Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

30 August 2010 (Banks, Property, PetGas, Ta Ann, Kinsteel, Perwaja, KLCCP; Technical: CIMB, K.Euro)

Top Story : Banks – Jul system data - Monthly applications still strong despite OPR hikes Overweight
Sector Update
- Jul loan growth moderated slightly to +11.9% yoy (Jun: +12.5% yoy). This was largely due to lower
disbursements during the month, especially to the business segment. The household segment saw
outstanding loans accelerate further to +13.2% yoy (vs. Jun: +12.9% yoy) with growth still broad-based.
- Jul loan applications rose further to RM58.4bn (+13.6% yoy; +9.9% mom), a new high for the banking
system. Absolute loan approvals, meanwhile, moderated to RM28.9bn (+7.9% yoy) vs. RM33.3bn (+24.2%
yoy) in Jun. Jul’s statistics suggest that demand for loans has not been dampened by the three hikes in the
Overnight Policy Rate (OPR) by BNM thus far.
- Looking ahead, we think loan growth may moderate due to a higher base effect and/or a pick-up in capital
market fund raising activities. Our 2010 loan growth projection remains at +10-11%.
- Absolute gross NPLs, individual and collective impairment provisions as at end-Jul were broadly stable
mom. Consequently, Jul system-wide three-month net NPL ratio remained stable at 2.2%.
- Commercial banks’ ALR in Jul trended higher following the 25bps increase in OPR during the month. 3-
month overnight interbank rate kept pace, and as a result, interest spread remained broadly stable at 2.3%.
- Liquidity remains ample while the industry capital ratios were broadly stable and healthy with the core
capital ratio and RWCR at 13.2% (Jun: 13.1%) and 15.1% (Jun: 15%) respectively.
- No change to our overweight stance on the sector.

Sector Call

Property : Downpayment ratio to be raised? Overweight

Sector News Update
- Last weekend, The Edge Weekly reported that Bank Negara Malaysia (BNM) may implement new lending
rules to cool the real-estate industry. According to the article, downpayment ratio may be raised to 20%
compared to 10% currently.
- This news is yet to be confirmed, and we believe it is still subject to a lot of uncertainties: 1) Whether the
10% downpayment is still valid for first home buyers; and 2) Whether affordable housing can be exempted
from higher downpayment ratio.
- In our opinion, it is reasonable for first home buyers to be exempted from higher downpayment ratio, as an
effort to continue encouraging home ownership by the Government.
- Assuming the cap on mortgage rate (at 80% of loan-to-value ratio) materialises, the hardest hit segment
will be the high-end properties, as affordability level for home purchase will be reduced significantly. In
addition, this segment is also the segment that attracts higher speculative interests.
- Maintain Overweight on the property sector at this juncture, until an official announcement is made (if any).

Corporate Results

Petronas Gas : Off to a good start Outperform (up from MP)

1QFY11 Results
- 1QFY3/11 net profit of RM382.8m (+88% qoq, +42.3% yoy) was above expectations largely on the back of
higher Capacity Reservation Charge (CRC) since the effect of the new 4th term Gas Processing And
Transmission Agreement in April 2010.
- The 4th term GPTA added the Capacity Reservation Charge (CRC) to the revenue formula, which prepares
Petronas Gas for the additional business of providing gas transportation services to industrial customers
who are able to secure gas from sources other than Petronas. However, the infrastructure to receive LNG
imports will not be ready until 2014 at the earliest.
- We have raised our FY11-13 EPS forecasts by 13.5%, 13.3% and 13% after revising our weighted average
CRC assumptions to RM1.30 (vs. RM1.09 previously).
- Our new fair value of RM11.63 (vs. RM10.71 previously) implies an 11.8% upside. In addition, with
projected net dividend yield of 4-5% p.a., we estimate a 12-month return of 15.8-16.8%. We thus raise our
call on the stock to Outperform (vs. market perform previously).
Ta Ann : Eco friendly but not profit wise Underperform (down from OP)
2QFY10 Results
- 1HFY12/10 core net profit of RM20.1m was significantly below expectations, accounting for just 21-22% of
our and consensus forecasts respectively. Key variance was mainly due to continued losses in its plywood
division and also lower-than-expected log production due to the exceptionally wet weather.
- Ta Ann experienced a significant drop in log exports (-19% yoy). As such, we have reduced our log
production assumption for FY10, while maintaining our FY11-12 forecast. We also adjust Ta Ann’s logs
export sales to reflect the recent one-year extension of 50% export quota by the government
- Average selling prices for Ta Ann’s plywood division rose by 17% qoq (from US$408/m3 to U$477/m3), but
EBIT margins fell by 3.7%-pt due to a product mix shift to floorbase plywood made from Tasmanian eco-
friendly raw materials, which are more costly, causing cost of production to increase by 15% qoq (from
US$421/m3 to US$483/m3) in 2Q10.
- We cut our FY10-12 EPS forecasts by 20-42% p.a. after: 1) Increasing our average selling prices and cost
of production for its plywood division; 2) Lowering log production in FY10 and adjusting for an increase in
export quota; and 3) Updating our US$/RM assumptions.
- Our SOP-based fair value is reduced to RM5.41 (from RM6.95) based on unchanged 12x FY11 timber
earnings and 12x FY11 plantation earnings. We thus downgrade the stock to Underperform.

Kinsteel : 2Q net profit falls 64% qoq on higher input costs and weaker sales volume Underperform
2QFY10 Results
- 1H core net profit of RM30.7m came in below expectations, accounting for only 37.8% of our and 32.8% of
consensus full-year estimates. The variance came largely from lower-than-expected sales volume.
- FY12/10 net profit forecast cut by 35.4% to RM51.3m largely to reflect lower sales volume assumptions at
its downstream operations. However, we are keeping our FY11-12 forecasts unchanged as we expect local
consumption for long steel products to improve on the roll-out of several infrastructure projects.
- Fair value is RM0.78 based on 9x FY12/11 fully-diluted EPS of 8.6 sen.

Company Quarter Result Results Comment And Changes To Forecasts Recom

Perwaja 2Q10 In line No change to forecasts. Maintain fair value of RM1.24 based on 9x OP, FV =
unchanged FY12/11 fully-diluted EPS of 13.7 sen. RM1.24
KLCCP 1Q11 In line No change to forecasts. Maintain fair value at RM3.80, based on 15% MP, FV =
discount to RNAV. RM3.80

Technical Highlights

Daily Trading Strategy : Stay cautious on market’s near-term direction…

- Despite an early weakness, the local benchmark continued to surprise investors on the upside by recording
a positive confirmation candle to a fresh year high last Friday.
- Added with a strong bounce in the Wall Street last Friday, the market should open to more upside room
towards the next upside target at 1,450 soon.
- Still, we prefer to stay cautious on the market’s near-term direction, in view of the poorer daily turnover, the
deteriorating momentum readings, as well as the weaker overall market tone.
- In other words, until we see significant improvement in the daily turnover to between 800m and 1.0bn
shares and the technical momentum, further rally will invite stronger profit-taking activities, in our view.
- Also, with the local quarterly earnings reporting season coming to an end on Monday, we expect investors
to shift their focus to the external leads going forward.
- Currently, it should find a good support near the 1,400 psychological level. In the event of a sudden
selldown breaking below 1,400, the index will head to the 10-day SMA near 1,395 and 1,390 critical level.

Daily Technical Watch: CIMB – Losing 40-day SMA and RM7.41 will trigger a major technical correction …
- 10-day SMA: RM7.688
- 40-day SMA: RM7.359
- Support: IS = RM7.41 S1 = RM6.70 S2 = RM6.00
- Resistance: IR = RM8.00
 Weekly Trading Idea : Kumpulan Europlus – Good chance for a technical rebound… Bargain Buy
- Strategy: Bargain buy above RM0.945 for a technical rebound soon.
- Target: IR = RM1.08 R1 = RM1.25
- Support: IS = RM0.945 S1 = RM0.79 S2 = RM0.645
- Exit: Cut loss if the stock loses the recent low of RM0.935.

Commodities & Currencies – Potential rebound on EUR against US$ this week…
- Light Sweet Crude Oil futures (Crude): Expect to narrow trading range from US$74.00 to US$78 this week.
- Crude Palm Oil futures (CPO): The CPO may continue to drift in the region of RM2,500-RM2,600.
- Ringgit (RM)/US$: We keep our target for the ringgit at 3.07 to a dollar in the medium term.
- Japanese Yen (JPY)/US$: The pair should hover between the DRL and the resistance of 87 this week.
- Euro Dollar (EUR)/US$: The EUR may recover further towards 0.73 and 0.695.
- US Dollar Index (DXY): The dollar index could reverse its recent rally and headed back to 81 soon.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Hup Seng Industries Interim single tier dividend of 5 sen 14-Sep-10 28-Sep-10
Ta Ann Holdings Bonus issue on the basis of 1-for-5 15-Sep-10 -
Appllo Food Holdings First and final dividend of 23% less 25% tax 15-Dec-10 12-Jan-11
Bintulu Port Holdings Second interim single tier dividend of 7.5 sen 20-Sep-10 8-Oct-10
Dominant Enterprise First interim dividend of 1 sen less 25% tax 22-Sep-10 4-Oct-10
Padiberas Nasional Interim dividend of 12% less 25% tax 23-Sep-10 17-Nov-10
SCGM First and final tax exempt dividend of 3 sen 28-Sep-10 11-Oct-10
Proton Holdings First and final dividend of 20 sen less 25% tax 28-Sep-10 22-Oct-10
Kumpulan Fima Final dividend of 5% less 25% tax 29-Sep-10 18-Oct-10
Super Enterprise Holdings Final dividend of 3 sen less 25% tax 29-Sep-10 29-Oct-10
GPA Holdings First and final single tier dividend of 2% 11-Oct-10 27-Oct-10
Jasa Kita First and final dividend of 5% less 25% tax 1-Oct-10 15-Oct-10

Going “ex” on 1 Sep

Tompak Holdings Bonus issue on the basis of 1-for-4 1-Sep-10 -
Tompak Holdings Share split on the basis of 1-into-2 1-Sep-10 -
Hartalega Holdings Final dividend of 5 sen single-tier 1-Sep-10 17-Sep-10
Hua Yang First and final dividend of 3 sen less 25% tax 1-Sep-10 28-Sep-10

...For more details, see individual reports attached

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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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