Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

13 September 2010 (Emas Kiara, Banks, Mah Sing, SP Setia; Technical: TDC, WCT)

Top Story : Emas Kiara – Second Penang Bridge to pick up where KLIA2 leaves off Outperform
Visit Note
- Emas Kiara has secured geodrain orders from all the three contractors involved in the land portion works of
the Second Penang Bridge, as well as the other earthwork contractor of the KLIA2 (or the new LCCT).
- Over the short to medium term, new orders will be underpinned by remaining works at the East Coast
Expressway, the potential revival of the West Coast Expressway, as well as new contracts from the
Brahmaputra Dyke project in Assam, India.
- Emas Kiara is penetrating into the European market in a more meaningful way via an OEM-like tie-up with
an established player based in Europe.
- Fair value is RM1.52. Maintain Outperform.

Macro View

2011 Budget : Geared towards achieving the 10MP and the NEM’s goals
Economic Update (published 9 Sep 2010)
- Despite challenges and difficulties faced in attracting FDI and encouraging local investors to invest, we
believe the Government will continue its efforts in encouraging private investment. However, we do not
expect corporate income tax to be cut in the forthcoming budget due to the budget constraint.
- We are hopeful that withholding tax rate for MREITs may be reduced from the current level of 10% or
removed completely, in comparison to 0% in Singapore and Hong Kong. As for the property sector, we do
not expect the Government to bring good news this year, as a cap on loan-to-value ratio for home
mortgage may be imposed by Bank Negara in the near term.
- Sin taxes are likely to be raised for the gaming (including the casino gaming duties), tobacco (smaller rise
in excise duties this time around) and brewery (excise duty has not been raised for a while) sectors.
- We believe fiscal consolidation will likely continue into 2011. As a result, we expect the Government to
reduce its budget deficit to 4.2% of GDP or RM34.5bn in 2011, from a deficit of 5.3% GDP or RM40.3bn
estimated for 2010.
- Although the Government may introduce new “green” taxes to encourage industries to cut down pollution,
we believe the impact on its bottomline is unlikely to be significant. On the other hand, there is a likelihood
that the Government may dish out incentives to encourage activities in renewable energy, energy saving
industries and “green” technology.

IPI : Slowed down markedly in July, pointing to further deceleration in economic growth in the 3Q
Economic Highlights (published 9 Sep 2010)
- Industrial production slowed down markedly to 3.2% yoy in Jul, from +9.3% in Jun and +12.3% in May.
- This was the slowest pace of growth in eight months, suggesting that industrial activities have slowed
down, on the back of a weaker growth in exports. The slowdown was reflected in slower increases in
manufacturing production and electricity output. These were made worse by a decline in mining output
during the month.
- The sharp slowdown in industrial and manufacturing production in Jul indicates that industrial activities
have eased further in the 3Q. As a result, we expect real GDP growth to slow down to 5.6% yoy in the 3Q,
from +8.9% in the 2Q.
- As a whole, we expect real GDP growth to slow down to 5.0% yoy in 2H 2010, from +9.5% in the 1H. For
the full-year, real GDP will likely expand by 7.3% in 2010, before easing to +5.0% in 2011 and compared
with -1.7% in 2009.

Sector Call

Banks : Stricter credit card rules ahead? Overweight

Sector News Update
- The weekend Edge reported that BNM is looking at implementing measures that could effectively tighten
credit card spending.
- Possible measures include: 1) restricting the number of credit cards per consumer; 2) raising the eligibility
bar in terms of annual income; and 3) capping the credit spending limit.
- In our view, BNM’s statistics suggest that credit card receivables remain manageable.
- Firstly, credit card balances accounted for around 3.3% of total system-wide outstanding loans, a level that
has been rather stable since Nov ’06. This implies that growth has not been overly excessive and broadly
in line with industry growth.
- Secondly, we note that the proportion of current credit card balance, i.e. <30 days in ageing, is at a high of
91.2% of total credit card balance. This implies that consumers have been able to at least meet the
minimum monthly payments. It also suggests that banks may have in place better monitoring and collection
procedures.
- Finally, credit card NPLs have also been falling (currently 1.9%).
- While tightening measures could curtail credit card growth ahead, if implemented, one key positive is that
the new measures could help keep credit quality in check.
- Overweight stance maintained.

Banks : Minimum capital ratios set for Basel III but not a problem for local banks Overweight
Sector News Update
- The oversight body of the Basel Committee announced yesterday the requirement for banks to hold
minimum common equity of 4.5%. Meanwhile, the Tier 1 capital requirement will increase to 6% from the
current 4%. The phase in arrangement kicks off from 1 Jan 2013 with full implementation by 1 Jan 2015.
- Regulatory adjustments (e.g. deductions) will begin from 1 Jan 2014 at 20% of the required deductions
from common equity. This will rise by 20%-pts p.a. until reaching full deduction by 1 Jan 2018.
- In addition, banks will be required to hold a capital conservation buffer of 2.5%. This buffer will be phased
in from 1 Jan 2016 beginning at 0.625% of risk-weighted assets before reaching its final level of 2.5% on 1
Jan 2019, bringing the total common equity requirements to 7%.
- Finally, non-qualifying capital instruments will be excluded from common equity Tier 1 computation as of 1
Jan 2013. For capital instruments that no longer qualify as non-common equity Tier 1 or Tier 2 capital, a
cap of 90% of such instruments outstanding on 1 Jan 2013 will be placed, with the cap reducing by 10%-
pts each year until fully phased out over a 10-year period.
- By our calculations, the banks under our coverage should comfortably meet the minimum common equity
ratio schedule. We believe investors would be further comforted by the phase in periods allowed for the
capital conservation buffer as well as regulatory adjustments, all of which would allow banks time to beef
up their capital base further.
- Thus, no change to our Overweight stance.

Corporate Highlights

Mah Sing : Raising funds for landbank acquisition Outperform

Company Update
- Mah Sing announced a proposed issuance of up to RM325m nominal value of 7-year redeemable
convertible secured bonds. The convertible bond will have a maturity of 7 years from the date of issuance,
with a coupon rate of 3.5% p.a. payable on a semi-annual basis. Conversion price will be at a premium of
about 15% to the 5-day VWAMP of Mah Sing shares on a price-fixing date to be determined later.
- Bulk of the proceeds will be utilised for land acquisitions. Management has been looking to acquire a large
piece of landbank in Klang Valley for township development. The company is also interested to acquire
some plots of land in the KL area that the Government will put up for sale.
- Based on our calculations, the convertible bond would potentially enlarge Mah Sing’s share base by 150m
shares from the current 832m. Hence, earnings would be diluted in the initial period while waiting for the
earnings to come in from the new landbank.
- No change in forecasts, as coupon / interest payment for the bond will be capitalised as development cost.
- No change to our RNAV estimate and hence our indicative fair value of RM2.06, which is in line with our
RNAV / share estimate. Maintain Outperform.

SP Setia: Expanding Setia Indah’s landbank Market Perform

News Update
- SP Setia announced.that it has entered into a conditional Sale and Purchase Agreement to acquire a piece
 of land measuring 259.1 acres in Tebrau JB for a purchase consideration of RM169.3m.
- The total consideration translates into a land cost of RM15 psf, which is reasonable in our view. The land is
intended to replenish SP Setia’s existing (matured) township development – Setia Indah’s landbank as it is
at the tail-end of development.
- The land is expected to yield a GDV of RM1.5bn and will have a development period of about 8 years from
end-2011.
- The acquisition is expected to be completed by FY11, and hence first launch of the development will be in
FY12. As such, we raise our FY12 EPS estimate slightly by 7.2%, while maintaining FY10-11 forecasts.
- No change to our RNAV estimate (no land revaluation surplus). We maintain our indicative fair value of
RM4.66, which is in line with our RNAV / share estimate. Maintain Market Perform.

Technical Highlights

Daily Trading Strategy : Further rebound can be expected…

- Market sentiment on last Thursday appeared better-than-expected, with the FBM KLCI attempting to
restore its uptrend with a mild technical rebound.
- And based on the positive candle and the slight improvement on the turnover, further rebound can be
expected in the immediate term, when more investors return after the long Hari Raya break last week.
- Technically, the benchmark still needs to take out the recent high of 1,441.80 with a stronger volume of
within 800m – 1.0bn shares to confirm ending the recent consolidation phase.
- Only then, the FBM KLCI will refresh its rally to the immediate hurdle of 1,450, followed by the all-time high
level at 1,524.69.
- On the downside, should the index loss the 10-day SMA of 1,429, it will continue to slide on extended
consolidation. The medium-term stronghold is at 1,400 and 1,390

Daily Technical Watch: Time dotcom – Surviving above RM0.60 will mean a rally towards RM0.705-0.80
resistance zone …
- 10-day SMA: RM0.5655
- 40-day SMA: RM0.6004
- Support: IS = RM0.60 S1 = RM0.54 S2 = RM0.47
- Resistance: IR = RM0.705 R1 = RM0.80 R2 = RM0.94

Weekly Trading Idea : WCT – Trending positively above the 10-day and 40-day SMAs… Bargain Buy
- Strategy: Bargain buy for a further run-up top Apr’s high of RM3.12.
- Target: IR = RM3.12 R1 = RM3.20 R2 = RM3.74
- Support: IS = RM2.80 S1 = RM2.40 S2 = RM1.95
- Exit: Cut loss if the stock loses the support of RM2.80

Commodities & Currencies – The rebound on the US Dollar not convincing…

- Light Sweet Crude Oil futures: Should continue to face tough resistances and stay within US$74-78 range.
- Crude Palm Oil futures (CPO): It will remain rangebond within RM2,500-2,760 for the near term.
- Ringgit (RM)/US$: The medium-term Head & Shoulders formation’s target at 3.07 maintain.
- Japanese Yen (JPY)/US$: We maintain our next target for yen at 79.8.
- Euro Dollar (EUR)/US$: The pair to face strong resistance near the 21-week SMA and 0.794 this week.
- US Dollar Index (DXY): We do not expect a powerful rebound underway.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
None

Going “ex” on 14 Sep

Fajarbaru Builder Group Distribution of 1 treasury share for every 20 shares held 14-Sep-10 -
Scomi Group Loan stock interest of 4% for ICSLS 14-Sep-10 24-Sep-10
Litrak Single tier interim dividend of 10 sen 14-Sep-10 27-Sep-10
 Boustead Holdings Second interim single tier dividend of 10 sen 14-Sep-10 28-Sep-10
Hup Seng Industries Interim single tier dividend of 5 sen 14-Sep-10 28-Sep-10
Hirotako Holdings First interim dividend of 6 sen less 25% tax 14-Sep-10 28-Sep-10
Southern Steel Interim dividend of 5% tax-exempt 14-Sep-10 30-Sep-10
Dayang Enterprise Holdings Interim single-tier dividend of 5 sen 14-Sep-10 30-Sep-10
Maxis Interim single-tier tax exempt dividend of 8 sen 14-Sep-10 30-Sep-10
BIMB Interim dividend of 1.5% less 25% tax 14-Sep-10 1-Oct-10

...For more details, see individual reports attached

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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
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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