintain fair value of RM10.20/share based on 13x FY8/11 EPS.

Corporate Highlights

Notion Vtec : Limited visibility Underperform

Briefing Note
- Notion highlighted that the 2.5” HDD baseplate project was the main reason for the poor results. Together
with the company’s ongoing capex, the high reject rate of 20-25% has resulted in zero revenue from the
project but significant costs.
- Management now expects to hold production capacity at 2m/mth in FY9/11 vs. initial plans of 5m/mth. We
believe the excess capacity and operational issues will dampen the earnings outlook in the medium term. It
will review plans for the 2.5” baseplate, and potentially “cut loss” on the project within the next nine months.
- Assuming management is unable to turn the project around within three quarters, management will scrap
the project and redeploy the spare capacity for the camera business. However, this could mean
overcapacity for the camera business, which would erode the segment’s margins.
- Given the poor medium-term earnings visibility, we believe there may still be downside risk to our earnings
forecasts and fair value of RM1.54 based on FY09/11 8x FD EPS. Maintain Underperform.

Kurnia Asia : Proposes private placement Outperform

News Update
- Kurnia announced that it is planning to undertake a 10% private placement of its shares, which would
increase its share capital to 1.65bn shares.
- Indicative price of the placement shares has yet to be determined. However, it is expected to be priced
based on a discount of not more than 10% from the 5-day weighted average market price (WAMP) of
Kurnia shares immediately preceding the yet to be determined price fixing date.
- The proposed placement is not expected to have any dilutive effects on Kurnia’s FY10 net EPS. However,
our forecast FY11 EPS will be diluted by approximately 9.1%, to 6.3 sen from 7.0 sen.
- We are maintaining our fair value estimate at RM0.63 based on 9x FY12/11 EPS for now, but we will
review our assumptions and our Outperform call after speaking with management.

Technical Highlights

Daily Trading Strategy : Remain bullish for short- to medium-term outlook…

- Undeniably, the latest technical readings still points to a further consolidation ahead, though the
consolidation appears longer than what we had expected.
- But we remain optimistic as the current weakness on the FBM KLCI is viewed healthy for the index’s
outlook has remained bullish for the short- to medium-term time frame.
- While a further retest of the 10-day SMA near 1,359 and the 1,350 stronghold is possible in the near term,
it can be seen as another opportunity to rebuild position for the coming rally, in our opinion.
- Moreover, with average daily turnover staying robustly at 800m-1.0bn shares on the back of solid rotational
plays, and sustainable speculative buying interests, more legs ahead for the current uptrend.
- Elsewhere in the US, despite the early heavy selloff on the poor jobs data, the Dow still managed to end at
above the recent bullish breakout point of Jun high of 10,594.16 on strong afternoon recovery last Friday.
Technically, the performance indicates the bullish underlying strength on the US market.
- Nevertheless, the FBM KLCI needs to cross over the recent high of 1,370.52 to confirm a fresh rally ahead.

Daily Technical Watch: CBIP – Could challenge RM3.50 hurdle, if can attract buying above 10-day SMA…
- 10-day SMA: RM3.119
- 40-day SMA: RM2.794
- Support: IS = RM2.88 S1 = RM2.20 S2 = RM1.75
- Resistance: IR = RM3.50 R1 = RM3.94 R2 = RM4.40

Weekly Trading Idea : Hock Seng Lee – Chances for more run-ups ahead are high… Bargain Buy
- Strategy: Bargain buy at above RM1.54 in anticipation for more rallies ahead.
- Resistance: IR = RM1.87 R1 = RM2.25 R2 = RM2.54
- Support: IS = RM1.54 S1 = RM1.25 S2 = RM1.08
- Exit: Stop loss will be triggered if it loses the UTL near RM1.47.

Commodities & Currencies – Weakness on the US Dollar continues…

- Light Sweet Crude Oil futures (Crude): Longer-term uptrend remains intact.
- Crude Palm Oil futures: Potential retest of Jan high of RM2,726 near key resistance at RM2,760 soon.
- Ringgit (RM)/US$: The ringgit is poised to strengthen further.
- Japanese Yen (JPY)/US$: If the yen sustains at below the DRL, it will strengthen towards the 79.8.
- Euro Dollar (EUR)/US$: EUR to strengthen further towards the chart support region of 0.73.
- US Dollar Index (DXY): The index is poised to stay weak in weeks ahead.

Bulletin Board

Co/Sector News Impact Recom

Plantations According to Malaysian Palm Oil Association Neutral. Although there will be an impact from N
(MPOA), local plantation players are getting IAS 41, we believe Malaysian plantation
apprehensive about the implementation of the companies, like the plantation companies listed
International Accounting Standard 41 for in Singapore, will display the biological asset far
Agriculture (IAS 41) in Malaysia, due to start by value adjustment in a separate line from the core
Jan 2012. Under IAS 41, the management of earnings in the financial statement, thus making it
biological assets (oil palm trees) would be easier for investors to understand.
changed to fair value accounting (FVA) from the
current historical cost accounting (HCA), which
will affect the financial management, dividend,
tax, investment and borrowings, creative
accounting as well as the economic sustainability
of the plantation business. (The Star)
 Sime Darby According to Sarawak Hidro MD, costs at the Negative for SIme Darby, being the 35.7% UP, FV =
RM7.3bn Bakun dam project are set to balloon stakeholder of Sarawak Hidro. However, we RM8.00
with every delay in power supply to Sarawak. believe the press conference held by Sarawak
Starting next year, an additional RM10m/month Hidro was to highlight that the delay and the
interest payment will be incurred as the dam is subsequent interest costs are now at the hands
already five months behind schedule for flooding. of the state government and no longer at the
It takes seven months for the dam to reach its hands of the contractor. As such, we believe that
minimum operating level to generate power. should there be any penalties on late delivery
Sarawak Hidro has met the technical Sarawak Hidro may be able to negotiate with the
requirements since Apr 2010 but the approval government. Assuming the dam is impounded by
from the state government to start impounding year end, interest costs accumulated would come
the water has yet to come. (The Star) up to RM70m for the seven months of
impounding. Sime’s share of this would be
RM25m, which would have a relatively minimal
impact to its bottom line.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Latexx Partners Second interim tax exempt dividend of 2.5 sen 13-Sep-10 5-Oct-10

Going “ex” on 10 Aug

BAT (M) First interim dividend of 113 sen tax exempt under single tier 10-Aug-10 20-Aug-10
Bolton First and final dividend of 3 sen less 25% tax 10-Aug-10 8-Sep-10
Konsortium Logistik Final dividend of 8 sen less 25% tax 10-Aug-10 9-Sep-10

...For more details, see individual reports attached

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