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The S.E.A. Navigator – Malaysia 2011 [ 1 ] Contents Liquidity-fuelled pre-election rally...

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The S.E.A. Navigator – Malaysia 2011

[ 1 ]

Contents Liquidity-fuelled pre-election rally................................................................................ 3 Review of 2010 ........................................................................................................... 4 V-shaped recovery so far ...................................................................................... 4 Key drivers for 2011.................................................................................................... 7 Foreign funds boost .............................................................................................. 7 Elections, elections, elections ............................................................................... 9 Economic outlook ..................................................................................................... 12 Key risks for 2011 ..................................................................................................... 16 Valuation and recommendation ................................................................................ 17 Maintain OVERWEIGHT on Malaysia ................................................................. 17 Sectors to overweight.......................................................................................... 19 CIMB picks in 2011................................................................................................... 23 Sector Briefs….......................................................................................................... 25 Company Briefs…..................................................................................................... 45 Appendices… ......................................................................................................... 206

Please read carefully the important disclosures at the end of this publication.


[ 2 ]

Liquidity-fuelled pre-election rally

OVERWEIGHT 2011 Tgt. Index: 1,700

• Significant trading catalysts. The KLCI confounded sceptics in 2010 when it

•

•

•

•

scaled new all-time highs, capping two years of a V-shaped recovery. 2011 looks set to be another good year, driven by foreign funds which have strayed from the beaten path in search of higher returns in emerging markets and also election fever as elections are generally positive for the market. Malaysia remains underowned by foreign funds, whose holdings are still worth 30% less than before the global crisis. While we think it is too early to call for general elections, we note that Sarawak must hold state elections by Jul 2011. Umno party elections should be held shortly after general elections. We continue to rate Malaysia an OVERWEIGHT and raise our end-11 KLCI target from 1,610 to 1,700pts as we halve the discount to the 3-year moving average P/E to 5%. Accordingly, we have raised the target prices for 32 stocks under our coverage. 2010 was another strong year. After rebounding 43% in 2009, the KLCI gained 18% YTD, in the process breaking many records including the previous high for the KLCI. Domestic factors that stoked the market include the government’s transformation efforts such as the Economic Transformation Programme, the New Economic Model and the 10th Malaysia Plan. The market ran into headwinds towards mid-year as investor fret over a double-dip in Europe and the US. But foreign funds turned sizeable net buyers in 2H following the waning of double-dip fears and rising awareness of the stronger growth potential of emerging markets. Very underowned. Foreign investors have been making a beeline for Malaysia, visiting companies and touring Iskandar Malaysia. The renewed interest is the result of myriad factors including Bursa Malaysia’s perceived defensive qualities, the Najib administration’s transformation programmes and severe underownership of the local stockmarket due to the massive selldown after the 2008 general elections. Foreign funds remain extremely underweighted in Malaysia and a return to neutral weightings would have a very significant impact on the market. Elections good for the market. The 2011 Budget announced in Oct appeared to us as a populist pre-election budget. The question is which election – general elections or Sarawak state elections? We believe it is the latter though we think it does not matter as either election augurs well for the market since the period leading up to elections is typically investor-friendly. This is particularly true for Umno party elections where the KLCI has historically rallied 30% in the 1-year period before polling. For 2011, we expect pump-priming efforts to intensify, negative policies to be kept to a minimum and speculative activities to pick up steam. Prefer cyclicals and GLCs. 2011 is likely to turn out to be a good trading year for the market. Although risks remain relatively high, returns should be high and quick too. We expect continued volatility but with an upward bias as liquidity fuels the market. Our preferred sectors are those in the cyclical space including banking, construction, property, oil & gas and auto which stand to benefit from renewed investor confidence and higher risk appetite. GLCs should also gain prominence as investors speculate on those that will gain from pre-election government largesse. Terence WONG, CFA +60 (3) 2084-9689 – [email protected]

Figure 1: Top picks

Affin Axiata Gamuda Kencana MAS MRCB RHB Cap SapuraCrest Sime Darby WCT

Bloomberg ticker AHB MK AXIATA MK GAM MK KEPB MK MAS MK MRC MK RHBC MK SCRES MK SIME MK WCT MK

Recom. O O O O O TB O O TB O

Price (Local) 3.20 4.67 3.76 2.01 2.07 2.01 8.59 2.82 8.74 3.00

Target price Mkt cap (Local) (US$ m) 4.04 1,520 5.90 12,533 5.00 2,443 2.60 1,060 3.00 2,199 2.53 882 10.50 5,878 3.30 1,144 10.78 16,691 4.34 750

Core P/E (x) CY2011 CY2012 8.8 8.0 12.8 11.9 19.6 15.2 14.1 12.2 11.9 4.0 41.3 34.1 10.9 9.5 13.4 12.4 16.3 14.6 13.0 12.5

O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell Source: Company, CIMB Research


[ 3 ]

3-yr EPS CAGR (%) 17.1 35.8 33.8 18.6 178.5 15.6 17.6 19.5 8.7 10.8

P/BV (x) CY2011 0.9 1.8 3.6 10.2 1.6 3.3 1.7 3.8 2.2 1.8

ROE (%) CY2011 10.2 14.5 19.2 78.6 18.4 8.3 16.6 28.9 13.9 15.0

Div yield (%) CY2011 3.8 2.4 3.2 1.5 0.0 0.5 3.7 3.2 4.1 3.3

Review of 2010 V-shaped recovery so far 2010 has been another good year

Similar to 2009, 2010 confounded the naysayers although there were hiccups along the way as global markets pulled back in 2Q10 on worries that Europe and the US may slip back into recession. But quantitative easing by the US propped up markets and emerging markets decoupled somewhat from the developed markets as investors strayed from the beaten track in their hunt for better returns. Malaysia has surged 18% YTD but its performance pales in comparison with the region’s star performers, the TIP markets. Thailand, Indonesia and the Philippines are up a massive 38-47% despite gaining 63-87% in 2009. This brings their 2-year gains to an astounding 126175%. Many markets including Malaysia hit new all-time highs in 2010. Compared with their end-07 closings, Indonesia is the best performer, with Thailand in second place and the Philippines in the third spot. Figure 2: YTD, 2-year and 3-year performance of various indices 31 Dec 07 31 Dec 08 31 Dec 09 JCI Index SET Index PCOMP Index FBMKLCI Index SENSEX Index FSSTI Index INDU Index UKX Index HSI Index NKY Index SHCOMP Index

2,745.8 858.1 3,621.6 1,445.0 20,287.0 3,465.6 13,264.8 6,456.9 27,812.7 15,307.8 5,261.6

1,355.4 450.0 1,872.9 876.8 9,647.3 1,761.6 8,776.4 4,434.2 14,387.5 8,859.6 1,820.8

2,534.4 734.5 3,052.7 1,272.8 17,464.8 2,897.6 10,428.1 5,412.9 21,872.5 10,546.4 3,277.1

6 Dec 10

YT D

From end-08

From end-07

3,722.3 1,034.1 4,223.1 1,501.7 19,981.3 3,181.4 11,382.1 5,754.7 23,237.7 10,167.2 2,857.2

46.9% 40.8% 38.3% 18.0% 14.4% 9.8% 9.1% 6.3% 6.2% -3.6% -12.8%

174.6% 129.8% 125.5% 71.3% 107.1% 80.6% 29.7% 29.8% 61.5% 14.8% 56.9%

35.6% 20.5% 16.6% 3.9% -1.5% -8.2% -14.2% -10.9% -16.4% -33.6% -45.7%

Source: Bloomberg, CIMB Research

The reasons for the strong performance by regional markets are manifold, including 1) receding fears of a double dip in the developed countries, 2) global funds’ reallocation of funds to emerging markets, 3) stronger-than-expected economic growth in Asia, and 4) continued earnings upgrades by equity analysts. Malaysia’s respectable performance in 2010 got a helping hand from domestic factors such as the government’s numerous transformation efforts including the Economic Transformation Programme (ETP), the New Economic Model (NEM) and the 10th Malaysia Plan (10MP). We started the year with a KLCI target of 1,450 points, which we raised to 1,500 points after the 2Q results season in Aug. It appears that the KLCI is likely to again beat our revised target. Foreign funds turned significant net buyers of Malaysia in Jun. Jul’s inflow of US$308m was, in fact, the highest since Sep 07. Figure 3: Monthly cross-border net buying/(selling) of Malaysian equities (US$ m) 1000

500

-1000

-1500 Source: EPFR, CIMB Research


[ 4 ]

3/31/2010

3/31/2009

3/31/2008

3/31/2007

3/31/2006

3/31/2005

3/31/2004

3/31/2003

3/31/2002

3/31/2001

3/31/2000

3/31/1999

3/31/1998

3/31/1997

-500

3/31/1996

0 3/31/1995

Regional markets, particularly TIPs, performed well in 2010

Heavyweights lifted the KLCI higher in 1H

Although EPS forecasts were revised higher throughout the year, they were driven by big-cap sectors such as banks and gaming. Smaller-cap stocks started to lose momentum even for 4Q09 results, leading to a fall in the revision ratio to around 1x. A ratio of 1x basically means that the number of companies that beat expectations is roughly balanced by the number of companies that disappointed. The big-cap banking and gaming sectors as well as selected heavyweights such as Axiata and PLUS Expressways pushed the market higher in 1H. 2H was when stocks from the plantations, construction and property sectors were re-rated. This then led to rotational play on second- and third-liner stocks. Figure 4: Qoq change in our KLCI universe’s earnings estimates post results seasons 3.0%

2.7% CY10

2.0%

1.0%

1.6%

CY11

2.1%

1.9%

1.8%

1.5% 1.0%

1.1%

0.0%

-1.0% End Feb 2010

End May 2010

End Aug 2010

End Nov 2010

Source: CIMB estimates

Figure 5: Revisions up/revisions down (x) 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

Positive momentum for market

Negative momentum for market

3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 Source: CIMB estimates

Figure 6: Performance of indices in 2010 KLTIN Index FBM70 Index KLPRP Index KLCON Index KLPLN Index KLFIN Index KLCSU Index FBM100 Index FBMEMAS Index FBMSC Index FBMKLCI Index KLSER Index FBMS Index FBMFL Index FBMHS Index KLIND Index KLTEC Index FBMMES Index Average

31 Dec 08 231.01 5,442.06 515.61 164.18 4,142.80 6,791.71 282.03 5,613.94 5,726.46 6,552.82 876.75 117.91 5,949.63 5,420.98 6,640.04 2,063.85 13.69 3,333.59

31 Dec 09 291.81 8,269.22 781.71 224.29 6,362.91 11,053.40 372.39 8,308.89 8,507.61 10,165.81 1,272.78 160.94 8,509.52 7,421.81 9,312.02 2,654.51 18.14 4,299.58

% change 26.3% 52.0% 51.6% 36.6% 53.6% 62.7% 32.0% 48.0% 48.6% 55.1% 46.7% 46.7% 43.0% 36.9% 40.2% 28.6% 32.5% 29.0% 42.8%

Source: CIMB estimates, Bloomberg


[ 5 ]

06 Dec 10 571.46 10,561.60 988.77 279.67 7,870.14 13,622.41 451.14 9,960.57 10,189.70 12,098.33 1,501.74 188.09 9,916.55 8,511.95 10,377.91 2,848.73 17.69 4,143.75

% change 95.8% 27.7% 26.5% 24.7% 23.7% 23.2% 21.1% 19.9% 19.8% 19.0% 18.0% 16.9% 16.5% 14.7% 11.4% 7.3% -2.5% -3.6% 21.1%

Laggard sectors played catch-up in 2H

Plantation stocks enjoyed a re-rating in Oct, thanks to higher commodity prices including CPO. Construction stocks were re-rated on the back of Gamuda’s strong gains and reappearance in the KLCI. Also, the government’s commitment to pumppriming was reaffirmed many times, for instance, during the release of the 10MP in Jun, the soft launch of the ETP in Sep and the 2011 Budget in Oct. Property stocks crept up unsuspectingly as investors shrugged off concerns over a cap on the loansto-value ratio and gave weight to the earnings impact of record sales in 2010. Newsflow on potential landbanking and M&As by the big developers also helped in rerating the sector. Figure 7: Four pillars of national transformation

Three anchors for 1Malaysia

Source: NEM For Malaysia Part 1

Figure 8: KLCI and various events in 2010 1550

22/11 -Ireland fiscal crisis 23/09 -FTSE Ups Status To Advanced Emerging Market From Secondary Emerging Market

15/10 -Budget 2011

1500 13/05 -BNM raised the OPR by 25bps to 2.5% .

23/11 -Korea tension

1450 20/01-Obama To Propose New Limits On Banks

05/05-Europe’s debt crisis

1400 19/10-23/10 -61st UMNO

21/06 -China loosens currency grip

26/01-Obama To Propose 3 Year Spending

General assembly

Freeze On Many Programs

1350 04/02- Greece Crisis

21/09 -Economic Transformation Programme Open Day

1300

08/07 -BNM raised the OPR by 25bps to 2.75% .

30/03-New Economic Model (NEM) announcement

10/06-PM announced 10th M'sian Plan

1250 18/02-Fed raises discount rate from 0.50% to 0.75%

1200 1/1/2010

1/31/2010

3/2/2010

19/05 -Germany prohibits naked short selling on Government bonds and some shares.

4/1/2010

5/1/2010

5/31/2010

6/30/2010

7/30/2010

Source: Bloomberg, CIMB Research


[ 6 ]

8/29/2010

9/28/2010

10/28/2010

11/27/2010

Key drivers for 2011 Foreign funds boost Foreigners coming back in a big way?

In 2H10, foreign investors made a beeline for Malaysia as they visited companies and toured Iskandar Malaysia. The reasons for the renewed interest include Bursa Malaysia’s perceived defensive qualities, the new administration’s various transformation programmes and severe underownership of the local stock market. Foreign funds remain extremely underweighted in Malaysia and the stockmarket has been disproportionately sold down since the 2008 general elections. Malaysia’s weighting in EM Asia is still around 2.5%, a fraction of its pre-Asian crisis levels and still low compared to even the 4% level before the global financial crisis. Statistics from Bursa Malaysia confirm this – foreign ownership in Malaysia is 22%, still below the pre-global crisis level of around 27%. A return to neutral weightings by foreign funds would have a very significant impact on the market. Figure 9: Aggregate EM Asia weightings in Malaysia 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10

Source: EPFR, CIMB Research

Figure 10: Month-end aggregate holdings by country (US$ m) Feb 08 Weightings in EM Asia September Weightings in EM Asia 31-mth aggregate chg 31-mth weighting chg 31-month net sell Net sell/Feb 08

Hong Kong 31,398 12.5% 27,697 9.8% -12% -22%

Singapore 14,973 6.0% 14,301 5.0% -4% -16%

Malaysia 9,865 3.9% 7,526 2.7% -24% -33%

Indonesia 7,267 2.9% 10,797 3.8% 49% 31%

Thailand 9,555 3.8% 12,387 4.4% 30% 14%

Others 177,379 70.8% 211,123 74.4% 19% 5%

EM Asia 250,437 100.0% 283,830 100.0% 13% 0%

(4,205) -13%

(3,418) -23%

(3,370) -34%

(252) -3%

(195) -2%

11,556 7%

115 0%

Source: EPFR, CIMB Research

Figure 11: Foreign ownership in Malaysia 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 22.0% 21.0% 20.0% Jan 07 May 07 Sep 07 Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Source: Bursa, CIMB Research


[ 7 ]

Foreign funds prefer familiar, big-cap and liquid stocks

Foreign shareholding has risen substantially for stocks that are favourites of foreigners such as AirAsia, CIMB, E&O and Public Bank. Well-managed foreign-owned companies such as BAT and Guinness also saw a big increase in foreign ownership. What is surprising is that foreign funds have not limited their purchases to only big-cap blue chips or even just liquid stocks. Smaller-cap stocks with relatively low liquidity such as Mudajaya, CI Holdings, Daibochi, Latexx, Mah Sing and MCIL have also seen a sizeable increase in foreign ownership. The interest in these stocks, however, could have been stoked by our positive reports on the companies. The selldown by foreign shareholders was most pronounced for Alliance Financial, Gamuda, IOI Corp, Media Prima, Petra Perdana, SP Setia and WCT. We are also not too surprised by the selldown of some names such as Gamuda, WCT, IOI Corp and SP Setia which were laggards for most of the year and only started to ourperform significantly in 2H. Should foreign funds return to Malaysia in a big way, we expect the companies that are familiar to them to be the biggest winners.

Figure 12: Foreign shareholdings Adventa Affin Holdings Bhd AirAsia Bhd Alam Maritim Alliance Financial Group AMMB Holdings Bhd Ann Joo Resources Asia File Genting Plantation CIMB Berjaya Sports Toto Bhd Bintulu Port Holdings Bhd British American Tobacco Bhd Bursa Malaysia Bhd Carlsberg Brewery (M) Bhd CI Holdings Cocoaland Holdings Daibochi Dialog Group Bhd DiGi.com Bhd RGB International Bhd Ekovest Eksons Corporation Bhd EON Capital Bhd E&O Bhd Fraser & Neave Holdings Bhd Gamuda Bhd Genting Bhd Guinness Anchor Bhd Hap Seng Plantation Hartalega Hong Leong Bank Bhd Hunza Properties Bhd IJM Corp Bhd IOI Corporation Bhd JobStreet Corp Bhd JT International Bhd Kencana Petroleum Bhd KLCC Property Holdings Bhd Kossan Rubber Industries Bhd Kuala Lumpur Kepong Bhd Kurnia Asia Bhd Lafarge Malayan Cement Bhd Latexx

Mid-09 (%) 10.3 25.9 37.0 2.0 44.0 52.6 4.7 10.0 7.0 34.9 18.0 2.9 68.7 17.3 64.0 1.0 1.0 120% in the last 5 years to 100% in FY11 as its gearing should reach its targeted level. We are not overly concerned about YTL Communications’ entry given its lack of variety in handheld devices. Our DCF-based target price is RM27.00 (WACC 11.6%). • Data key to future growth. DiGi plans to develop its small and large screen data revenue, aided by the expansion of its 3G network from about 45% in end-2010 to 65% in 2011. With only 5% of its users on smartphones and 20% on 3G handsets, there is plenty of room for growth. • Network sharing with Celcom. DiGi aims to improve operating efficiency through its MOU with Celcom to share infrastructure in 1) operations and maintenance, 2) transmission and site sharing, and 3) radio access network. We estimate that this could bolster EBITDA margin by 2-3% pts in the coming years. • Key concerns. Our main concern with DiGi is the rising competition in the large screen data segment from WiMAX operators, Packet One and YTL Communications. We are less concerned about competition in small screen data given the lack of WiMAX handheld devices. Financial summary

Stock Information Market cap: RM19,282m/US$6,147m 12-m price range: RM25.60 RM21.00 3-m avg daily vol: 0.3m No. of shrs (m): 778 Est. free float (%): 47.5 Conv. secs (m): None Major shareholders (%): - Telenor 49.0 - EPF 16.0 - Time dotCom 3.5

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 4,814.5 2,158.7 44.8% 1,546.9 1,140.7 146.7 3.6% 16.9 146.7 3.6% 16.9 184.7 7.4% 10.2 65.7% 3.0% 15.3 9.0

2009 4,909.6 2,115.1 43.1% 1,366.5 1,000.5 128.7 (12.3%) 19.3 128.7 (12.3%) 19.3 178.0 7.2% 12.7 58.5% 31.6% 13.1 9.3

2010F 5,338.3 2,348.9 44.0% 1,545.2 1,158.9 149.1 15.8% 16.6 149.1 15.8% 16.6 198.2 8.0% 16.9 87.1% 60.9% 10.5 8.5 1.03

2011F 5,737.7 2,581.9 45.0% 1,732.2 1,299.2 167.1 12.1% 14.8 167.1 12.1% 14.8 167.1 6.7% 16.9 114.1% 57.8% 13.0 7.7 1.09

2012F 6,063.5 2,789.2 46.0% 1,934.2 1,450.7 186.6 11.7% 13.3 186.6 11.7% 13.3 205.2 8.3% 19.4 136.0% 43.1% 11.7 7.1 1.15

Source: Company, CIMB Research, Bloomberg

Price chart

Corporate profile

26.9

2.50

25.9

2.00

24.9 23.9

1.50

22.9

1.00 21.9

0.50

20.9 19.9 De c -09

0.00 Ma y-10 Volume 1m (R.H.S ca le )

Source: Bloomberg

Oct-10 DiGi.com Bhd

DiGi is the smallest cellco in Malaysia but one of the most innovative in terms of products and services. After capturing among the highest net adds in 2007, DiGi’s momentum slowed down as it focused on migrating its prepaid customers to postpaid. As a result, its subscriber market share slipped from 28% at its peak in mid-07 to 26% currently while its share of industry revenue remained unchanged yoy at 26%. At end07, DiGi acquired 3G spectrum by issuing 27.5m or 3.7% new DiGi shares to Time dotCom. Telenor pared its stake in Digi to 49% to comply with the regulatory limit. Digi was established in 1995 as Mutiara Telecom.


[ 76 ]

Financial tables KEY RATIOS

PROFIT & LOSS (RM m, FYE Dec) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2008 4,814 (2,656) 2,159 (636) 1,523 24 0 0 0 1,547 (406) 0 1,141 778 778

2009 4,910 (2,794) 2,115 (731) 1,384 (18) 0 0 0 1,366 (366) 0 1,000 778 778

2010F 5,338 (2,989) 2,349 (782) 1,567 (22) 0 0 0 1,545 (386) 0 1,159 778 778

2011F 5,738 (3,156) 2,582 (809) 1,773 (41) 0 0 0 1,732 (433) 0 1,299 778 778

2012F 6,064 (3,274) 2,789 (818) 1,971 (37) 0 0 0 1,934 (484) 0 1,451 778 778

2011F 2,745 811 12 3,569 864 20 491 0 1,375 215 150 1,634 2,000 1,372 433 1,805 1,139 0 0.42

2012F 2,647 742 12 3,401 1,094 21 519 0 1,634 223 150 1,812 2,186 1,372 484 1,856 994 0 0.32

2008 2,870 994 12 3,876 342 17 421 0 779 180 298 1,789 2,267 100 392 492 1,897 0 1.16

2009 2,896 950 12 3,858 441 13 420 0 874 191 150 1,685 2,026 772 413 1,185 1,521 0 0.73

2010F 2,834 881 12 3,727 828 19 457 0 1,304 204 150 1,780 2,134 1,372 386 1,758 1,139 0 0.33

2010F 8.7 11.1 28.9 21.7 30.8 25.0 133.0 30.0 1.1 13.5

2011F 7.5 9.9 30.2 22.6 23.3 25.0 100.0 30.2 1.2 13.3

2012F 5.7 8.0 31.9 23.9 25.9 25.0 110.0 30.4 1.3 13.2

(FYE Dec) No of mobile subscribers (m) No of postpaid mobile subs (m) No of prepaid mobile subs (m) Postpaid ARPU (local currency) Prepaid ARPU (local currency) Blended mobile ARPU (RM)

2009 7.72 1.24 6.49 83.8 49.0 54.5

2010F 8.56 1.36 7.20 82.5 47.5 53.7

2011F 9.28 1.47 7.81 81.7 46.6 52.1

2012F 9.88 1.56 8.32 80.9 45.6 51.2

12M - FORWARD FD CORE P/E (X)

CASH FLOW (RM m, FYE Dec) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2009 2.0 (2.0) 27.8 20.4 34.1 26.8 138.3 31.3 1.1 13.8

KEY DRIVERS

BALANCE SHEET (RM m, end Dec) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2008 10.4 2.3 32.1 23.7 123.2 26.3 125.9 29.3 1.0 12.7

(FYE Dec) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2008 1,547 636 (51) (374) 260 2,018 (888) 10 0 (878) 98 3 (1,501) 24 (1,376) (236) (333) (56)

2009 1,366 731 15 (392) (48) 1,673 (717) 0 14 (704) 524 0 (1,376) (18) (870) 99 (425) (481)

2010F 1,545 782 (29) (413) 91 1,976 (720) 0 0 (720) 600 0 (1,447) (22) (869) 387 (213) (694)

2011F 1,732 809 (24) (386) 110 2,241 (720) 0 0 (720) 0 0 (1,444) (41) (1,485) 36 36 (658)

2012F 1,934 818 (21) (433) 106 2,405 (720) 0 0 (720) 0 0 (1,418) (37) (1,455) 230 230 (428)

20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 Dec-07

Apr-08

Aug-08



[ 77 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Syariah-compliant stock

Eastern & Oriental Bhd

OUTPERFORM

Maintained

RM1.14

@07/12/10

Takeover candiate?

MALAYSIA

2011 OUTLOOK

CIMB Research Report

Target: RM1.63 Property Devt & Invt

EAST MK / ENOB.KL

Terence Wong CFA +60(3) 20849689 – [email protected]

• Maintain OVERWEIGHT. E&O provides investors with exposure to the upmarket condo market in Kuala Lumpur and Penang island. It is a key beneficiary of any boom in the Malaysian property market due to its prime landbank in those two areas. The company also fits the profile of candidates for takeover due to its fragmented shareholding and high free float. We reiterate our OUTPERFORM recommendation in view of its compelling valuations. Applying an unchanged 40% discount to its FD RNAV of RM2.72, we get an unchanged target price of RM1.63. Factors that could catalyse the stock include 1) a sales pickup for the Penang condo project, and 2) successful launch of new projects in Kuala Lumpur and 3) rising M&A interest in property stocks. • Takeover candidate? The recent spate of mergers including that of Sunrise (SUN MK; Not Rated) and UEM Land (ULHB MK; Not Rated) begs the question of which company is next in line. We view E&O as a potential candidate as it has a premium brand name, prime landbank in strategic locations and strong expertise in marketing and project management. It also has expertise in condo and township development. Moreover, the stock is trading at a huge discount to RNAV. Financial summary

Stock Information Market cap: 12-m price range:

RM940m/US$300m RM1.25 RM0.86 3-m avg daily vol: 3.6m No. of shrs (m): 825 Est. free float (%): 67.1 Conv. secs (m): 326.1 Major shareholders (%): - Dato' Terry Tham Ka Hon 16.8 - G.K. Goh Holdings Limited 16.1 - Halfmoon Bay Capital 10.4

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 302.6 27.2 9.0% (38.1) (37.7) (6.4) (124.7%) nm (1.0) (143.9%) nm 1.0 118.9 0.0 0.0% 0.8 (4.9%) 80.5% (2.7) 50.2

2010 352.4 72.2 20.5% 93.7 70.9 9.3 246.2% 12.2 6.4 730.2% 17.9 6.4 17.9 3.8 3.3% 0.8 7.6% 36.2% 5.1 17.8

2011F 395.0 73.1 18.5% 68.8 45.0 5.7 (39.3%) 20.2 5.7 (11.1%) 20.2 5.7 20.0 3.8 3.3% 0.9 4.3% 50.1% (25.1) 20.4 N/A 0.99

2012F 526.1 98.3 18.7% 101.9 70.2 8.8 56.0% 12.9 8.8 56.0% 12.9 8.0 14.3 4.0 3.5% 0.8 6.5% 59.8% (19.3) 16.6 N/A 1.00

2013F 656.8 134.4 20.5% 117.0 80.6 10.1 14.8% 11.3 10.1 14.8% 11.3 8.9 12.8 5.0 4.4% 0.8 7.1% 58.0% (136.6) 12.3 N/A 0.87


Price chart

Corporate profile

1.4

3.50

1.3

3.00

1.2

2.50 2.00

1.1

1.50 1.0

1.00

0.9 0.8 De c-09

0.50 0.00 Ma y-10 Volume 10m (R.H.S ca le )

Source: Bloomberg

Oct-10 Ea s te rn & Orie nta l Bhd

E&O is a product of numerous restructuring exercises including divestments and mergers. The now streamlined group has three core businesses, i.e. property development, hospitality & lifestyle and property investment. E&O has over 1,400 acres of landbank in Kuala Lumpur and Penang Island. This includes 740 acres of land to be reclaimed under Phase 2 of the Seri Tanjung Pinang project in Penang. The group owns the heritage Eastern & Oriental Hotel and Lone Pine Hotel in Penang. E&O also has numerous small parcels of very prime landbank in the centre of Kuala Lumpur.


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PROFIT & LOSS (RM m, FYE Mar) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 303 (275) 27 (12) 15 (19) (3) (32) 0 (38) 6 (5) (38) 592 592

2010 352 (280) 72 (16) 56 2 8 28 0 94 (19) (4) 71 762 762

2009 341 0 758 1,099 246 95 105 426 872 75 395 95 565 524 47 571 814 22 1.37

2010 395 0 755 1,150 559 55 73 342 1,029 19 382 98 499 564 47 611 1,042 26 1.37

2011F 395 (322) 73 (19) 54 (17) 32 0 0 69 (19) (5) 45 796 796

2012F 526 (428) 98 (20) 79 (21) 44 0 0 102 (25) (6) 70 796 796

2013F 657 (522) 134 (20) 115 (23) 26 0 0 117 (29) (7) 81 796 796

(FYE Mar) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2012F 366 0 1,091 1,456 504 45 109 415 1,074 28 421 100 549 769 64 833 1,110 38 1.39

2013F 351 0 1,128 1,479 494 40 136 458 1,129 35 442 101 578 750 73 824 1,161 45 1.46

(FYE Mar) Undeveloped landbank (acres) Company's targeted sales (RMm) Margin - Property development (%) Gross Margin (%)

2011F 380 0 922 1,302 531 50 82 376 1,039 21 401 98 520 679 47 726 1,064 32 1.34

2011F 12.1 1.3 17.4 11.4 1.8 27.0 50.4 71.7 48.5 18.6

2012F 33.2 34.4 19.4 13.3 2.3 25.0 34.0 66.4 32.8 17.2

2013F 24.8 36.7 17.8 12.3 3.2 25.0 37.0 68.3 23.6 17.7

2010 1,463 1,000 40.0% 20.5%

2011F 1,443 585 23.7% 18.5%

2012F 1,423 700 22.4% 18.7%

2013F 1,403 850 23.5% 20.5%

CURRENT P/BV(X)

CASH FLOW (RM m, FYE Mar) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 16.5 165.0 26.6 20.1 2.4 19.9 30.6 92.2 78.0 48.5

KEY DRIVERS

BALANCE SHEET (RM m, end Mar) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 (41.4) (74.1) (12.6) (12.5) 0.5 N/A N/A 169.2 74.0 85.6

2009 (38) 12 (111) (23) 22 (138) (104) 216 (265) (153) 57 387 0 (361) 83 (208) (265) (672)

2010 94 16 100 (16) (10) 184 (70) 3 22 (45) 28 157 (22) 11 174 313 285 (387)

2011F 69 19 (35) (19) (15) 19 (5) (167) 0 (172) 134 0 (23) 15 126 (27) (161) (548)

2012F 102 20 (54) (6) (23) 38 (5) (169) 0 (174) 110 0 (24) 23 110 (27) (137) (685)

2013F 117 20 (59) (19) (2) 57 (5) (38) 0 (43) 2 0 (30) 2 (25) (11) (13) (698)

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 Dec-07

Apr-08

Aug-08



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Dec-09

Apr-10

Aug-10

Dec-10


Eksons Corporation Bhd

OUTPERFORM

Maintained

RM1.00

@07/12/10

Property is a new plank for earnings

MALAYSIA

2011 OUTLOOK


Target: RM1.26 Timber

EKSON MK / EKSN.KL

Nigel Foo +60(3) 2084 9293 – [email protected]

• Reiterate OUTPERFORM. Eksons remains an OUTPERFORM. We retain our valuation basis of 0.6x P/NTA, which is its 3-year average. This gives us an unchanged target price of RM1.26. Potential share price triggers are i) higher sales for its property project, ii) a further pickup in plywood prices and iii) its attractive valuations of 0.5x P/BV and 4x CY11 P/E. • Middle East is main market for timber. Demand for the group’s thin plywood remains strong in its main export markets, the Middle East and Africa. The US used to be its main export market but is unlikely to see a recovery anytime soon as its housing market is still in the doldrums. Eksons does not supply plywood to Japan. • Prices picking up. Average plywood price has risen from US$425-430/m3 last year to around US$450/m3 currently. With industry supply remaining tight and demand showing signs of picking up in 2011, we believe that the average plywood price should stabilise around US$450-460/m3 over the next few quarters. • Property to start contributing this year. The property division should provide some earnings stability amid volatile timber earnings. In mid-09, Eksons launched its maiden property project, “The Atmosphere”, an RM850m commercial project in Seri Kembangan, Selangor. The project has secured close to RM230m bookings since its launch in Aug 09 and the average take-up rate is 90%.Assuming 25% net profit margin from current sales, property could contribute around RM55m-60m net profit over the next three years. We are projecting RM11m-12m EBIT contribution from the division for FY11 and around RM20m for FY12. • Strong balance sheet. Eksons’s balance sheet is strong with RM21m net cash (RM0.13/share), which is equivalent to 13% of its share price. This gives the company the capacity to acquire assets, particularly property landbank. Financial summary


RM163m/US$52m RM1.13 RM0.78 3-m avg daily vol: 0.1m No. of shrs (m): 164 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - Tay Hua Sin 46.9 - Faizal bin Abdul Aziz 12.3 - EPF 1.8

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 291.1 33.3 11.4% 20.7 26.0 15.8 (38.1%) 6.3 2.7 2.7% 0.5 8.6% 0.32 14.1 3.9

2010 279.1 27.0 9.7% 13.9 17.4 10.6 (33.1%) 9.4 4.1 4.2% 0.5 5.3% 0.09 (5.9) 6.3

2011F 348.7 53.6 15.4% 39.6 34.9 21.3 100.7% 4.7 5.9 5.9% 0.4 9.8% 0.31 6.3 2.5 1.01

2012F 367.8 61.8 16.8% 47.3 42.1 25.6 20.5% 3.9 7.1 7.1% 0.4 10.9% 0.57 3.3 1.5 0.99

2013F 382.3 76.4 20.0% 61.4 54.2 33.0 28.8% 3.0 9.2 9.2% 0.4 12.7% 0.89 2.5 0.5 1.00


Price chart

Corporate profile

1.2

1.80 1.60

1.1

1.40 1.20

1.0

1.00 0.80

0.9

0.60 0.40

0.8

0.20 0.7 De c-09


Oct-10 Eks ons Corpora tion Bhd

Eksons is one of the region's major producers of thin plywood, focusing on plywood of 2.5mm and 2.7mm thickness. Thin plywood is mainly used in interior design and furniture. The company has two plants in East Malaysia, Tawau and Sibu, with a combined annual capacity of 285,000 cu metres. Products are sold under the “Panda” brand. Its largest export markets are currently the Middle East, Asia and Africa. Its maiden property project, a commercial development in Seri Kembangan, named “The Atmosphere” will start contributing to Eksons’s bottomline in FY11.

Source: Bloomberg


[ 80 ]



2009 291 (258) 33 (13) 20 0 0 0 0 21 5 0 26 164 164

2010 279 (252) 27 (13) 14 0 0 0 0 14 5 (1) 17 164 164

2011F 349 (295) 54 (14) 40 0 0 0 0 40 (5) 0 35 164 164

2012F 368 (306) 62 (15) 47 0 0 0 0 47 (5) 0 42 164 164

2013F 382 (306) 76 (15) 61 0 0 0 0 61 (7) 0 54 164 164

2009 202 15 0 217 67 70 19 85 242 17 15 5 37 0 84 84 318 19 1.84

2010 178 27 9 214 54 86 35 51 226 31 40 4 75 0 3 3 343 20 1.93

2011F 174 27 9 210 73 83 34 51 241 32 21 4 57 0 3 3 371 20 2.10

2012F 170 27 9 206 114 80 34 51 279 32 21 4 57 0 3 3 404 20 2.30

2013F 165 27 9 201 168 75 34 51 328 32 21 4 57 0 3 3 448 20 2.56

2009 21 13 (1) 5 0 38 (24) 0 (3) (26) 0 13 (4) 0 9 20 20 53

2010 14 13 (4) 0 11 35 (70) 0 0 (70) 8 0 (5) 2 4 (31) (39) 14

2011F 40 14 6 (5) 0 55 (10) 0 0 (10) (19) 0 (7) 0 (26) 19 38 52

2012F 47 15 3 (5) 0 60 (10) 0 0 (10) 0 0 (8) 0 (8) 41 41 93

2013F 61 15 5 (7) 0 74 (10) 0 0 (10) 0 0 (11) 0 (11) 53 53 146

2011F 25.0 98.5 11.4 10.0 N/A 11.5 20.0 36.1 88.6 32.8

2012F 5.5 15.3 12.9 11.4 N/A 10.8 20.0 33.7 80.9 31.8

2013F 4.0 23.6 16.1 14.2 N/A 11.5 20.0 32.5 74.0 30.6

(FYE Mar) Average plywood price (US$/cu m) Annual prodn capacity (cu m) Production (cu m p.a.) Average log price (US$/cu m)

2010 425 285,000 185,250 145

2011F 2012F 2013F 450 450 450 285,000 285,000 285,000 203,000 228,000 228,000 165 165 165



2010 (4.1) (18.9) 5.0 6.2 N/A N/A 28.2 35.3 102.2 31.1

KEY DRIVERS


2009 (19.6) (34.6) 7.1 8.9 N/A N/A 12.3 31.1 81.8 23.7


9.0

8.0

7.0

6.0

5.0

4.0

3.0 Dec-07

Apr-08

Aug-08



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Apr-10

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Dec-10

Fraser & Neave Holdings Bhd

UNDERPERFORM

Maintained

RM16.26

@07/12/10

Growth is fizzling out

MALAYSIA

2011 OUTLOOK


Target: RM11.05 Food & Beverages

FNH MK / FRAS.KL

Norziana Mohd Inon +60(3) 2084 9645 – [email protected]

• Maintain UNDERPERFORM. We maintain our EPS forecasts and DCF-based target price of RM11.05 (WACC of 7.3%). F&N remains an UNDERPERFORM, with the potential downside triggers being 1) margin pressure from price discounting, and 2) core EPS contraction in FY11 and marginal growth in FY9/12-13. Our top F&B pick is CI Holdings. • Tricky Thai market. In preparation for the expiry of the agreement with The CocaCola Company (TCCC) in Sep 11, F&N will launch more soft drink products/variants and strengthen its distribution. The company is also exploring the possibility of exporting its soft drinks to Brunei and Thailand. Thailand is a familiar market for F&N given the dairy business. However, soft drinks are price-controlled items in Thailand, making price adjustments difficult and potentially putting pressure on margins. • New plant in Pulau Indah. The Rojana plant serves as a blueprint for F&N’s new 37.4-acre, RM350m plant at the Pulau Indah halal hub. Currently, dairy production in Malaysia is carried out at the Petaling Jaya facility which is facing capacity constraints after 30 years of operations. The Pulau Indah plant is expected to be ready next year. In Malaysia, F&N has over 60% market share for sweetened condensed milk and about 80% market share for evaporated milk. • Red Bull charges ahead. In Feb 10, F&N signed a 5-year agreement giving it exclusive distribution rights for Red Bull energy drinks in Malaysia. The beverages were launched in Apr and have shown encouraging growth. FY11 will see the first full-year contribution by Red Bull. Financial summary

Stock Information Market cap: RM5,832m/US$1,859m 12-m price range: RM16.26 RM10.34 3-m avg daily vol: 0.1m No. of shrs (m): 359 Est. free float (%): 21.3 Conv. secs (m): None Major shareholders (%): - Fraser and Neave Ltd 57.2 - Skim ASB 21.5 - EPF 5.2

FYE Sep Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 3,737.1 453.0 12.1% 299.8 224.4 63.0 34.5% 25.8 53.4 3.3% 5.8 21.9% 0.18 38.7 13.0

2010 3,637.7 519.4 14.3% 776.1 695.3 195.1 209.8% 8.3 182.7 11.2% 4.4 60.0% 1.13 9.3 10.7

2011F 4,929.9 454.7 9.2% 362.7 267.2 74.9 (61.6%) 21.7 53.4 3.3% 5.1 21.8% 0.96 21.6 12.4 0.93

2012F 5,040.8 465.2 9.2% 373.0 274.8 77.1 2.8% 21.1 53.4 3.3% 5.1 24.2% 1.23 25.4 11.9 0.94

2013F 5,093.9 481.2 9.4% 384.4 283.2 79.4 3.1% 20.5 53.4 3.3% 5.1 24.8% 1.51 24.8 11.3 0.99


Price chart

Corporate profile

16.8

1.00

15.8

0.80

14.8 13.8

0.60

12.8

0.40

11.8

0.20

10.8 9.8 De c -09

0.00 Ma y-10

Volume 1m (R.H.S ca le )

Source: Bloomberg

Oct-10 Fra s e r & Ne a ve Holdings Bhd

F&N’s core divisions are soft drinks, dairy and property. Coca-Cola has been the F&N’s flagship product for decades but the non-renewal of agreements with TCCC has prompted the company to accelerate the rollout of other products, especially isotonic and Asian drinks, which have gained traction. Meanwhile, the dairy division continues to enjoy the lion’s share of the local sweetened condensed milk market after the RM310m acquisition of Nestle’s business in Feb 07. The Fraser Business Park Phase 2 property development is nearing completion. In FY10, F&N disposed of its glass business.


[ 82 ]


PROFIT & LOSS (RM m, FYE Sep) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 3,737 (3,284) 453 (139) 314 (14) 0 0 0 300 (57) (18) 224 356 356

2010 3,638 (3,118) 519 (145) 374 0 0 402 0 776 (82) 1 695 356 356

2011F 4,930 (4,475) 455 (89) 365 (3) 0 0 0 363 (83) (12) 267 356 356

2012F 5,041 (4,576) 465 (93) 372 1 0 0 0 373 (86) (12) 275 356 356

2013F 5,094 (4,613) 481 (98) 383 1 0 0 0 384 (88) (13) 283 356 356

2012F 207 0 3 210 590 678 944 0 2,211 840 15 15 870 136 87 224 1,142 186 3.20

2013F 110 0 3 113 682 685 955 0 2,322 850 14 15 879 129 87 216 1,141 199 3.20

2009 532 0 3 534 243 578 806 0 1,627 717 21 15 753 159 86 245 1,005 159 2.82

2010 388 0 3 390 572 680 947 0 2,199 843 19 15 877 151 86 237 1,313 162 3.68

2011F 299 0 3 302 503 661 921 0 2,085 820 17 15 852 143 86 230 1,132 174 3.18

2011F 35.5 (12.5) 7.4 5.4 32.6 23.0 51.3 69.1 49.6 61.6

2012F 2.2 2.3 7.4 5.5 35.2 23.0 49.9 67.5 48.5 60.1

2013F 1.1 3.4 7.5 5.6 38.3 23.0 48.4 68.0 48.8 60.5

(FYE Sep) Manufacturing overhead growth (%) Capacity utilisation (%) Raw material price growth (%) SKU

2010 6.0% 95.0% 12.0% 422

2011F 6.0% 95.0% 12.0% 423

2012F 6.0% 95.0% 12.0% 424

2013F 6.0% 95.0% 12.0% 425


CASH FLOW (RM m, FYE Sep) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 (2.7) 14.6 21.3 19.1 52.2 10.6 67.4 87.9 63.1 78.3

KEY DRIVERS

BALANCE SHEET (RM m, end Sep) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 4.1 22.3 8.0 6.0 17.8 19.0 61.1 73.3 52.6 65.2

(FYE Sep) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 300 139 (92) (60) (42) 245 (84) 0 0 (84) (11) 0 (141) 1 (151) 10 21 63

2010 776 145 (117) (72) (107) 625 (97) 103 0 6 (10) 0 (294) 1 (303) 328 339 402

2011F 363 89 22 (85) 0 389 (112) 0 0 (112) (9) 0 (337) 1 (346) (68) (59) 343

2012F 373 93 (19) (83) 2 366 (128) 0 0 (128) (9) 0 (143) 1 (151) 87 96 439

2013F 384 98 (9) (86) 2 390 (148) 0 0 (148) (8) 0 (143) 1 (150) 92 100 539

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20.0

18.0

16.0

14.0

12.0

10.0 Dec-07

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Dec-09

Apr-10

Aug-10

Dec-10


Gamuda Bhd

OUTPERFORM

Maintained

RM3.76

@07/12/10

Riding on the MRT

MALAYSIA

2011 OUTLOOK


Target: RM5.00 Construction

GAM MK / GAMU.KL

Sharizan Rosely +60 (3) 2084 9864 – [email protected]

• Maintain OUTPERFORM. We are encouraged by the progress of the proposed KL MRT, which is slated to start work in Jul 2011. This suggests that project approval, tender process and project awards are likely to come through within the next six months. A major milestone would be Cabinet approval which should occur by end2010. This is positive for Gamuda as it has a good chance of bagging the RM13bn14bn tunnelling works. We maintain our OUTPERFORM rating but nudge upwards our RNAV-based target price from RM4.96 to RM5.00 as we apply our higher target market P/E of 14.5x (prev. 13.8x) to the construction component. The main re-rating catalyst is progress and award of the MRT project. Gamuda remains one of our top picks for the construction sector. • Open tender with some advantages as a chariot master. We continue to believe that even though the entire RM36bn-40bn MRT project will be up for open tender, Gamuda-MMC will have an advantage in bidding for the job. The JV is still interested in undertaking the RM13bn-14bn tunnelling job and its odds of clinching this portion are good given its track record and expertise in handling large-scale infrastructure works such as the SMART tunnel and the northern double-tracking project. The tunnelling works will be the first package to be dished out. Going by the Jul 2011 timeline for the groundbreaking, we expect the award of the first MRT package to occur in 1H2011. Financial summary

Stock Information Market cap: RM7,687m/US$2,443m 12-m price range: RM3.98 RM2.58 3-m avg daily vol: 8.5m No. of shrs (m): 2,045 Est. free float (%): 79.4 Conv. secs (m): 252.3 Major shareholders (%): - EPF 8.3 - Amanah Raya Trustees 7.2 - Platinum 5.2

FYE Jul Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 2,727.3 303.4 11.1% 282.2 193.7 9.6 (33.8%) 39.1 9.6 39.1 7.9 2.1% 3.7 8.2% 41.1% 30.0 28.5

2010 2,455.1 236.6 9.6% 370.1 280.7 13.9 44.9% 27.0 13.7 27.4 12.0 3.2% 4.1 14.4% 60.9% 109.4 37.9

2011F 3,106.7 233.7 7.5% 479.2 335.0 16.6 19.3% 22.6 16.3 23.1 12.0 3.2% 3.7 17.2% 51.4% 225.9 38.2 0.89

2012F 4,107.8 327.2 8.0% 646.1 458.5 22.7 36.9% 16.5 22.1 17.0 12.0 3.2% 3.6 21.9% 47.4% (201.0) 27.2 1.01

2013F 4,587.9 417.9 9.1% 780.8 558.2 27.7 21.7% 13.6 32.9 11.4 12.0 3.2% 3.4 25.6% 43.7% (151.5) 21.3 1.09


Price chart

Corporate profile

4.2 4.0

3.00

3.8

2.50

3.6

2.00

3.4

1.50

3.2 3.0

1.00

2.8

0.50

2.6 2.4 De c-09


Oct-10 Ga muda Bhd

Since its inception as a pure construction player in 1976, Gamuda has gradually evolved through ventures into toll highways and property. It has diversified into water treatment as well as overseas via Indian highway projects, among others. Today, Gamuda is Malaysia’s premier infrastructure specialist with its scope of expertise covering highways, bridges, tunnels, dams and hydropower, hydraulic engineering and water treatment, railways and mass-rapid transit systems. It has also expanded to overseas markets including Vietnam.

Source: Bloomberg


[ 84 ]


PROFIT & LOSS (RM m, FYE Jul) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 2,727 (2,424) 303 (18) 285 (146) 143 0 0 282 (78) (11) 194 2,016 2,016

2010 2,455 (2,219) 237 (19) 218 (2) 154 0 0 370 (81) (9) 281 2,016 2,016

2011F 3,107 (2,873) 234 (19) 214 (22) 286 0 0 479 (125) (20) 335 2,016 2,016

2012F 4,108 (3,781) 327 (20) 307 (20) 359 0 0 646 (168) (20) 459 2,016 2,017

2013F 4,588 (4,170) 418 (20) 398 (20) 403 0 0 781 (203) (20) 558 2,017 2,017

2012F 24 18 1,958 2,000 644 88 2,154 299 3,185 301 320 729 1,350 1,437 50 1,487 2,131 215 1.05

2013F 5 18 1,952 1,975 612 98 2,373 300 3,382 335 256 803 1,394 1,437 55 1,492 2,237 235 1.10

2009 79 19 1,644 1,742 751 35 1,665 231 2,682 120 626 388 1,133 1,037 38 1,074 2,061 157 1.01

2010 62 19 1,814 1,895 714 63 1,900 265 2,942 215 501 564 1,280 1,437 112 1,549 1,833 176 0.90

2011F 43 18 1,963 2,024 678 66 1,894 298 2,936 228 401 593 1,221 1,437 46 1,482 2,061 196 1.01

2011F 26.5 (1.2) 15.4 10.8 4.8 26.0 52.0 222.9 7.6 26.0

2012F 32.2 40.0 15.7 11.2 7.3 26.0 38.0 179.8 6.9 23.5

2013F 11.7 27.7 17.0 12.2 9.9 26.0 31.2 180.1 7.4 25.3

(FYE Jul) Construction margins (%) Orderbook replenishment (RM m) Outstanding orderbook (RM m)

2010 5.0% 500 8,500

2011F 9.0% 500 9,200

2012F 9.0% 1,000 10,600

2013F 9.0% 1,000 12,000


CASH FLOW (RM m, FYE Jul) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 (10.0) (22.0) 15.1 11.4 5.0 21.8 62.1 265.1 7.3 24.9

KEY DRIVERS

BALANCE SHEET (RM m, end Jul) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 13.5 20.6 10.3 7.1 1.6 27.6 59.5 240.7 5.8 19.9

(FYE Jul) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 282 18 164 (80) 249 634 (14) (212) 0 (225) (156) 0 (86) (261) (504) (95) 62 (910)

2010 370 19 (376) (104) 95 4 (14) (234) 0 (247) 312 0 (86) 27 253 10 (302) (1,224)

2011F 479 19 70 (120) (16) 433 (14) (256) 0 (270) (130) 0 (86) (14) (231) (67) 63 (1,161)

2012F 646 20 (55) (156) (89) 366 (14) (308) 0 (322) (82) 0 (86) 90 (78) (34) 48 (1,113)

2013F 781 20 (103) (192) (133) 373 (14) (340) 0 (353) (70) 0 (86) 99 (57) (38) 32 (1,082)

43.0

38.0

33.0

28.0

23.0

18.0

13.0 Dec-07

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Dec-10

Genting Bhd

OUTPERFORM

Maintained

RM10.70

@07/12/10

Top gaming pick

MALAYSIA

2011 OUTLOOK


Target: RM15.20 Gaming

GENT MK / GENT.KL

Ivy Ng Lee Fang CFA +60(3) 2084 9697 – [email protected]

• Reiterate OUTPERFORM. Genting Bhd remains firmly an OUTPERFORM and our top pick within the group, with the potential share price triggers of i) less-thanexpected cannibalisation, ii) new M&A ventures and iii) value-unlocking efforts via disposal of non-core assets. Our SOP-based target price stays at RM15.20. Genting Bhd also provides indirect exposure to the high-growth Singapore gaming market as more than half of its SOP value comes from Genting Singapore. • A global gaming play. With its monopoly in Malaysia and market leadership in Singapore, Genting Bhd is well-positioned to capitalise on the positive outlook for gaming in Asia as the favourable economic climate will propel demand from a captive target market with a naturally higher propensity to gamble. For 2011, we expect RWS to maintain its market leadership, albeit marginally. There is also upside to the size of Singapore’s gaming pie with the expected licensing of junkets. Meanwhile, GM’s focus will be on its maiden project in the US and its newly acquired UK assets. We expect RWG to keep its focus on yields to protect its turf. • Plantation – the only non-core gem. The plantation arm is set for a better 2011 on the back of higher CPO prices and production. But power earnings could come under pressure as coal prices start heading north again. We also do not expect material contributions from the oil and gas division given the increasing dominance of the core gaming contributions. Non-core asset disposals, especially the nonperforming ones, could be a focus in 2011. Financial summary

Stock Information Market cap: RM39,729m/US$12,665m 12-m price range: RM10.80 RM6.22 3-m avg daily vol: 6.6m No. of shrs (m): 3,713 Est. free float (%): 50.0 Conv. secs (m): None Major shareholders (%): - Lim family 39.6

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 9,082.5 3,470.1 38.2% 1,733.1 567.6 15.3 (71.5%) 69.8 45.9 6.4% 23.3 7.0 0.7% 3.2 4.6% 0.97 69.2 12.8

2009 8,893.6 3,776.3 42.5% 2,528.4 1,044.3 28.2 84.0% 38.0 36.7 (20.2%) 29.2 7.2 0.7% 2.9 7.9% 0.32 6.9 13.1

2010F 14,850.2 6,508.2 43.8% 4,301.6 2,229.5 60.2 113.5% 17.8 65.7 79.3% 16.3 7.5 0.7% 2.5 15.0% 0.38 11.2 7.8 1.39

2011F 18,002.3 7,958.6 44.2% 5,893.2 2,974.1 80.3 33.4% 13.3 80.3 22.2% 13.3 7.5 0.7% 2.1 17.2% 1.95 4.9 5.8 1.08

2012F 20,039.7 8,595.2 42.9% 6,564.9 3,458.6 93.4 16.3% 11.5 93.4 16.3% 11.5 7.9 0.7% 1.8 17.0% 3.58 7.2 4.9 1.13


Price chart

Corporate profile 2.50

10.9

2.00 9.9

1.50

8.9

1.00

7.9

0.50

6.9 5.9 De c -09

0.00 Ma y-10 Volume 10m (R.H.S c a le )

Source: Bloomberg

Oc t-10 Ge nting Bhd

The Genting group is owned by the family of the late Tan Sri Lim Goh Tong. Its prized asset is Resorts World Genting (RWG), held by 49%-owned Genting Malaysia (GM), which also owns 18% of Genting Hong Kong. The huge success of Resorts World Sentosa (RWS), which opened doors in Singapore earlier this year, has strengthened the group’s gaming earnings. Its 55%-subsidiary Genting Plantations is among the larger plantation operators with a 66,000ha landbank. The group holds a 58.6% interest in Genting Sanyen Power with associate interests in China and India power assets. The oil & gas operations include several producing wells in China and exploration in Indonesia. The S.E.A. Navigator – Malaysia 2011

[ 86 ]



2008 9,083 (5,612) 3,470 (625) 2,846 (54) 74 (1,133) 0 1,733 (751) (414) 568 3,704 3,704

2009 8,894 (5,117) 3,776 (687) 3,089 (136) 20 (445) 0 2,528 (746) (739) 1,044 3,704 3,705

2010F 14,850 (8,342) 6,508 (1,228) 5,280 (183) 20 (815) 0 4,302 (944) (1,128) 2,230 3,705 3,705

2011F 2012F (FYE Dec) 18,002 20,040 Revenue growth (%) (10,044) (11,444) EBITDA growth (%) 7,959 8,595 Pretax margins (%) (1,884) (1,952) Net profit margins (%) 6,075 6,644 Interest cover (x) (202) (99) Effective tax rates (%) 20 20 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 5,893 6,565 Creditors turnover (days) (1,349) (1,396) (1,570) (1,710) 2,974 3,459 3,705 3,705 3,705 3,705

2008 10,692 3,523 5,103 19,317 9,467 376 1,090 201 11,133 1,512 442 251 2,206 5,414 1,417 6,832 12,442 8,971 2.41

2009 16,450 3,914 6,590 26,955 14,707 387 1,097 356 16,547 2,382 853 202 3,436 12,659 1,693 14,352 13,887 11,825 2.69

2010F 20,510 3,914 6,512 30,936 17,834 646 1,831 594 20,906 3,977 767 883 5,628 15,659 1,693 17,352 15,908 12,953 3.24

2011F 19,626 3,914 6,528 30,068 25,559 784 2,220 721 29,283 4,822 691 1,289 6,801 17,659 1,693 19,352 18,674 14,523 3.98

2012F 18,674 3,914 6,543 29,131 30,668 872 2,471 802 34,814 5,367 621 1,340 7,329 16,776 1,693 18,469 21,913 16,233 4.86

2010F 67.0 72.3 29.0 15.0 13.1 21.9 9.0 36.0 12.7 78.2

2011F 21.2 22.3 32.7 16.5 12.9 22.9 6.7 41.1 14.5 89.2

2012F 11.3 8.0 32.8 17.3 13.8 21.3 6.1 42.7 15.1 92.8

(FYE Dec) Number of tables Number of slots Net win per table p.a. (RM m) Net win per slot p.a. (RM m) Average occupancy rate (%) Number of rooms - Total Universal Studios visitor (m) Net win per table (S$ m)

2009 420 3,500 8.546 0.289

2010F 420 3,500 8.525 0.289 75.0% 1,350 4.1 10

2011F 420 3,500 8.649 0.293 95.0% 1,350 4.6 11

2012F 420 3,500 8.908 0.302 85.0% 1,500 5.6 11



2009 (2.1) 8.8 28.4 11.7 11.8 29.5 18.4 44.9 15.7 79.9

KEY DRIVERS


2008 7.1 (6.6) 19.1 6.2 10.6 43.4 32.9 38.6 13.8 57.9

2008 1,733 625 (180) (886) 1,646 2,938 (2,500) (345) 0 (2,846) 535 (174) (524) (54) (217) (125) (660) 3,608

2009 2,528 687 852 (863) 326 3,531 (5,205) (100) 0 (5,305) 7,655 0 (504) (136) 7,014 5,240 (2,415) 1,193

2010F 4,302 1,228 602 (746) 808 6,194 (5,288) (100) 0 (5,388) 2,915 0 (408) (183) 2,323 3,128 214 1,407

2011F 5,893 1,884 318 (944) 361 7,512 (1,000) (100) 0 (1,100) 1,923 0 (408) (202) 1,313 7,725 5,802 7,209

2012F 6,565 1,952 206 (1,349) 296 7,669 (1,000) (100) 0 (1,100) (952) 0 (408) (99) (1,460) 5,109 6,061 13,270

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Genting Malaysia Bhd

NEUTRAL

Maintained

RM3.34

@07/12/10

A dicey bet

MALAYSIA

2011 OUTLOOK



GENM MK / GENM.KL


• Reiterate NEUTRAL. We are staying NEUTRAL on Genting Malaysia (GM) as we see limited re-rating catalysts for the stock over the near term. The minimal nearterm earnings enhancement from its global expansion drive is largely offset by lingering corporate governance and newfound competitive concerns. Our end-CY11 SOP-based target price stays at RM3.90 (10% discount intact). • RWG on auto-cruise mode. We expect GM to continue focusing on yields in 2011 as it proactively minimises punting migration to Singapore’s two new IRs. In the past, the emphasis on yield has been a rewarding one, with GM successfully sustaining patronage even during the worst of economic times and the peak of A(H1N1) worries. • Realising global ambition. 2011 will also see GM spreading its wings to nurture its maiden project in US while also turning around its newly acquired UK assets. Phase 1 of its Aqueduct project is expected to be unveiled by mid-year with some 1,600 video lottery terminals. Meanwhile, GM will be banking on its powerful membership database and gradually revamping its provincial casinos to drive patronage of its UK casinos. • Still sitting on RM2bn+ cash pile. We estimate that even after the UK and US additions, GM is still sitting on a healthy cash balance in excess of RM2bn. Because of this, we do not discount the possibility of more unpopular RPTs ahead. Financial summary

Stock Information Market cap: RM19,756m/US$6,298m 12-m price range: RM3.64 RM2.51 3-m avg daily vol: 7.4m No. of shrs (m): 5,915 Est. free float (%): 50.0 Conv. secs (m): None Major shareholders (%): - Genting Berhad 47.3 - First Eagle Investment 3.6

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 4,886.7 2,034.5 41.6% 1,125.3 632.7 10.8 (60.8%) 31.0 23.8 18.1% 14.1 7.0 2.1% 2.4 7.7% N/A 0.77 10.8 7.4

2009 4,991.8 2,038.7 40.8% 1,764.5 1,323.6 22.4 107.9% 14.9 23.5 (1.3%) 14.2 7.3 2.2% 1.9 14.3% N/A 0.89 18.3 7.1

2010F 5,134.4 1,932.5 37.6% 1,617.3 1,229.6 20.8 (7.1%) 16.0 22.7 (3.3%) 14.7 7.9 2.4% 1.8 11.5% N/A 1.08 13.6 6.9 1.01

2011F 7,003.3 2,165.7 30.9% 1,941.0 1,403.1 23.8 14.1% 14.1 23.8 4.7% 14.1 7.9 2.4% 1.6 11.9% N/A 1.28 13.0 5.6 0.97

2012F 7,688.1 2,309.1 30.0% 2,081.5 1,530.7 25.9 9.1% 12.9 25.9 9.1% 12.9 8.2 2.5% 1.5 11.9% N/A 1.47 12.9 4.8 0.97


Price chart

Corporate profile

3.9

8.00

3.7

7.00

3.5

6.00

3.3

5.00

3.1

4.00

2.9

3.00

2.7

2.00

2.5 2.3 De c-09


Source: Bloomberg

Oct-10 Ge nting Ma la ys ia Bhd

Genting Malaysia (GM), previously Resorts World, is a 47%-owned subsidiary of Genting Bhd. Its principal business is the operation of Resorts World Genting, an integrated resort and casino located 45mins from Kuala Lumpur. The resort consists of six hotels and two apartment blocks, offering a total of over 10,000 rooms. The Genting casino has over 400 gaming tables and 3,500 slot machines. It recently completed the acquisition of Genting Singapore’s UK casino assets and is in the midst of rolling out its maiden venture in Aqueduct in US. GM also holds just under 20% interest in Genting Hong Kong, the third largest cruise operator in the world and the joint operator of the newly opened Resorts World Manila in the Philippines. The S.E.A. Navigator – Malaysia 2011

[ 88 ]



2008 4,887 (2,852) 2,035 (262) 1,773 114 1 (762) 0 1,125 (493) 0 633 5,866 5,902

2009 4,992 (2,953) 2,039 (270) 1,769 78 0 (81) 0 1,765 (441) 0 1,324 5,903 5,905

2010F 5,134 (3,202) 1,933 (276) 1,657 106 0 (145) 0 1,617 (388) 0 1,230 5,905 5,905

2011F 7,003 (4,838) 2,166 (332) 1,834 107 0 0 0 1,941 (538) 0 1,403 5,905 5,905

2012F 7,688 (5,379) 2,309 (358) 1,951 131 0 0 0 2,081 (551) 0 1,531 5,905 5,905


2011F 3,675 0 2,318 5,993 7,548 87 261 25 7,922 891 0 329 1,220 0 367 367 12,322 6 2.09

2012F 3,752 0 2,318 6,070 8,705 96 286 28 9,115 978 0 345 1,323 0 367 367 13,489 6 2.28

(FYE Dec) Number of tables Number of slots Net win per table p.a. (RM m) Net win per slot p.a. (RM m) Revenue growth (%)

2008 3,638 0 963 4,602 4,555 60 186 20 4,821 541 0 238 779 0 319 319 8,318 7 1.41

2009 3,482 0 2,318 5,800 5,272 62 186 18 5,538 635 0 200 835 0 367 367 10,137 7 1.72

2010F 3,587 0 2,318 5,904 6,381 64 191 19 6,655 653 0 264 918 0 367 367 11,268 7 1.91

2010F 2.9 (5.2) 31.5 23.9 N/A 24.0 27.3 13.4 4.5 45.8

2011F 36.4 12.1 27.7 20.0 N/A 27.7 23.9 11.8 3.9 40.3

2012F 9.8 6.6 27.1 19.9 N/A 26.5 22.8 13.0 4.3 44.4

2009 420 3,500 8.546 0.289 2.9%

2010F 420 3,500 8.525 0.289 2.1%

2011F 420 3,500 8.649 0.293 36.6%

2012F 420 3,500 8.908 0.302 9.8%



2009 2.1 0.2 35.3 26.5 N/A 25.0 23.4 13.6 4.5 43.0

KEY DRIVERS


2008 12.3 15.6 23.0 12.9 1,077.6 43.8 47.0 14.0 4.5 38.6

2008 1,125 262 50 (416) 735 1,756 (518) 639 0 121 (175) 0 (288) 105 (358) 1,519 1,694 4,573

2009 1,765 270 92 (469) (127) 1,531 (130) (402) 0 (532) 0 (74) (300) 78 (296) 703 703 5,276

2010F 1,617 276 11 (441) 287 1,750 (400) 0 0 (400) 0 0 (350) 106 (244) 1,105 1,105 6,381

2011F 1,941 332 145 (388) (241) 1,789 (400) 0 0 (400) 0 0 (350) 128 (222) 1,167 1,167 7,548

2012F 2,081 358 53 (538) (177) 1,777 (404) 0 0 (404) 0 0 (368) 151 (217) 1,157 1,157 8,705

18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 Dec-07

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Dec-10


Genting Plantations Bhd

NEUTRAL

Maintained

RM8.68

@07/12/10

Planting roots in Indonesia

MALAYSIA

2011 OUTLOOK


Target: RM9.84 Palm Oil & Rubber

GENP MK / GENP.KL


• Retain NEUTRAL rating. We continue to rate Genting Plantations a NEUTRAL as our bullish take on CPO price in 2011 is already reflected in the group’s valuations. Also unchanged are our earnings forecasts and our target price basis of 10% discount to SOP. However, we increase our target price from RM9.37 to RM9.84 as we raise our target P/E for the plantation division from 16x to 17x, based on a 15% premium over our revised target market P/E of 14.5x. • Rising CPO price and production to boost earnings. We project the group’s FY11 earnings to rise 16% due mainly to higher selling prices and production. Asiatic’s strategy of selling almost all of its CPO production on spot basis means that the group will benefit in a rising CPO price environment. We estimate that every RM100 per tonne change in CPO price would have a 6% impact on our FY11 net profit forecast. We expect the group to achieve a higher average CPO price and better production in 2011 as more Indonesian estates will reach maturity in 2011. On top of that, Genting Plantations should book higher property earnings from more sales of industrial land. • Making good progress in Indonesia. Thanks to favourable weather, the pace of new planting in Indonesia has picked up. The group planted 9,478ha in 9M10, bringing its total planted area in Indonesia to 27,147ha. It hopes to plant a further 2,000ha by the end of 2010. Overall, we expect the group to plant around 11,500ha in 2010. This will raise Indonesia’s share of the group’s planted estates to 33%. Financial summary

Stock Information Market cap: RM6,587m/US$2,100m 12-m price range: RM8.95 RM6.00 3-m avg daily vol: 0.9m No. of shrs (m): 759 Est. free float (%): 32.4 Conv. secs (m): None Major shareholders (%): - Genting 53.8 - Employees Provident Fund 13.8

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 1,036.0 488.1 47.1% 482.9 373.3 49.3 8.4% 17.6 10.0 1.2% 2.8 17.0% 0.66 49.4 12.5

2009 755.6 312.5 41.4% 301.9 235.7 31.1 (36.9%) 27.9 9.0 1.0% 2.6 9.7% 0.61 31.7 19.7

2010F 932.5 456.3 48.9% 446.3 326.0 43.1 38.3% 20.1 9.0 1.0% 2.3 12.1% 0.74 43.3 13.3 0.98

2011F 1,043.7 523.1 50.1% 503.0 377.3 49.9 15.7% 17.4 9.0 1.0% 2.1 12.6% 0.94 32.6 11.3 1.02

2012F 1,126.3 549.2 48.8% 529.9 397.4 52.5 5.3% 16.5 16.0 1.8% 1.9 12.0% 1.25 20.7 10.3 0.97


Price chart

Corporate profile

9.2

5.00

8.7 4.00

8.2

3.00

7.7 7.2

2.00

6.7 1.00

6.2 5.7 De c-09


Source: Bloomberg

Oct-10 Ge nting P la nta tions Bhd

Formerly Asiatic Development, Genting Plantations is the plantation arm of Genting Berhad and one of the top Malaysian plantation companies by market cap. The company was incorporated on 29 Sep 1977 to spearhead Genting's plantation business. It was listed on Bursa Malaysia on 30 Aug 1982. This midsized plantation company has 87,147ha of planted oil palm estates located in Malaysia (69%) and Indonesia (31%). It also has property development projects in Johor, Kedah and Melaka. The group also owns Asiatic Centre for Genome Technology (ACGT) which focuses on R&D in genome sequencing and biomarker discovery that will lead to innovations for enhancing the productivity and sustainability of palm oil production.


[ 90 ]



2008 1,036 (548) 488 (22) 467 12 4 0 0 483 (106) (4) 373 757 755

2009 756 (443) 313 (26) 286 10 5 0 0 302 (64) (2) 236 757 757

2008 437 0 1,253 1,690 521 140 131 69 861 48 19 64 131 1 55 56 2,332 33 3.09

2009 493 0 1,485 1,978 526 152 156 56 889 75 2 59 135 66 53 119 2,548 67 3.37

2010F 933 (476) 456 (31) 426 6 5 10 0 446 (118) (2) 326 757 757

2011F 1,044 (521) 523 (34) 490 8 5 0 0 503 (126) (2) 377 757 757

2012F 1,126 (577) 549 (37) 513 12 5 0 0 530 (132) (2) 397 757 757


2011F 829 0 1,484 2,313 781 172 126 69 1,149 49 0 76 124 66 53 119 3,151 71 4.16

2012F 893 0 1,484 2,377 1,009 178 137 76 1,401 52 0 79 131 66 53 119 3,458 73 4.57

(FYE Dec) CPO price per tonne (RM) FFB output (000' tonnes) FFB yield per ha (tonnes) Mature area (ha) FFB growth (%)

2010F 663 0 1,484 2,147 629 164 114 63 971 43 0 65 108 66 53 119 2,824 69 3.73

2010F 23.4 46.0 47.9 35.0 N/A 26.5 15.5 52.8 61.9 23.1

2011F 11.9 14.6 48.2 36.1 N/A 25.0 13.4 42.1 58.9 16.1

2012F 7.9 5.0 47.0 35.3 N/A 25.0 22.5 42.7 56.8 16.4

2009 2,240 1,148 21 54,982 -6.9%

2010F 2,620 1,220 22 56,982 6.3%

2011F 2,720 1,324 22 61,721 8.5%

2012F 2,720 1,435 22 71,721 8.4%



2009 (27.1) (36.0) 40.0 31.2 N/A 21.2 21.4 69.2 70.5 29.7

KEY DRIVERS


2008 14.3 5.7 46.6 36.0 N/A 21.9 15.0 41.0 45.7 15.9

2008 483 22 (44) (157) (16) 287 (111) (85) 5 (192) 18 0 (88) (1) (71) 25 6 501

2009 302 26 (19) (64) (15) 231 (86) 0 5 (82) 48 1 (56) (137) (144) 5 (43) 458

2010F 446 31 (6) (118) (10) 343 (200) 0 5 (195) (2) 1 (50) 6 (46) 102 104 562

2011F 503 34 (10) (126) (12) 388 (200) 0 5 (195) 0 1 (50) 8 (41) 152 152 714

2012F 530 37 (17) (132) (17) 400 (100) 0 5 (95) 0 1 (50) (27) (76) 229 229 943

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Guinness Anchor Bhd

NEUTRAL

Maintained

RM9.96

@07/12/10

More reason for cheer

MALAYSIA

2011 OUTLOOK


Target: RM10.45 Brewers

GUIN MK / GUMS.KL

Loke Wei Wern +60 (3) 2084 9946 – [email protected]

• Maintain NEUTRAL. As a leader in the Malaysian malt liquor industry with a solid product portfolio and marketing prowess, GAB is well-positioned to ride on the improving industry fundamentals. Its valuations are arguably not cheap as its 17.0x FY12 P/E stands at a 33% premium over its 3-year historical average of 12.8x. But investors should be compensated by an attractive gross yield of 6-7%. We remain NEUTRAL on the stock despite a higher DDM-based target price of RM10.45 (RM8.85 previously) after lowering our cost of equity from 8% to 7% for a cut in the beta assumption from 0.6x to 0.4x. Our FY10-12 earnings projections are intact. • To remain the market leader in 2011? We think that brand investments will continue to be one of GAB’s key strategies for retaining its leadership position in the Malaysian malt liquor market (MLM) in 2011. Given its solid brand portfolio which includes Tiger, Heineken, Guinness and Anchor, and its marketing prowess, keeping its market dominance should not be a problem. But competition will undeniably heighten, especially in the imported beer segment. Sales of premium beer imported by its rival Carlsberg Brewery (CAB MK; Neutral) via Luen Heng Agency are picking up, posing a threat to GAB’s premium beer brands such as Heineken. • Improving growth prospects and attractive dividends. The reprieve from an excise duty hike in the latest Budget should pave the way for further volume growth. Besides improving earnings growth prospects, GAB’s other key appeal remains its high gross yield of 6-7%, which should lend support to the share price. Financial summary

Stock Information Market cap: RM3,009m/US$956m 12-m price range: RM9.96 RM6.60 3-m avg daily vol: 0.1m No. of shrs (m): 302 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - GAPL Pte Ltd 51.0 - Aberdeen Asset Mgmt 6.0 - Vontobel Asset Mgmt 1.5

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,285.4 217.4 16.9% 191.2 142.0 47.0 12.8% 21.2 54.5 5.5% 6.8 33.3% 0.54 32.9 13.1

2010 1,341.7 234.5 17.5% 205.0 152.7 50.5 7.5% 19.7 60.0 6.0% 6.4 33.4% 0.50 27.3 12.2

2011F 1,390.1 256.6 18.5% 227.6 170.7 56.5 11.8% 17.6 64.5 6.5% 6.1 35.3% 0.57 18.7 11.1 1.04

2012F 1,432.2 264.7 18.5% 236.0 177.0 58.6 3.7% 17.0 67.0 6.7% 5.8 34.8% 0.64 18.2 10.6 1.03

2013F 1,475.7 272.9 18.5% 244.2 183.2 60.6 3.5% 16.4 69.0 6.9% 5.5 34.3% 0.70 17.4 10.2 1.01


Price chart

Corporate profile

10.2

6.00

9.7

5.00

9.2 4.00

8.7

3.00

8.2 7.7

2.00

7.2 1.00

6.7 6.2 De c -09

0.00 Ma y-10

Volume 100k (R.H.S c a le )

Source: Bloomberg

Oct-10 Guinne s s Anchor Bhd

Guinness Anchor (GAB) was incorporated on 24 January 1964 under the name of Guinness Malaysia Limited. Listed on the Main Board of Bursa Malaysia in 1965, it is 51% owned by GAPL Pte Ltd, a unit of Asia Pacific Breweries. Its market share has been gradually increasing in recent years to around 57% currently. Anchoring this market share expansion is the growth of its blond beers, led by Tiger, Heineken and Anchor. GAB remains the market leader by far in the stout market via its flagship Guinness Stout. It also carries other imported brands such as Strongbow, Paulaner and Sol.


[ 92 ]


PROFIT & LOSS (RM m, FYE Jun) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 1,285 (1,068) 217 (29) 189 2 0 0 0 191 (49) 0 142 302 302

2010 1,342 (1,107) 234 (31) 203 2 0 0 0 205 (52) 0 153 302 302

2011F 1,390 (1,133) 257 (31) 225 2 0 0 0 228 (57) 0 171 302 302

2012F 1,432 (1,168) 265 (31) 233 3 0 0 0 236 (59) 0 177 302 302

2013F 1,476 (1,203) 273 (32) 241 3 0 0 0 244 (61) 0 183 302 302

2012F 242 0 0 242 192 81 136 73 482 104 0 68 171 0 32 32 521 0 1.72

2013F 245 0 0 245 212 83 140 76 511 107 0 70 177 0 32 32 548 0 1.81

2009 236 0 0 236 164 69 122 55 410 93 0 80 173 0 31 31 442 0 1.46

2010 240 0 0 240 150 76 127 70 423 97 0 63 160 0 32 32 471 0 1.56

2011F 240 0 0 240 172 78 132 71 454 101 0 66 166 0 32 32 495 0 1.64

2011F 3.6 9.5 16.4 12.3 652.9 25.0 85.6 34.1 20.2 26.0

2012F 3.0 3.1 16.5 12.4 675.9 25.0 85.8 34.2 20.3 26.1

2013F 3.0 3.1 16.6 12.4 698.9 25.0 85.3 34.2 20.3 26.1

(FYE Jun) Excise duties (RM per litre) Sales tax (%) Unit sales ('000 Hli)

2010 7.40 5.0% 849

2011F 7.40 5.0% 870

2012F 7.40 5.0% 888

2013F 7.40 5.0% 914


CASH FLOW (RM m, FYE Jun) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 4.4 7.8 15.3 11.4 589.4 25.5 89.0 33.9 19.7 25.9

KEY DRIVERS

BALANCE SHEET (RM m, end Jun) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 7.6 12.5 14.9 11.0 257.2 25.7 87.0 33.4 19.1 25.5

(FYE Jun) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 191 29 (47) (48) (4) 121 (29) 1 (2) (30) 0 0 (111) 0 (111) (20) (20) 164

2010 205 31 (34) (49) (10) 143 (30) 1 (5) (33) 0 0 (124) 0 (124) (14) (14) 150

2011F 228 31 (4) (52) (13) 189 (31) 1 0 (30) 0 0 (139) 2 (136) 23 23 172

2012F 236 31 (4) (57) (13) 194 (33) 1 0 (32) 0 0 (145) 3 (142) 20 20 192

2013F 244 32 (4) (59) (10) 203 (35) 1 0 (34) 0 0 (153) 3 (150) 20 20 212

17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 Dec-07

Apr-08

Aug-08



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Dec-08

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Dec-09

Apr-10

Aug-10

Dec-10


Hap Seng Plantations Holdings

TRADING BUY

Maintained

RM3.15

@07/12/10

Richest dividend pickings among planters

MALAYSIA

2011 OUTLOOK



HAPL MK / HAPP.KL


• Maintain TRADING BUY and target price of RM3.50. We continue to rate Hap Seng Plant (HSP) a TRADING BUY due to its attractive P/E valuations and strong dividend yields. Recent purchases of its shares by its major shareholder are a vote of confidence in the company. We are leaving our EPS forecasts untouched but are raising our target price from RM3.50 to RM3.73 as we impute a higher target P/E of 16x instead of 15x in view of the more bullish outlook. The target P/E is still at a slight discount to the target P/Es of 17-18x accorded to the large-cap planters, in view of HSP’s lower liquidity. • A stronger year beckons. We expect stronger FFB production and higher selling prices to boost 2011 results. We project a 15% improvement in HSP’s 2011 net profit, coming from higher selling prices, increased production and lower operating costs per tonne. Production should pick up in 2011 when the impact of poor weather in the previous year wears off. However, the group will have to contend with the issue of shortage of foreign estate workers though it does have a slight advantage over its peers due to its more comprehensive facilities for its workers. • Major shareholder increasing stake. Hap Seng Consolidated (HAP MK; Not Rated) has been raising its stake in HSP, which is positive news as it suggests that the major shareholder sees value in HSP at this level. We estimate that it bought 7.856m shares between 2 and 19 November 2010, raising its stake in HSP by around 1% to 52.53%. Financial summary

Stock Information Market cap: RM2,520m/US$803m 12-m price range: RM3.15 RM2.04 3-m avg daily vol: 1.0m No. of shrs (m): 800 Est. free float (%): 34.2 Conv. secs (m): None Major shareholders (%): - Hap Seng Consolidated 52.5 - Innoprise 15.0

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 373.1 160.5 43.0% 135.1 100.7 12.6 (29.5%) 25.0 12.6 4.0% 1.5 6.1% 1.5% N/A 11.2 15.9

2010F 432.4 242.5 56.1% 217.5 163.1 20.4 62.0% 15.4 16.3 5.2% 1.5 9.7% 0.0% N/A 15.6 10.4 1.02

2011F 473.4 275.7 58.2% 249.4 187.1 23.4 14.7% 13.5 18.7 5.9% 1.4 10.8% N/A 0.02 17.2 9.1 -0.92

2012F 482.8 276.9 57.4% 248.8 186.6 23.3 (0.2%) 13.5 18.7 5.9% 1.4 10.3% N/A 0.09 18.8 8.8 0.88


Price chart

Corporate profile

3.3

5.00

3.1

4.00

2.9 3.00

2.7 2.5

2.00

2.3 1.00

2.1 1.9 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ha p S e ng P la nta tions Holdings

Hap Seng Plantations is a pure oil palm player, with activities spanning estate operations and milling activities. The group has no exposure to downstream palm oil operations. As at 31 December 2009, it owned 34,467ha of planted oil palm estates in Sabah, East Malaysia. Its estates are mostly located in Kinabatangan, which we believe is one of the most fertile regions for oil palm in Sabah. On top of that, 96% of its estates are located in one contiguous block, allowing the group to achieve better economies of scale. Approx. 87% of its total landbank of 39,803ha is planted with oil palms and 8.8% is reserved for infrastructure and nurseries.


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2009 373 (213) 161 (24) 136 (1) 0 0 0 135 (34) 0 101 800 800

2010F 432 (190) 242 (27) 216 2 0 0 0 218 (54) 0 163 800 800

2011F 473 (198) 276 (29) 247 2 0 0 0 249 (62) 0 187 800 800

2012F 483 (206) 277 (31) 246 3 0 0 0 249 (62) 0 187 800 800


2011F 297 0 1,645 1,942 119 37 25 14 195 69 80 6 155 20 196 216 1,770 0 2.21

2012F 325 0 1,645 1,970 106 41 27 15 188 77 35 6 118 0 196 196 1,845 0 2.31

(FYE Dec) CPO price per tonne (RM) FFB output (000' tonnes) FFB yield per ha (tonnes) Immature area (ha) Mature area (ha) Planted area (ha) CPO extraction rate (%) FFB growth (%)

2009 241 0 1,645 1,886 122 38 24 11 196 68 80 6 154 67 196 263 1,665 0 2.08

2010F 269 0 1,645 1,914 130 32 22 13 196 74 80 6 160 50 196 246 1,705 0 2.13

2011F 9.5 13.7 52.7 39.5 308.8 25.0 60.0 18.0 26.7 55.1

2012F 2.0 0.4 51.5 38.7 N/A 25.0 60.0 19.5 29.5 55.1

2009 2,303 667 21 1,712 32,532 34,244 21.8% -15.0%

2010F 2,500 705 22 1,912 32,332 34,244 21.8% 5.7%

2011F 2,750 705 22 2,112 32,332 34,444 21.8% 0.0%

2012F 2,750 716 22 1,612 32,832 34,444 21.8% 1.5%



2010F 15.9 51.1 50.3 37.7 108.0 25.0 60.0 19.4 29.7 59.9

KEY DRIVERS


2009 (13.1) (19.6) 36.2 27.0 51.2 25.5 75.0 18.6 33.0 49.9

2009 249 24 (18) (53) 1 203 (28) (42) 0 (70) 90 0 (95) (15) (20) 113 23 (25)

2010F 218 27 13 (34) (2) 221 (28) 0 0 (28) (30) 0 (60) (108) (199) (5) 25 0

2011F 249 29 (14) (54) (2) 207 (28) 0 0 (28) (30) 0 (98) (62) (190) (10) 20 19

2012F 249 31 1 (62) (3) 215 (28) 0 0 (28) (50) 0 (112) (23) (186) 1 51 71

20.0

18.0

16.0

14.0

12.0

10.0 Jan-08

May-08

Sep-08



[ 95 ]

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10


Hartalega Holdings

OUTPERFORM

Maintained

RM5.39

@07/12/10

Hands down the best

MALAYSIA

2011 OUTLOOK


Target: RM8.43 Rubber Gloves

HART MK / HTHB.KL


• Still an OUTPERFORM. In view of volatile natural rubber latex prices and customer preference for protein-free synthetic nitrile gloves, Hartalega remains our top pick as Malaysia’s largest nitrile glovemaker. We retain our EPS forecasts. Although we also retain our valuation basis of 10% discount to our target market P/E, our target price rises from RM8.03 to RM8.43 because of an upgrade of our target market P/E from 13.8x to 14.5x. Potential re-rating catalysts include 1) better operating efficiency, 2) higher output from refurbished lines, and 3) higher ASPs from selling higher quality gloves. • The reliable and efficient glovemaker. With 80% of sales coming from nitrile gloves, Hartalega avoids the vagaries of the rubber latex market, which is highly unpredictable due to weather and speculative financial flows. Furthermore, Hartalega’s high level of automation and innovative culture lead us to believe that it will maintain its 35% EBITDA margin over our FY11-13 forecast period. • Large valuation gap. Hartalega trades at a single-digit P/E of 8.1x, which, in our view, is unjustified given its 32% ROE and 18% 3-year EPS CAGR. We believe the gap between Hartalega’s 8.1x multiple and our 14.5x target P/E will reduce as investors increasingly appreciate its growth potential and sound fundamentals. Financial summary

Stock Information Market cap: RM1,959m/US$625m 12-m price range: RM5.63 RM3.84 3-m avg daily vol: 0.5m No. of shrs (m): 363 Est. free float (%): 37.7 Conv. secs (m): None Major shareholders (%): - Hartalega Industries Sdn 50.4 - Budi Tenggara Sdn Bhd 7.4 - Kelana Citra Sdn Bhd 4.5

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 443.2 107.9 24.3% 95.5 84.5 23.3 21.5% 23.2 21.9 14.7% 24.6 8.0 1.5% 7.7 39.0% 7.7% N/A 52.8 18.3

2010 571.9 202.7 35.4% 177.8 142.9 39.3 69.1% 13.7 40.0 82.2% 13.5 13.3 2.5% 5.5 47.0% N/A 0.09 23.7 9.5

2011F 711.5 254.2 35.7% 231.1 184.7 50.8 29.3% 10.6 50.8 27.1% 10.6 17.3 3.2% 4.0 43.7% N/A 0.30 21.1 7.3 N/A 1.02

2012F 821.7 295.1 35.9% 269.8 215.7 59.3 16.8% 9.1 59.3 16.8% 9.1 20.7 3.8% 3.0 37.8% N/A 0.65 11.7 5.8 N/A 1.06

2013F 899.4 329.1 36.6% 301.7 241.1 66.3 11.8% 8.1 66.3 11.8% 8.1 24.0 4.5% 2.4 32.6% N/A 0.91 14.1 5.0 N/A 1.02


Price chart


5.6

4.00 5.1

3.00 4.6

2.00 4.1

3.6 Dec-09

1.00 0.00 May-10 Volume 1m (R.H.Scale)

Oct-10 Hartalega Holdings

Hartalega is a leading global producer of nitrile gloves with a capacity of almost 9bn gloves. The group began its manufacturing operations in 1988 and in the same year, made its foray into the overseas market by exporting to the US. Since inception, Hartalega has been focusing on R&D on automation systems to improve the production efficiency and effectiveness of the group’s glove manufacturing operations. It currently owns five manufacturing plants on a 25-acre site in Batang Berjuntai, Selangor, which offers room for expansion.

Source: Bloomberg


[ 96 ]



2009 443 (335) 108 (16) 92 (2) 0 5 0 95 (11) 0 85 363 242

2010 572 (369) 203 (20) 183 (2) 0 (3) 0 178 (35) 0 143 363 242

2011F 712 (457) 254 (23) 232 0 0 0 0 231 (46) 0 185 363 363

2012F 822 (527) 295 (26) 269 1 0 0 0 270 (54) 0 216 363 363

2013F 899 (570) 329 (30) 300 2 0 0 0 302 (60) 0 241 363 363


2012F 384 0 0 385 252 41 82 8 383 41 10 29 80 5 31 36 651 0 1.79

2013F 462 0 0 462 335 45 90 9 479 45 0 30 76 5 32 37 828 0 2.28

(FYE Mar) Production capacity (m pcs p.a) Capacity utilisation (%) ASP (US$) per 1,000 pieces Exchange rate (RM to US$) Natural rubber price (RM /kilogram) Nitrile latex prices (US$/mt)

2009 246 0 0 246 38 25 58 8 128 18 15 20 53 43 25 67 254 0 0.70

2010 284 0 9 293 75 28 78 5 186 24 14 31 69 28 28 55 354 0 0.97

2011F 362 0 0 362 136 36 71 7 250 36 12 28 75 15 29 45 492 0 1.35

2011F 24.4 25.4 32.5 26.0 109.5 20.0 25.6 38.4 16.3 15.2

2012F 15.5 16.1 32.8 26.2 203.9 20.0 26.1 34.1 17.0 17.0

2013F 9.5 11.5 33.5 26.8 470.2 20.0 27.1 34.9 17.5 17.5

2010 7,000 75.7% 32.66 3.46 5.26 1,014

2011F 8,800 85.0% 35.00 3.15 8.15 1,320

2012F 9,562 85.0% 34.65 3.04 7.89 1,412

2013F 10,562 85.0% 34.48 3.05 7.54 1,556



2010 29.0 87.9 31.1 25.0 54.2 19.5 25.4 43.4 16.8 13.3

KEY DRIVERS


2009 72.1 25.8 21.5 19.1 38.0 11.5 25.5 37.3 19.2 12.3

2009 95 16 (23) (4) 0 84 (61) 0 0 (61) 14 0 (8) (1) 4 27 13 (19)

2010 178 20 (15) (22) 4 164 (67) 0 0 (67) (15) 0 (45) 0 (59) 38 53 33

2011F 231 23 6 (35) (19) 206 (100) 0 0 (100) (14) 0 (31) (1) (45) 61 75 108

2012F 270 26 (9) (46) 39 280 (100) 0 0 (100) (12) 0 (53) 1 (64) 116 128 236

2013F 302 30 (7) (54) (21) 249 (100) 0 0 (100) (10) 0 (58) 2 (66) 83 93 330

12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Apr-08

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Apr-10

Aug-10

Dec-10


IJM Corp Bhd

OUTPERFORM

Maintained

RM6.14

@07/12/10

Stoked by a merger play

MALAYSIA

2011 OUTLOOK



IJM MK / IJMS.KL


• Maintain OUTPERFORM. Apart from the positive construction outlook backed by the implementation of 10MP and the government’s execution of the Economic Transformation Programme (ETP), another growth catalyst for IJM is the impending merger between IJM Land and MRCB in which IJM Corp is likely to emerge with the largest stake. This move would enhance its RNAV by at least 40 sen to RM7.35/share. We maintain our OUTPERFORM call but raise our RNAV-based target price from RM6.95 to RM6.95 as we apply our revised target market P/E of 14.5x (13.8x before) to the construction component. Potential re-rating catalysts include (i) contract awards, and (ii) positives from the merger. • IJM emerges as a merger play. We view the proposed merger as overall positive and value enhancing for IJM Corp. We estimate RNAV accretion of at least 40 sen from RM6.85 to RM7.35, with more upside if MRCB’s other businesses, i.e. the toll concessions, are rationalised and absorbed into IJM Corp. We make no changes to our FY11-13 EPS forecasts pending finalisation of the deal which is expected no earlier than end-2Q11. • RM3.6bn order book with more upside. The top-up prospects for its order book continue to be good as the group is vying for projects totalling as much as RM10bn. Financial summary

Stock Information Market cap: RM8,295m/US$2,636m 12-m price range: RM6.14 RM4.30 3-m avg daily vol: 4.2m No. of shrs (m): 1,351 Est. free float (%): 67.2 Conv. secs (m): 159 Major shareholders (%): - EPF 16.2 - Zelan 5.3


2009 4,601.3 618.8 13.4% 528.7 290.2 22.0 147.9% 27.9 22.0 9.8% 27.9 20.4 30.1 24.9 4.1% 3.4 12.4% 80.6% 44.6 16.9

2010 4,013.5 567.5 14.1% 578.0 332.6 24.6 11.7% 25.0 21.5 (2.4%) 28.6 20.0 30.8 10.7 1.7% 3.6 14.2% 91.1% 40.5 19.1

2011F 4,961.1 747.7 15.1% 516.1 377.8 27.9 13.6% 22.0 27.9 30.0% 22.0 25.9 23.7 10.7 1.7% 3.5 16.1% 82.3% 34.6 14.4 0.93

2012F 5,354.0 775.2 14.5% 540.9 393.4 29.1 4.1% 21.1 29.1 4.1% 21.1 27.0 22.8 10.7 1.7% 3.5 16.6% 86.8% 33.4 14.0 0.82

2013F 5,656.1 814.1 14.4% 572.9 417.0 30.8 6.0% 19.9 30.8 6.0% 19.9 46.6 13.2 10.7 1.7% 3.7 18.0% 91.1% 31.7 13.4 0.76


Price chart

Corporate profile

6.5 1.20 6.0

1.00 0.80

5.5

0.60 5.0 0.40 4.5 4.0 De c-09


Source: Bloomberg

Oct-10 IJ M Corp Bhd

IJM Corp has its beginnings in three construction companies which were merged in order to compete more effectively with the foreign contractors that entered the local market in the late 1970s. Over the years, IJM has made its presence felt, both domestically and internationally, specifically in China, India, Argentina, Vietnam and the UAE. Diversification has led the group into property and plantations while its 2007 acquisition of Road Builder enriched its portfolio with recurring income and property ventures. The local construction sector continues to provide growth opportunities for the group while India’s robust infrastructure spending presents another key growth area on the regional front.


[ 98 ]



2009 4,601 (3,983) 619 (81) 538 (32) 22 0 0 529 (127) (112) 290 1,319 1,319

2010 4,014 (3,446) 568 (85) 482 8 31 58 0 578 (155) (91) 333 1,353 1,353

2011F 4,961 (4,213) 748 (88) 660 (176) 32 0 0 516 (130) (8) 378 1,353 1,353

2012F 5,354 (4,579) 775 (89) 686 (180) 35 0 0 541 (137) (11) 393 1,353 1,353

2013F 5,656 (4,842) 814 (90) 724 (190) 39 0 0 573 (145) (11) 417 1,353 1,353

2012F 41 61 1,723 1,825 210 596 3,362 1,657 5,825 2,381 196 179 2,756 2,279 3 2,282 2,347 264 1.69

2013F (47) 61 1,724 1,737 213 629 3,552 1,657 6,051 2,516 196 179 2,890 2,340 6 2,347 2,276 275 1.64

2009 168 61 1,721 1,950 231 477 2,692 2,394 5,795 1,907 196 844 2,947 2,143 39 2,182 2,377 238 1.76

2010 83 61 1,721 1,864 218 549 3,097 1,619 5,483 2,193 196 44 2,434 2,334 39 2,374 2,294 245 1.65

2011F 129 61 1,722 1,912 212 552 3,116 1,657 5,536 2,207 196 179 2,581 2,205 1 2,206 2,407 253 1.73

2011F 23.6 31.8 10.4 7.6 3.1 25.2 27.6 228.5 40.5 161.9

2012F 7.9 3.7 10.1 7.3 3.2 25.3 26.5 220.8 39.1 156.4

2013F 5.6 5.0 10.1 7.4 3.3 25.3 25.0 223.1 39.5 158.0

(FYE Mar) Construction margins (%) Orderbook replenishment (RM m) Outstanding orderbook (RM m)

2010 7.2% 1,000 4,000

2011F 8.1% 1,000 4,800

2012F 8.1% 1,000 4,500

2013F 8.1% 1,000 4,900



2010 (12.8) (8.3) 14.4 8.3 2.4 26.8 31.4 263.3 46.6 186.4

KEY DRIVERS


2009 26.0 96.9 11.5 6.3 2.8 24.0 81.6 197.7 35.0 140.0


2009 529 81 (320) (97) 46 239 (51) (205) 0 (256) 199 0 (52) (149) (3) (20) (218) (2,108)

2010 578 85 (348) (107) (2) 207 (56) (137) 0 (193) 192 0 (52) (185) (45) (31) (223) (2,312)

2011F 516 88 (199) (114) 182 473 (56) (47) 0 (103) (130) 0 (52) (174) (355) 15 145 (2,189)

2012F 541 89 (344) (132) 184 337 (56) (106) 0 (163) 74 0 (52) (198) (176) (1) (75) (2,265)

2013F 573 90 (363) (139) 191 351 (56) (97) 0 (153) 61 0 (52) (196) (186) 12 (49) (2,324)

28.0

23.0

18.0

13.0

8.0 Dec-07

Apr-08

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Apr-10

Aug-10

Dec-10


IOI Corporation Bhd

NEUTRAL

Maintained

RM5.78

@07/12/10

Less fruitful than peers

MALAYSIA

2011 OUTLOOK



IOI MK / IOIB.KL


• Maintain NEUTRAL with a higher target price of RM6.54. We continue to rate IOI Corp a NEUTRAL as the earnings upside from our more upbeat view on CPO price is offset by the stock’s rich valuations and slower output growth relative to its peers. Our earnings forecasts remain intact. However, we are raising our target price from RM6.05 to RM6.54 as we up our target forward P/E from 17x to 18x, in line with our upward revision of our target market P/E. Our new target price is based on a 25% premium over our target market P/E of 14.5x in view of the strong liquidity of its shares. For exposure to the sector, we prefer KL Kepong. • Higher CPO price to drive 2011 earnings. We expect FY11 core earnings to jump 17%, thanks to higher CPO selling prices, stronger FFB production as the weather normalises and better earnings contribution from its Singapore property projects. There could be more upside to our earnings numbers if the group scoops up earnings-accretive acquisitions. • Beneficiary of recovering CPO price. We are more upbeat on 2011 CPO price in view of the potential tightness in CPO supplies and strengthening of the ongoing La Nina event, which may crimp soybean harvests from South America. Approximately 62% of IOI Corp’s earnings come from its upstream plantation division, which will benefit from the recovering CPO price. Our sensitivity analysis suggests a 4% earnings impact from every RM100/tonne change in CPO price. Financial summary

Stock Information Market cap: RM38,698m/US$12,336m 12-m price range: RM5.97 RM4.69 3-m avg daily vol: 8.0m No. of shrs (m): 6,695 Est. free float (%): 58.8 Conv. secs (m): 253.5 Major shareholders (%): - Progressive Holdings Sdn 41.8 - Employees Provident Fund 13.8

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 14,600.4 1,954.3 13.4% 1,550.5 983.9 15.1 (55.9%) 38.3 22.2 (26.5%) 26.1 21.8 26.5 9.1 1.6% 4.4 11.8% 35.3% N/A (172.5) 20.1

2010 12,543.0 2,879.7 23.0% 2,550.6 2,035.7 31.3 107.2% 18.5 24.3 9.7% 23.8 24.0 24.1 20.8 3.6% 3.5 21.3% 8.0% N/A 17.3 12.7

2011F 16,369.6 3,024.3 18.5% 2,757.8 2,090.8 31.3 0.0% 18.5 29.9 23.1% 19.3 29.4 19.7 20.0 3.5% 3.1 18.1% N/A 0.11 8.1 12.2 0.96

2012F 17,519.7 3,300.2 18.8% 3,108.6 2,345.8 35.1 12.2% 16.5 35.1 17.2% 16.5 34.3 16.8 23.4 4.0% 2.8 17.9% N/A 0.26 20.2 10.8 1.02

2013F 18,475.7 3,436.8 18.6% 3,327.9 2,511.2 37.6 7.1% 15.4 37.6 7.1% 15.4 36.7 15.7 25.0 4.3% 2.4 16.9% N/A 0.44 22.1 9.9 1.00


Price chart

Corporate profile

6.2

2.50

6.0 5.8

2.00

5.6 1.50

5.4 5.2

1.00

5.0 4.8

0.50

4.6 4.4 De c-09


Source: Bloomberg

Oct-10 IOI Corpora tion Bhd

Incorporated in 1969 and listed in 1980, IOI Corp is an integrated plantation group. Its palm oil business comprises plantation and downstream resource-based manufacturing (oleochemical and speciality fats). The group is also the largest palm oil owner in East Malaysia. It owned 154,709ha of planted oil palm estates as at 30 June 2010. Approximately 66% of palm oil estates are located in Sabah, 30% are in Peninsular Malaysia and the remaining 4% in Indonesia. Downstream activities are held under 100%-owned Loders Croklaan and IOI Oleochemical while property development is carried out by its property arm, IOI Properties. The S.E.A. Navigator – Malaysia 2011

[ 100 ]



2009 14,600 (12,646) 1,954 (243) 1,711 (171) 10 0 0 1,551 (487) (80) 984 6,522 6,327

2010 2011F 12,543 16,370 (9,663) (13,345) 2,880 3,024 (244) (250) 2,635 2,773 (174) (149) 89 133 0 0 0 0 2,551 2,758 (486) (614) (29) (53) 2,036 2,091 6,512 6,685 6,512 6,685

2012F 2013F (FYE Jun) 17,520 18,476 Revenue growth (%) (14,220) (15,039) EBITDA growth (%) 3,300 3,437 Pretax margins (%) (256) (264) Net profit margins (%) 3,042 3,171 Interest cover (x) (143) (138) Effective tax rates (%) 210 295 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 3,109 3,328 Creditors turnover (days) (715) (765) (48) (51) 2,346 2,511 6,685 6,685 6,685 6,685

2009 4,570 513 4,868 9,951 2,459 1,647 951 950 6,007 223 199 854 1,276 5,355 577 5,932 8,346 426 1.24

2010 4,604 514 5,035 10,153 3,877 1,575 853 855 7,160 336 409 687 1,433 4,348 493 4,841 10,780 289 1.58

2011F 6,019 514 4,926 11,459 6,760 1,884 1,561 1,001 11,205 642 1,088 1,956 3,686 4,936 628 5,563 12,272 1,143 1.76

2012F 6,519 514 5,136 12,170 7,743 2,016 1,671 1,039 12,468 681 1,088 2,164 3,932 4,936 628 5,563 13,952 1,191 2.01

2013F 6,755 514 5,431 12,700 8,768 2,016 1,762 1,121 13,667 721 1,088 2,215 4,024 4,736 628 5,363 15,797 1,191 2.29

2011F 30.5 5.0 16.8 12.8 13.8 22.3 47.9 26.9 38.6 10.9

2012F 7.0 9.1 17.7 13.4 15.2 23.0 50.0 33.7 40.6 13.8

2013F 5.5 4.1 18.0 13.6 15.8 23.0 50.0 33.9 39.8 13.8

2010 139,500 2,372 3,409 24 21.4%

(FYE Jun) Mature area (ha) CPO price per tonne (RM) FFB output (000' tonnes) FFB yield per ha (tonnes) CPO extraction rate (%)

2011F 2012F 2013F 142,500 145,500 148,500 2,710 2,800 2,800 3,534 3,710 3,861 25 26 26 21.4% 21.4% 21.4%



2010 (14.1) 47.3 20.3 16.2 11.9 19.0 50.0 26.2 46.9 8.1

KEY DRIVERS


2009 (0.4) (42.4) 10.6 6.7 7.4 31.4 44.1 30.2 51.2 10.6

2009 1,551 243 (967) (561) 803 1,069 (422) (294) 0 (717) (401) 11 (434) 34 (789) (437) (36) (3,095)

2010 2,551 244 632 (544) (231) 2,652 (427) 917 0 489 (797) 1,200 (1,018) (1,108) (1,723) 1,418 2,215 (880)

2011F 2,758 250 1,770 (614) 16 4,180 (500) 0 0 (500) 1,266 (10) (1,001) (1,053) (798) 2,883 1,617 737

2012F 3,109 256 (34) (715) (65) 2,552 (500) 0 0 (500) 0 2 (1,173) 103 (1,068) 983 983 1,720

2013F 3,328 264 (82) (765) (155) 2,589 (500) 0 0 (500) (200) 2 (1,256) 389 (1,064) 1,025 1,225 2,945

30.0

25.0

20.0

15.0

10.0 Dec-07

Apr-08

Aug-08



[ 101 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


JCY International

UNDERPERFORM

Maintained

RM0.80

@07/12/10

A dislocated disk

MALAYSIA

2011 OUTLOOK


Target: RM0.92 Technology Components

JCYH MK / JCYI.KL


• Maintain UNDERPERFORM with target price of RM0.92. We believe near-term earnings will remain hindered by the current soft HDD demand as JCY derives all of its business from the HDD sector. Without the Christmas cheer and given the seasonally weaker 1H, we think the market will only start turning positive in 2H11. Other negative factors that could weigh on the bottomline include the weakening of the US$ and wage pressure in Malaysia. Our target price of RM0.92 pegs JCY at 8x CY12 P/E, in line with the industry peers. We prefer SGX-listed Broadway (BWAY SP, S$1.03, Outperform) for HDD play at this moment. • Stronger ringgit and rising labour costs are two key negatives. Although JCY intends to accelerate the relocation of labour-intensive processes from Malaysia to China, the process may take time to complete and the potential positive benefits are not likely to be felt in the near term. Also, wages in China are rising rapidly. The other concern we have is execution risk as China is relatively new for the group, especially in Guangzhou. • Longer-term beneficiary of industry consolidation. We think that major component suppliers like JCY are in a good position to benefit from further market consolidation in the HDD supply chain. HDD OEMs will prefer to work with “bigger” suppliers that are able to offer multiple components, better pricing and the financial power to grow with them. This is evident from JCY’s recent success in securing new customers for base plates. Financial summary

Stock Information Market cap: RM1,636m/US$521m 12-m price range: RM1.95 RM0.78 3-m avg daily vol: 7.2m No. of shrs (m): 2,045 Est. free float (%): 24.0 Conv. secs (m): None Major shareholders (%): - Yong Yoon Kiong 76.0

FYE Sep Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,758.0 287.5 16.4% 205.9 207.3 10.1 2.2% 7.9 10.1 2.2% 7.9 5.1 6.3% 2.0 25.5% N/A 0.03 10.4 5.5

2010 2,044.6 296.9 14.5% 184.3 176.4 8.6 (14.9%) 9.3 9.3 (8.0%) 8.6 3.9 4.9% 1.9 21.0% 24.5% N/A (58.0) 6.2

2011F 2,112.3 280.2 13.3% 169.5 168.8 8.3 (4.3%) 9.7 8.3 (11.4%) 9.7 4.1 5.2% 1.7 18.3% 21.5% N/A 70.6 6.6 N/A 0.65

2012F 2,439.7 354.2 14.5% 225.6 224.7 11.0 33.1% 7.3 11.0 33.1% 7.3 5.5 6.9% 1.5 22.0% 16.9% N/A 11.9 5.1 N/A 0.71

2013F 2,701.9 413.2 15.3% 267.8 266.8 13.0 18.7% 6.1 13.0 18.7% 6.1 6.5 8.2% 1.4 23.3% 10.6% N/A 8.7 4.3 N/A 0.77


Price chart

Corporate profile

2.1

7.00

1.9

6.00

1.7

5.00

1.5

4.00

1.3

3.00

1.1

2.00

0.9 0.7 Fe b-10


Aug-10

Nov-10

JCY International Bhd is a precision engineering manufacturer of hard disk drive (HDD) mechanical components, with manufacturing facilities in Malaysia, Thailand and China. Its principal activities include the manufacturing of base plates, top cover assembly, actuator pivot flex assembly (APFA) and antidiscs, which are key components of HDDs. JCY typically develops these components jointly with its HDD customers.

J CY Inte rna tiona l Bhd

Source: Bloomberg


[ 102 ]



2009 1,758 (1,471) 287 (82) 206 (5) 0 0 5 206 1 0 207 2,045 2,045

2010 2,045 (1,748) 297 (94) 203 (8) 0 0 (11) 184 (8) 0 176 2,045 2,045

2011F 2,112 (1,832) 280 (110) 171 (3) 0 0 2 170 (1) 0 169 2,045 2,045

2012F 2,440 (2,086) 354 (128) 227 (4) 0 0 3 226 (1) 0 225 2,045 2,045

2013F 2,702 (2,289) 413 (145) 268 (3) 0 0 3 268 (1) 0 267 2,045 2,045

2012F 850 0 19 870 96 252 439 0 787 289 163 1 453 115 13 128 1,076 0 0.53

2013F 880 0 19 900 150 282 496 0 928 326 163 1 490 115 13 128 1,210 0 0.59

2009 643 0 48 692 239 185 345 0 769 292 186 175 653 0 6 6 803 0 0.39

2010 754 0 19 774 125 209 367 0 701 241 263 1 505 77 13 90 880 0 0.43

2011F 799 0 19 818 71 230 401 0 701 264 163 1 427 115 13 128 964 0 0.47

2010 16.3 3.3 9.0 8.6 19.4 4.3 37.1 63.6 35.2 47.6

2011F 3.3 (5.6) 8.0 8.0 34.9 0.4 41.0 66.3 37.9 43.6

2012F 15.5 26.4 9.2 9.2 46.4 0.4 41.0 62.8 36.0 41.3

2013F 10.7 16.7 9.9 9.9 54.8 0.4 41.0 63.1 36.1 41.6

(FYE Sep) Unit sales (million units) Baseplate Unit sales (million units) Top cover Unit sales ( mn units) Actuator arm

2010 214 126 80

2011F 229 144 84

2012F 263 174 97

2013F 288 196 109



2009 (4.2) 4.7 11.7 11.8 27.8 N/A 41.0 70.2 39.1 60.9

KEY DRIVERS



2009 206 82 (12) 0 (1) 275 (141) (2) 3 (141) 23 0 (60) (3) (40) 94 71 53

2010 184 94 (89) (7) (170) 13 (226) 29 2 (195) 154 0 (80) (6) 68 (114) (268) (215)

2011F 170 110 (32) (8) (1) 238 (154) 0 1 (153) (62) 0 0 (77) (140) (54) 8 (207)

2012F 226 128 (36) (1) (1) 316 (179) 0 1 (178) 0 0 (84) (28) (112) 25 25 (182)

2013F 268 145 (50) (1) (2) 361 (175) 0 2 (173) 0 0 (112) (21) (133) 54 54 (128)

22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 Feb-10 Mar-10

Apr-10 May-10



[ 103 ]

Jun-10

Jul-10

Aug-10

Sep-10 Oct-10

Nov-10 Dec-10


JobStreet Corp Bhd

OUTPERFORM

Maintained

RM2.88

@07/12/10

Doing a better job through more marketing

MALAYSIA

2011 OUTLOOK


Target: RM3.73 Technology - Others

JOBS MK / JOBT.KL


• Maintain OUTPERFORM. We retain our OUTPERFORM call on Jobstreet and expect the re-rating catalysts to be further market share gains and earnings surprises. There are no changes to our EPS forecasts or target price of RM3.73, which we continue to peg to a 20% discount to its peers or 22.6x P/E. • Spending to grow market share. Jobstreet raised its marketing spend in 2010 to capture more market share, especially in its weakest core market, Singapore. Its efforts have paid off as it has closed the gap down south and is no longer seeing a job posting deficit of 4-5K per month. Job posting volumes are also rising in its other two core markets where its lead over its rivals has not been eroded. • Still positive outlook for 4Q. While there was a slightly more downbeat feel to Jobstreet’s 4Q10 job outlook compared to 3Q, most respondents were still generally positive about the job outlook. The expectations for job growth remain fairly high and growth in jobs for the next 12 months is expected to improve. But employers appear to be less optimistic about hiring activities than a quarter ago. Financial summary


RM916m/US$292m RM3.00 RM1.41 3-m avg daily vol: 0.1m No. of shrs (m): 318 Est. free float (%): 15.5 Conv. secs (m): None Major shareholders (%): - Seek 22.4 - Fidelity 12.0 - Mark Chang 10.7


2008 102.3 47.2 46.2% 39.9 32.8 10.6 12.6% 27.2 12.5 30.6% 23.1 4.7 1.6% 8.2 33.8% 0.16 134.5 17.8

2009 92.3 36.9 40.0% 35.6 26.7 8.6 (18.7%) 33.4 8.6 (31.0%) 33.4 4.0 1.4% 7.1 22.6% 0.17 77.7 22.8

2010F 111.5 47.3 42.4% 50.6 37.5 11.9 38.7% 24.1 11.9 38.7% 24.1 7.8 2.7% 6.2 27.7% 0.19 33.5 18.0 N/A 1.02

2011F 125.9 54.5 43.3% 61.9 46.5 14.8 23.8% 19.5 14.8 23.8% 19.5 9.6 3.3% 5.4 29.7% 0.26 19.6 15.2 N/A 1.03

2012F 140.0 61.0 43.6% 69.6 51.9 16.5 11.8% 17.4 16.5 11.8% 17.4 10.8 3.7% 4.7 28.7% 0.34 17.8 13.2 N/A 1.00


Price chart

Corporate profile

3.1

1.60

2.9

1.40

2.7

1.20

2.5

1.00

2.3

0.80

2.1

0.60

1.9

0.40

1.7

0.20

1.5 1.3 De c-09


Source: Bloomberg

Oct-10 J obS tre e t Corp Bhd

Jobstreet is Malaysia’s premier online recruitment, with operations in the Philippines (market leader), Singapore (#2 spot), India (#3 spot), Indonesia (#3 spot), Japan, Thailand (new entrant) and Hong Kong. It was first to market in Malaysia and has focused on building its brand over the past 12 years. The company provides staff recruitment services and payroll management for corporations in addition to online recruitment services. It listed on the Mesdaq market (now Ace Market) in 2004 and transferred to the Main Board at end-07. About 63% of Jobstreet’s 9M10 revenue was derived from Malaysia, 19% from Singapore, 14% from the Philippines and the balance from its other markets.


[ 104 ]



2008 102 (55) 47 (1) 46 1 (1) (7) 0 40 (5) (2) 33 310 310

2009 92 (55) 37 (1) 36 1 (1) 0 0 36 (7) (2) 27 310 310

2010F 111 (64) 47 (1) 46 1 3 0 0 51 (12) (1) 38 314 314

2011F 126 (71) 55 (2) 53 2 7 0 0 62 (14) (2) 46 314 314

2012F 140 (79) 61 (2) 59 2 9 0 0 70 (15) (2) 52 314 314

2011F 14 3 89 106 84 0 7 10 100 9 0 22 31 1 0 1 168 6 0.53

2012F (FYE Dec) 14 Paid job postings (number) 3 Active customer accounts 95 112 109 0 6 10 124 10 0 22 32 1 0 1 194 9 0.61

2008 14 3 41 58 51 0 9 21 81 8 0 19 27 1 0 1 109 2 0.34

2009 14 3 69 85 53 0 7 10 70 7 0 19 26 1 0 1 126 3 0.40

2010F 14 3 84 101 61 0 7 10 78 8 0 21 29 1 0 1 145 4 0.45

2010F 20.7 28.1 45.4 33.7 N/A 23.4 48.9 24.0 0.0 24.0

2011F 12.9 15.2 49.2 36.9 N/A 21.9 48.9 19.9 0.0 24.1

2012F 11.2 12.0 49.8 37.1 N/A 22.0 48.9 16.0 0.0 24.0

2009 316,132 59,501

2010F 2011F 2012F 363,552 436,262 527,877 65,452 71,997 79,916



2009 (9.8) (21.8) 38.6 28.9 N/A 20.7 34.5 32.1 0.0 29.9

KEY DRIVERS


2008 23.2 43.7 39.0 32.1 N/A 12.4 32.7 34.0 0.0 40.1


2008 40 1 (4) (5) 15 47 (1) (32) 0 (33) 0 0 (11) (7) (17) (4) (4) 50

2009 36 1 0 (7) 3 32 (1) (21) 0 (22) 0 0 (9) 0 (9) 2 2 52

2010F 51 1 1 (12) (1) 41 (2) (14) 0 (15) 0 0 (19) 1 (17) 8 8 60

2011F 62 2 2 (14) (5) 47 (2) 0 0 (2) 0 0 (23) 2 (22) 23 23 83

2012F 70 2 2 (15) (6) 51 (2) 0 0 (2) 0 0 (26) 3 (23) 26 26 108

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12.0

10.0 Dec-07

Apr-08

Aug-08



[ 105 ]

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Apr-10

Aug-10

Dec-10

JT International Bhd

NEUTRAL

Maintained

RM6.03

@07/12/10

Keeping the fire alive

MALAYSIA

2011 OUTLOOK


Target: RM6.35 Tobacco

RJR MK / JTIN.KL


• Maintain NEUTRAL. JT International (JTI)’s comeback in terms of market share is encouraging. But prospects are likely to be weighed down by the tough industry fundamentals. In 2011, JTI will have to grapple with the high level of illicit trade and the potential decline in demand due to the hefty 8-9% price hike in October. We, therefore, remain NEUTRAL on the stock with an unchanged DDM-based target price of RM6.35 (COE 7.7%, LTG 1.5%). The stock should be supported by its decent dividend yield of 5%. • Continued brand investments to sustain growth. JTI has finally regained its footing after coming under intense competitive pressure over the past few years. Winston and Mild Seven are faring well and should sustain their growth momentum given JTI’s continuous investments in the two brands. But the recent repositioning of British American Tobacco (ROTH MK; Underperform)’s Peter Stuyvesant as a value-for-money (VFM) brand will inevitably raise the bar in the VFM segment. Now that Peter Stuyvesant has joined the fray, BAT has two brands in the VFM segment, which is JTI’s mainstay. • JTI unlikely to mimic brand repositioning strategy. Despite the intensifying competition, we think JTI is unlikely to mimic its rivals’ move of repositioning its existing brands. Beginning July 2010, tobacco manufacturers need the Ministry of Health’s approval for any changes in their cigarette prices. This makes brand repositioning more difficult as tobacco manufacturers will have to ensure that there is a substantial change in the product to justify a price change. Financial summary

Stock Information Market cap: RM1,577m/US$501m 12-m price range: RM6.15 RM4.78 3-m avg daily vol: 0.0m No. of shrs (m): 262 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - JT International BV 60.4 - EPF 7.4 - PNB 5.1


2008 1,038.5 147.7 14.2% 134.1 98.2 37.5 21.1% 16.1 67.8 11.3% 3.4 20.5% 1.02 13.8 8.9

2009 1,158.2 163.7 14.1% 143.6 108.3 41.4 10.3% 14.6 30.0 5.0% 5.0 27.8% 0.48 14.0 8.9

2010F 1,223.5 173.1 14.2% 154.8 114.6 43.8 5.8% 13.8 30.0 5.0% 4.2 33.4% 0.65 15.1 8.1 0.94

2011F 1,297.3 183.8 14.2% 166.5 123.2 47.1 7.5% 12.8 30.0 5.0% 3.6 30.5% 0.88 13.3 7.3 0.96

2012F 1,317.4 188.6 14.3% 172.7 127.8 48.9 3.7% 12.3 35.0 5.8% 3.2 27.5% 1.10 13.6 6.8 0.96


Price chart

Corporate profile

6.5

4.00

6.3

3.50

6.1

3.00

5.9 5.7

2.50

5.5

2.00

5.3

1.50

5.1

1.00

4.9

0.50

4.7 4.5 De c-09

0.00 Ma y-10 Volume 100k (R.H.S ca le )

Source: Bloomberg

Oct-10 J T Inte rna tiona l Bhd

JT International (JTI) is 60.4% owned by JT International Holding BV. It is involved in the manufacturing, marketing and sale of tobacco products primarily in Malaysia. Previously known as RJ Reynolds until the takeover of RJR’s global brands by JTI, it is the second biggest player in the Malaysian tobacco industry, which is dominated by British American Tobacco (BAT). JTI’s portfolio of brands includes Winston, Mild Seven, Salem, Camel, More and Mine. While BAT is ahead of JTI in terms of total market share, JTI dominates the value-for-money (VFM) segment via its Winston brand.


[ 106 ]



2008 1,039 (891) 148 (21) 126 8 0 0 0 134 (36) 0 98 262 262

2009 1,158 (994) 164 (22) 141 2 0 0 0 144 (35) 0 108 262 262

2010F 1,223 (1,050) 173 (23) 151 4 0 0 0 155 (40) 0 115 262 262

2011F 1,297 (1,114) 184 (23) 161 6 0 0 0 166 (43) 0 123 262 262

2012F 1,317 (1,129) 189 (23) 166 7 0 0 0 173 (45) 0 128 262 262

2011F 122 0 5 128 230 85 66 24 405 62 0 13 75 0 21 21 436 0 1.67

2012F 124 0 5 129 287 86 67 23 463 63 0 13 76 0 21 21 495 0 1.89

2008 102 0 5 107 267 88 68 14 438 54 0 12 66 0 17 17 462 0 1.77

2009 121 0 5 126 125 76 58 27 286 55 0 19 75 0 21 21 316 0 1.21

2010F 121 0 5 126 171 80 62 26 338 58 0 13 72 0 21 21 371 0 1.42

2010F 5.6 5.8 12.7 9.4 N/A 26.0 51.4 17.9 23.2 17.0

2011F 6.0 6.1 12.8 9.5 N/A 26.0 47.8 17.9 23.1 16.9

2012F 1.5 2.6 13.1 9.7 N/A 26.0 53.7 18.3 23.6 17.3

(FYE Dec) Industry volume growth (% growth) Sales tax (%) Excise duties (RM per kg)

2009 -11.7% 5.0% 190.00

2010F -3.0% 5.0% 220.00

2011F -5.0% 5.0% 220.00

2012F 0.0% 5.0% 220.00



2009 11.5 10.9 12.4 9.3 N/A 24.6 54.4 20.0 25.8 17.2

KEY DRIVERS


2008 20.1 13.3 12.9 9.5 N/A 26.8 133.7 23.7 33.6 16.5


2008 134 21 27 (41) (16) 126 (20) 1 8 (12) 0 0 (131) 0 (131) (17) (17) 267

2009 144 22 24 (36) (12) 141 (22) (18) 2 (38) 0 (196) (59) 10 (245) (142) (142) 125

2010F 155 23 (4) (35) (14) 123 (23) 0 0 (23) 0 0 (59) 4 (55) 46 46 171

2011F 166 23 (5) (40) (7) 137 (24) 0 0 (24) 0 0 (59) 6 (53) 59 59 230

2012F 173 23 (1) (43) (18) 133 (24) 0 0 (24) 0 0 (59) 7 (52) 57 57 287

14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 Dec-07

Apr-08

Aug-08



[ 107 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Kencana Petroleum Bhd

OUTPERFORM

Maintained

RM2.01

@07/12/10

Drilling for more growth

MALAYSIA

2011 OUTLOOK


Target: RM2.60 Oil & Gas - Equipment & Svs

KEPB MK / KENP.KL


• Maintain OUTPERFORM. We maintain our forecasts but raise our target price from RM2.28 to RM2.60, pegged to a revised target market P/E of 14.5x (13.8x previously). Kencana remains an OUTPERFORM, with the potential re-rating triggers being 1) active order book replenishment, 2) a new JV partner and 3) M&A. • RM2.1bn order book and rising. Management has been consistently delivering its promise to expand the order book. YTD, Kencana has secured 13 new contracts, worth a collective RM1bn, taking its outstanding order book to RM2.1bn. The alltime high is RM2.8bn recorded in Oct-Dec 08. The company is eyeing sizeable deals worth a collective RM5.2bn in Malaysia and at least US$300m in India. • KM1 extends Kencana’s expertise. Drilling rig KM1 is on a 5-year, RM729m Petronas Carigali drilling contract which accounts for 34% of Kencana’s current orders. The contract commenced on 2 Sep 10 and the rig started drilling in the final week of Sep at a daily charter rate of US$130,000/day, higher than the average global rate of US$115,628/day. Kencana is the first Malaysian company to build, own and operate a drilling rig. KM1 could be the start of more rigs to come. • A JV partner in McDermott? We understand that McDermott may surface as a JV partner of Kencana. Kencana could be interested in working with McDermott to build a pipeline installation business after its attempt with US-based Global failed. Following the breakdown of the JV with Global in May, Kencana has maintained its interest in owning and operating pipelay barges, either by going it alone or by roping in a partner. Financial summary

Stock Information Market cap: RM3,335m/US$1,063m 12-m price range: RM2.10 RM1.27 3-m avg daily vol: 8.6m No. of shrs (m): 1,659 Est. free float (%): 53.0 Conv. secs (m): None Major shareholders (%): - Khasera Baru Sdn Bhd 38.6 - EPF 8.4

FYE Jul Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,140.8 174.9 15.3% 153.1 118.5 13.1 39.0% 15.3 1.5 0.7% 8.0 51.2% 7.9% N/A 80.5 10.5

2010 1,089.7 196.7 18.1% 171.3 135.8 10.1 (23.1%) 19.9 1.5 0.7% 10.7 56.5% 3.8% N/A 89.9 13.8

2011F 1,702.5 310.5 18.2% 302.4 213.2 12.9 27.4% 15.6 2.5 1.2% 10.6 75.3% N/A 0.00 63.7 10.7 1.02

2012F 2,686.0 373.1 13.9% 364.4 270.8 16.3 27.0% 12.3 3.5 1.7% 9.7 82.6% N/A 0.01 47.6 8.9 1.07

2013F 3,146.0 396.1 12.6% 387.9 279.3 16.8 3.1% 11.9 4.5 2.2% 9.1 78.8% N/A 0.01 38.4 8.4 1.02


Price chart

Corporate profile

2.2

3.50 3.00

2.0

2.50 1.8

2.00 1.50

1.6

1.00 1.4 1.2 De c-09


Source: Bloomberg

Oct-10 Ke nca na P e trole um Bhd

Kencana is involved in fabrication, drilling and marine support activities. It is one of seven Petronas-licensed fabricators of offshore structures. This essentially allows it to bid for fabrication contracts tendered by production-sharing contractors in Malaysia. At present, the company’s yard in Lumut spans 169 acres with capacity of 60,000 tonnes p.a. Its covered yard space of 30,000 sq m allows the welders to work 24/7 in all weather conditions. In CY08, Kencana started the fabrication of its first drilling rig KM1. The company also owns two AHTS vessels, namely 67%-owned 5,500HP KPV Kapas and wholly-owned 8,080HP KPV Gemia.


[ 108 ]


PROFIT & LOSS (RM m, FYE Jul) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 1,141 (966) 175 (16) 159 (6) 0 0 0 153 (35) 0 118 903 903

2010 1,090 (893) 197 (18) 179 (6) (1) 0 0 171 (36) 0 136 1,346 1,346

2011F 1,703 (1,392) 310 (8) 302 0 1 0 0 302 (89) 0 213 1,658 1,658

2012F 2,686 (2,313) 373 (9) 364 0 1 0 0 364 (94) 0 271 1,658 1,658

2013F 3,146 (2,750) 396 (9) 387 0 1 0 0 388 (109) 0 279 1,658 1,658

2009 147 1 4 152 99 26 330 37 492 288 73 3 363 44 9 53 228 0 0.25

2010 153 1 5 159 109 29 363 41 541 317 75 3 394 44 9 53 253 0 0.19

2011F 192 1 5 198 120 32 399 45 595 348 76 4 427 44 9 53 313 0 0.19

2012F 200 1 6 207 132 35 439 49 655 383 77 5 464 45 10 55 343 0 0.21

2013F 199 1 6 207 145 39 483 54 720 422 78 6 505 46 11 57 366 0 0.22

2009 153 16 (6) (32) 183 314 (35) 0 0 (35) (3) 0 (14) (254) (271) 9 12 (18)

2010 171 18 (7) (44) 187 326 (35) 0 4 (31) 2 0 (20) (266) (285) 10 8 (10)

2011F 302 8 (7) (55) 182 430 (34) 0 7 (27) 1 0 (41) (351) (392) 11 10 0

2012F 364 9 (8) (89) 181 457 (33) 0 11 (22) 2 0 (58) (366) (422) 12 10 10

2013F 388 9 (9) (94) 181 475 (32) 0 13 (19) 2 1 (75) (371) (442) 13 11 21

2011F 56.2 57.8 17.8 12.5 42.2 29.5 14.0 81.7 6.5 71.3

2012F 57.8 20.2 13.6 10.1 42.8 25.7 15.4 56.9 4.6 49.7

2013F 17.1 6.1 12.3 8.9 39.2 28.0 19.2 53.5 4.3 46.7

(FYE Jul) Overseas rev contribution (%) Order book (RM m) Size of fabrication yard (acres) Yard annual capacity (tonnes) Yard utilisation rate (%)

2010 55.0% 2,500 169 60,000 80.0%

2011F 55.0% 2,500 169 60,000 80.0%

2012F 55.0% 2,500 169 60,000 80.0%

2013F 55.0% 2,500 169 60,000 80.0%


CASH FLOW (RM m, FYE Jul) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 (4.5) 12.5 15.7 12.5 15.6 20.8 10.7 116.0 9.3 101.3

KEY DRIVERS

BALANCE SHEET (RM m, end Jul) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 (21.4) 30.1 13.4 10.4 15.2 22.6 8.2 100.7 8.1 87.9

(FYE Jul) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 Dec-07

Apr-08

Aug-08



[ 109 ]

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Dec-09

Apr-10

Aug-10

Dec-10


KLCC Property Holdings Bhd

UNDERPERFORM

Maintained

RM3.53

@07/12/10

Switch to REITs or developers

MALAYSIA

2011 OUTLOOK


Target: RM3.03 Property Investment

KLCC MK / KCCP.KL


• Maintain UNDERPERFORM. We continue to prefer property developers to property investment companies as developers will benefit from the record sales achieved in 2010. We make no changes to our EPS forecasts or RM3.03 target price, which we continue to base on a 40% discount to its fully diluted RNAV of RM5.05. The stock remains an UNDERPERFORM in light of the potential de-rating catalysts of 1) investor preference for property developers, and 2) shift in interest to large-cap REITs with much higher yields. Investors seeking stable rental income, higher yields and accretive acquisitions should plump for Axis REIT (AXRB MK; Not Rated). • Higher yields from REITs. We maintain our preference for property developers over property investment companies as developers will benefit from the record sales achieved in 2010. Also, some developers are merging into very large property companies that are more investable. Moreover, the oversupply of office space and hotel rooms will limit upside to rental income from the group’s investment properties. For investors seeking stable yields, Malaysian REITs provide far better returns than KLCC Prop. The listing of large REITs such as Sunway REIT (SREIT MK; Not Rated) and CapitaMalls Malaysia (CMMT MK; Not Rated) also provides investors with an alternative to KLCC Prop. Financial summary

Stock Information Market cap: RM3,297m/US$1,051m 12-m price range: RM3.54 RM2.75 3-m avg daily vol: 0.4m No. of shrs (m): 934 Est. free float (%): 47.4 Conv. secs (m): 358 Major shareholders (%): - Petroliam Nasional Berhad 52.6 - Employees Provident Fund 12.3 - Valuecap Sdn Bhd 3.7


2009 861.2 661.0 76.7% 1,032.2 646.8 69.2 16.2% 5.1 25.1 6.7% 14.1 18.6 19.0 14.0 4.0% 0.7 14.2% 19.8% (24.4) 11.1

2010 881.3 683.0 77.5% 1,291.5 896.6 96.0 38.6% 3.7 25.7 2.4% 13.7 19.1 18.5 14.7 4.2% 0.6 17.8% 16.2% (13.1) 11.1

2011F 917.8 739.3 80.6% 576.1 259.1 27.7 (71.1%) 12.7 27.7 7.8% 12.7 20.4 17.3 15.0 4.2% 0.6 4.8% 16.1% 42.1 10.5 N/A 0.82

2012F 1,003.2 777.2 77.5% 618.5 281.9 30.2 8.8% 11.7 30.2 8.8% 11.7 22.2 15.9 15.0 4.2% 0.6 5.1% 15.9% 11.7 10.2 N/A 1.08

2013F 1,148.0 833.2 72.6% 686.7 323.7 34.7 14.8% 10.2 34.7 14.8% 10.2 25.4 13.9 15.0 4.2% 0.6 5.6% 15.7% 10.4 9.7 N/A 1.04


Price chart

Corporate profile

3.8 3.6

20.00

3.4

15.00

3.2 10.00 3.0 5.00

2.8 2.6 De c-09

0.00 Ma y-10

Volume 1m (R.H.S c a le )

Source: Bloomberg

Oct-10 KLCC P rope rty Holding s Bhd

KLCC Prop was incorporated in Feb 04 and acquired from its holding company interests in numerous buildings and two vacant plots of land in the 100-acre KLCC Development. It owns only selected properties within KLCC Development and not the entire project, which includes other development activities. The only building owned by KLCC Prop that is not part of KLCC Development is Kompleks Dayabumi. KLCC Prop’s assets include 50.5% of Petronas Twin Towers, 60% of Suria KLCC, 33% of Menara Maxis, 100% of Menara ExxonMobil, 75% of Mandarin Oriental Hotel and 100% of Lot C and Lot D1 development land.


[ 110 ]



2009 861 (200) 661 (34) 627 (140) 36 508 0 1,032 (195) (190) 647 934 934

2010 881 (198) 683 (36) 647 (130) 16 758 0 1,291 (173) (222) 897 934 934

2011F 918 (179) 739 (42) 697 (135) 14 0 0 576 (144) (173) 259 934 934

2012F 1,003 (226) 777 (44) 733 (129) 14 0 0 619 (155) (182) 282 934 934

2013F 1,148 (315) 833 (46) 787 (115) 15 0 0 687 (172) (191) 324 934 934

2009 885 0 9,107 9,992 579 1 48 21 648 48 194 136 378 1,875 878 2,752 4,763 2,747 5.10

2010 1,021 0 9,864 10,885 601 1 42 21 665 59 216 144 420 1,754 903 2,656 5,312 3,162 5.69

2011F 1,039 0 10,091 11,130 541 0 27 22 590 22 194 147 363 1,754 854 2,607 5,466 3,283 5.85

2012F 1,055 0 10,102 11,157 487 0 29 225 742 24 175 161 359 1,754 733 2,486 5,643 3,410 6.04

2013F 1,070 0 10,334 11,404 438 1 33 466 937 27 158 184 368 1,754 813 2,567 5,862 3,544 6.28

2009 1,032 34 11 (119) 104 1,061 (78) (527) (317) (922) (134) 312 (98) (253) (173) (34) 100 (1,488)

2010 1,291 36 17 (141) 113 1,317 (172) (757) (409) (1,338) (101) 414 (103) (171) 39 18 119 (1,369)

2011F 576 42 (22) (285) 121 432 (60) (227) 0 (287) 68 0 (105) (78) (115) 30 (38) (1,407)

2012F 619 44 (1) (103) 115 673 (60) (11) 0 (72) (191) 0 (105) (532) (828) (226) (35) (1,442)

2013F 687 46 (1) (90) 101 743 (60) (232) 0 (292) (18) 0 (105) (376) (499) (48) (31) (1,473)

2011F 4.1 8.2 62.8 28.2 4.5 25.0 40.6 13.7 0.3 16.1

2012F 9.3 5.1 61.7 28.1 4.8 25.0 37.3 10.1 0.2 8.2

2013F 14.4 7.2 59.8 28.2 5.5 25.0 32.5 9.9 0.2 8.0

(FYE Mar) Mandarin Oriental occupancy (%) Mandarin Oriental room rate (RM) Suria KLCC occupancy rates (%) Suria KLCC rental (RMpsf/month) Twin Towers rental (RMpsf/month)

2010 55.0% 635.00 100.0% 22.27 8.52

2011F 2012F 2013F 57.0% 59.0% 61.0% 654.05 673.67 693.88 100.0% 100.0% 100.0% 23.16 24.08 25.05 8.75 8.98 9.22

CURRENT P/BV(X)


2010 2.3 3.3 146.5 101.7 4.6 13.4 11.5 18.6 0.3 22.2

KEY DRIVERS


2009 2.2 0.5 119.9 75.1 4.0 18.9 15.2 16.6 0.2 14.3


0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 Dec-07

Apr-08

Aug-08



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Apr-10

Aug-10

Dec-10


Kossan Rubber Industries Bhd

OUTPERFORM

Maintained

RM3.34

@07/12/10

Handled with care

MALAYSIA

2011 OUTLOOK



KRI MK / KRIB.KL


• Maintain OUTPERFORM. Kossan remains an OUTPERFORM despite a tweaking of our target price from RM5.44 to RM5.41 following 4-6% cuts in our FY10-13 EPS for higher cost assumptions. Our valuation basis is 10.2x, still based on a 30% discount to Top Glove’s CY11 target P/E which we have raised from 13.8x to 14.5x. Potential re-rating catalysts include 1) new orders from Japanese and US original glove brands, 2) high utilisation rates, and 3) margin improvement from higher nitrile sales and productivity gains. • Trusted and proven. MNCs account for 80% of Kossan’s sales, giving Kossan one of the highest MNC exposures in the sector. We view this positively as large MNCs require detailed and thorough audits on their contract manufacturers. Kossan’s relationships with some well-established MNC clients date back more than 10 years, putting the company on a good footing to benefit from outsourcing trends. • Good handling of headwinds. Kossan maintained EBITDA margins at 17.8% during 3Q10 despite a firmer ringgit and a 20% rise in rubber latex prices. We attribute the stable margins to management’s ability to manage customers’ price expectations and accurately hedge its forex exposure. We expect EBITDA margins to improve 1-2% p.a. on the back of a better product mix. Financial summary

Stock Information Market cap: RM1,068m/US$340m 12-m price range: RM4.25 RM2.46 3-m avg daily vol: 0.8m No. of shrs (m): 320 Est. free float (%): 36.3 Conv. secs (m): None Major shareholders (%): - Kossan Holdings Sdn Bhd 51.8 - Kumpulan Wang Persaraan 7.0 - Asian Small Companies 4.9


2008 897.2 107.9 12.0% 72.9 58.6 18.3 6.5% 18.2 18.3 8.8% 18.2 3.0 0.9% 3.6 21.3% 70.1% N/A (22.0) 11.9

2009 842.1 128.5 15.3% 85.8 66.7 20.9 13.7% 16.0 37.4 104.1% 8.9 4.5 1.3% 3.0 20.3% 50.8% N/A (252.1) 9.7

2010F 1,209.5 198.7 16.4% 153.0 118.5 37.1 77.8% 9.0 37.1 (0.9%) 9.0 8.0 2.4% 2.3 29.0% 26.8% N/A 16.6 6.0 (3.6%) 1.01

2011F 1,343.9 242.8 18.1% 189.2 144.7 45.3 22.1% 7.4 45.3 22.1% 7.4 10.0 3.0% 1.8 27.6% 5.4% N/A 9.9 4.5 (5.9%) 1.13

2012F 1,489.9 287.8 19.3% 225.7 170.4 53.3 17.7% 6.3 53.3 17.7% 6.3 12.0 3.6% 1.4 25.7% N/A 0.26 7.9 3.4 (5.4%) 1.21


Price chart


4.3

2.50 3.8

2.00 1.50

3.3

1.00 2.8

0.50 2.3 Dec-09

0.00 May-10 Volume 1m (R.H.Scale)

Source: Bloomberg

Oct-10 Kossan Rubber Industries Bhd

Kossan Rubber Industries was established in 1979 when the company offered a range of cutless bearings that were often used in the marine industry. The company diversified into rubber glove manufacturing in 1988. It listed on the Main Board of Bursa Malaysia in 1996 and today has 124 glove production lines producing 12.5bn pieces per annum. The company has a diversified mix of natural rubber and nitrile glove products, representing 40% and 60% of capacity, respectively. Kossan also manufactures high technical input rubber products for a wide range of applications including the automotive and marine sectors.


[ 112 ]



2008 897 (789) 108 (26) 82 (9) 0 0 0 73 (14) (1) 59 320 160

2009 842 (714) 129 (34) 95 (9) 0 0 0 86 (18) (1) 67 320 160

2010F 1,210 (1,011) 199 (36) 163 (10) 0 0 0 153 (34) (1) 119 320 320

2011F 1,344 (1,101) 243 (44) 199 (10) 0 0 0 189 (44) (1) 145 320 320

2012F 1,490 (1,202) 288 (53) 235 (10) 0 0 0 226 (54) (1) 170 320 320

2011F 410 1 0 411 187 175 255 0 617 161 176 34 371 43 23 66 588 3 1.84

2012F 426 1 0 427 308 194 283 0 785 179 185 44 407 41 25 65 737 4 2.30

2008 361 1 2 364 17 112 161 0 290 115 173 1 289 54 11 65 299 1 0.93

2009 359 1 1 361 25 110 193 0 328 97 159 4 261 47 21 69 357 2 1.12

2010F 386 1 1 387 88 157 230 0 475 145 167 18 331 45 22 67 462 2 1.44

2010F 43.6 54.6 12.6 9.8 15.6 22.0 16.2 63.9 40.3 36.6

2011F 11.1 22.2 14.1 10.8 18.5 23.0 16.6 65.9 45.1 41.6

2012F 10.9 18.6 15.1 11.4 21.2 24.0 16.9 66.0 45.1 41.7

(FYE Dec) Production capacity (m pcs p.a) Capacity utilisation (%) ASP (US$) per 1,000 pieces Exchange rate (RM to US$) Natural rubber price (RM /kilogram) Nitrile latex prices (US$/mt)

2009 11,000 77.3% 30.46 3.43 5.25 1,362

2010F 12,500 90.0% 35.00 3.02 8.20 1,300

2011F 14,000 90.0% 34.30 3.05 8.00 1,381

2012F 15,500 90.0% 34.30 3.05 7.55 1,503



2009 (6.1) 19.2 10.2 7.9 10.4 21.5 16.2 76.8 48.1 46.0

KEY DRIVERS


2008 27.7 19.2 8.1 6.5 7.8 18.8 12.1 60.6 40.4 42.2


2008 73 26 0 (14) (60) 25 (66) 0 0 (66) 2 0 (11) 0 (10) (51) (52) (210)

2009 86 34 0 (18) (28) 73 (41) 0 4 (36) (32) 0 (8) 0 (40) (4) 28 (182)

2010F 153 36 0 (34) (26) 129 (60) 0 0 (60) 6 0 (11) 0 (5) 64 58 (124)

2011F 189 44 0 (44) (18) 172 (60) 0 0 (60) 6 0 (19) 0 (13) 99 93 (32)

2012F 226 53 0 (54) (25) 199 (60) 0 0 (60) 7 0 (24) 0 (17) 121 115 83

11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 Dec-07

Apr-08

Aug-08



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Apr-10

Aug-10

Dec-10


Kuala Lumpur Kepong Bhd

TRADING BUY

Maintained

RM21.58

@07/12/10

Tapping into higher rubber and CPO prices

MALAYSIA

2011 OUTLOOK



KLK MK / KLKK.KL


• Maintain TRADING BUY with higher target price of RM25.00. KL Kepong remains a TRADING BUY as it is a prime beneficiary of rising CPO and rubber prices and should see strong FFB output growth in 2011. Our earnings forecasts are unchanged but our SOP-based target price is increased from RM22.84 to RM25.00 as we now value its plantation division at 18x P/E (16x prev), a 24% premium over our revised target market P/E, in view of our more bullish outlook for CPO price. KL Kepong remains our pick of the crop in Malaysia. • Upbeat earnings prospects for 2011. We expect the group to record earnings growth of 13% in 2011, driven by (1) increased FFB output due to higher yields from its young estates and new mature areas, (2) stronger earnings from its manufacturing division as a result of higher capacity and improved demand for oleochemical products, and (3) higher earnings contribution from its retail division following successful restructuring efforts. • Projecting 14% growth in FFB production. In view of the young age profile for its estates, the group is expected to post 14% growth in FFB output in FY9/11, fuelled mainly by new mature areas as well as rising yields. The oleochemical division is expected to benefit from the acquisition of Uniqema in Germany which was completed in 4QFY10. We are also positive on its retail unit, which turned around in FY10 following a successful restructuring. Property sales are expected to pick up when the group launches new property projects in the coming financial year. Financial summary

Stock Information Market cap: RM23,037m/US$7,344m 12-m price range: RM21.58 RM15.56 3-m avg daily vol: 1.1m No. of shrs (m): 1,068 Est. free float (%): 42.3 Conv. secs (m): None Major shareholders (%): - Batu Kawan 45.7 - Employees Provident Fund 16.1

FYE Sep Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 6,658.3 1,102.7 16.6% 887.4 612.5 57.4 (41.1%) 37.6 53.2 2.5% 4.1 11.0% 7.7% 39.4 21.4

2010 7,490.6 1,637.9 21.9% 1,382.8 1,012.3 94.8 65.3% 22.8 79.8 3.7% 3.8 17.4% 6.8% 54.5 14.4

2011F 8,972.6 1,861.0 20.7% 1,585.5 1,143.0 107.1 12.9% 20.2 86.5 4.0% 3.5 18.0% 9.1% 125.1 12.8 0.94

2012F 9,565.0 2,042.0 21.3% 1,755.1 1,265.2 118.5 10.7% 18.2 93.1 4.3% 3.2 18.2% 5.4% 22.9 11.6 0.95

2013F 10,158.0 2,094.4 20.6% 1,798.0 1,296.1 121.4 2.4% 17.8 97.1 4.5% 3.0 17.2% 2.4% 22.4 11.2 0.92


Price chart

Corporate profile

22.7

0.70

21.7

0.60

20.7

0.50

19.7

0.40

18.7 0.30

17.7

0.20

16.7

0.10

15.7 14.7 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Kua la Lumpur Ke pong Bhd

KL Kepong is one of the top plantation companies in Malaysia. It was listed on the Main Board of Bursa in Feb 1974. Although plantations remain its core business, it has expanded downstream into resource-based manufacturing, in particular, oleochemicals, cocoa processing and rubber processing. It is also involved in property development as well as retailing (100%-owned Crabtree & Evelyn). The group has an 18% stake in Yule Catto, which is listed on the London Stock Exchange. KLK owns 170,071ha of planted oil palm and rubber estates, which are located in Peninsular Malaysia (41%), East Malaysia (26%) and Indonesia (33%).


[ 114 ]



2009 6,658 (5,556) 1,103 (218) 885 (32) 35 0 0 887 (245) (30) 613 1,068 1,068

2010 7,491 (5,853) 1,638 (234) 1,404 (58) 37 0 0 1,383 (316) (55) 1,012 1,068 1,068

2011F 8,973 (7,112) 1,861 (257) 1,604 (60) 41 0 0 1,586 (381) (62) 1,143 1,068 1,068

2012F 9,565 (7,523) 2,042 (276) 1,765 (55) 45 0 0 1,755 (421) (69) 1,265 1,068 1,068

2013F 10,158 (8,064) 2,094 (295) 1,798 (50) 50 0 0 1,798 (432) (70) 1,296 1,068 1,068


2012F 3,280 329 2,723 6,331 979 1,616 762 699 4,057 403 800 545 1,748 600 295 895 7,250 494 6.48

2013F 3,503 329 2,772 6,604 1,201 1,716 811 735 4,462 428 800 576 1,804 600 295 895 7,803 565 7.00

(FYE Sep) CPO price per tonne (RM) FFB output (000' tonnes) FFB yield per ha (tonnes) Mature area (ha) CPO extraction rate (%) FFB growth (%)

2009 2,488 328 2,600 5,415 1,292 882 628 386 3,189 281 1,123 336 1,741 627 295 923 5,634 309 4.97

2010 2,569 322 2,877 5,768 1,255 1,288 328 524 3,395 316 580 374 1,270 1,107 461 1,568 6,005 320 5.32

2011F 3,037 329 2,677 6,043 756 1,515 718 657 3,645 377 800 515 1,692 600 295 895 6,675 426 5.95

2011F 19.8 13.6 17.7 12.7 26.7 24.0 60.6 21.3 57.0 14.1

2012F 6.6 9.7 18.3 13.2 32.1 24.0 58.9 28.2 59.7 14.9

2013F 6.2 2.6 17.7 12.8 36.0 24.0 60.0 28.3 59.9 14.9

2010 2,402 3,178 23 157,041 21.0% 11.1%

2011F 2012F 2013F 2,620 2,737 2,737 3,636 4,025 4,253 22 23 23 169,041 184,041 194,041 21.5% 21.5% 21.5% 14.4% 10.7% 5.7%



2010 12.5 48.5 18.5 13.5 24.1 22.8 63.1 23.3 52.9 14.6

KEY DRIVERS


2009 (15.2) (32.6) 13.3 9.2 12.9 27.6 69.5 34.3 57.6 15.2

2009 887 218 134 (356) 31 914 (371) 112 0 (259) (39) 0 (572) 79 (532) 124 162 (458)

2010 1,383 234 (356) (296) (181) 784 (333) 69 0 (264) (39) 0 (479) (15) (533) (13) 26 (432)

2011F 1,586 257 (548) (316) 52 1,031 (500) 0 0 (500) (287) 0 (692) (54) (1,033) (502) (215) (647)

2012F 1,755 276 (132) (381) 44 1,563 (500) 0 0 (500) 0 0 (745) (92) (837) 226 226 (421)

2013F 1,798 295 (128) (421) 35 1,579 (500) 0 0 (500) 0 0 (777) (79) (856) 222 222 (199)

26.0

24.0

22.0 20.0 18.0

16.0

14.0 12.0 Dec-07

Apr-08

Aug-08



[ 115 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Kurnia Asia Bhd

UNDERPERFORM

Maintained

RM0.35

@07/12/10

Murky earnings outlook

MALAYSIA

2011 OUTLOOK


Target: RM0.20 Insurance - General

KUAB MK / KURN.KL

Winson Ng Gia Yann CFA +60(3) 2084 9686 – [email protected]

• Maintain UNDERPERFORM. In view of the murky earnings outlook, we maintain our UNDERPERFORM call on Kurnia, with the potential de-rating catalysts being (1) its still-high claims ratio, (2) slowdown in premium growth, and (3) high FY12 P/E of 14.1x against an ROE of 9.7%. We retain our EPS forecasts and target price of RM0.20, pegged to an unchanged target CY12 P/E of 8x. For exposure to the insurance sector, we prefer Maybank and AMMB. • Volatile earnings trend. Despite the strong investment income of RM20m-30m, earnings have been volatile for the past three quarters, with net profit of RM23.8m in 1Q10 and RM3.2m in 2Q10 and a net loss of RM3.7m in 3Q10. This reflects the tough operating environment, which will continue to dilute the positive impact of the company’s transformation programme. • Key risk from high claims ratio. Kurnia enjoyed a 19.2% yoy jump in 3Q10 gross premium but this may not translate into a similar growth at the bottomline if the claims ratio remains high. The claims ratio had been volatile, rising from 66-68% in 1-2Q10 to 81.5% in 3Q10. This leads us to forecast a high claims ratio of 73% for FY11-12. For this reason, we are projecting only RM36m-37m net profit in FY11-12, compared to the RM112.2m recorded in CY09 when the claims ratio was only 67%. Financial summary


RM525m/US$167m RM0.76 RM0.35 3-m avg daily vol: 0.6m No. of shrs (m): 1,500 Est. free float (%): 37.6 Conv. secs (m): None Major shareholders (%): - Tan Sri Kua Sian Kooi 51.7 - Datuk Kua Chung Sen 4.9

FYE Dec Gross premium (RM m) Investment & other income (RM m) Revenue (RM m) Operating profit (RM m) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) % change in EPS estimates CIMB/Consensus (x)

2008 1,121.8 81.3 1,011.2 (314.4) (314.4) (301.8) (20.1) (12,174% nm 0.0 0.0% 3.5 (97.8%)

2009 977.7 85.2 854.3 102.4 102.4 112.2 7.5 137% 4.7 0.0 0.0% 1.7 49.6%

2010F 1,023.8 90.0 901.0 47.6 47.6 32.4 2.2 (71%) 16.2 0.0 0.0% 1.6 10.2% 0.90

2011F 1,095.5 91.8 964.1 47.8 47.8 35.8 2.4 11% 14.7 0.0 0.0% 1.4 10.2% 0.61

2012F 1,161.2 93.6 1,021.9 49.8 49.8 37.3 2.5 4% 14.1 0.4 1.1% 1.3 9.7% 0.58


Price chart

Corporate profile

0.8

1.40

0.8

1.20

0.7 0.7

1.00

0.6

0.80

0.6 0.5

0.60

0.5

0.40

0.4 0.20

0.4 0.3 Dec-09


Source: Bloomberg

Oct-10 Kurnia Asia Bhd

Kurnia Asia was incorporated on 16 Feb 01. On 21 Nov 02, it was converted to a public limited company with the present name. Its key subsidiary, Kurnia Insurans (Malaysia) Berhad is one of the largest general insurance companies in Malaysia with gross premium of more than RM1bn, of which about 80%+ is generated from the auto insurance segment. Kurnia has been pushing for regional expansion with the following moves (1) acquisition of 80% of Kurnia Insurans Indonesia in 2007, and (2) acquisition of a 26.3% stake in Kurnia Insurance (Thailand). In Jul 07, the group embarked on a transformation programme to revamp its underwriting portfolio and achieve greater operating efficiency.


[ 116 ]


PROFIT & LOSS (RM m, FYE Dec) Gross premium Reinsurance Net premium (Inc)/Dec in UPR Net commissions Net claims incurred Management expenses Investment income Others Operating profit Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2008 1,122 (111) 1,011 (5) (98) (1,082) (235) 81 13 (314) 0 0 0 (314) 13 0 (302) 1,500 1,500

2009 978 (123) 854 59 (97) (612) (192) 85 4 102 0 0 0 102 10 0 112 1,500 1,500

2010F 1,024 (123) 901 (81) (82) (598) (172) 90 (10) 48 0 0 0 48 (15) 0 32 1,500 1,500

2011F 1,095 (131) 964 (87) (88) (640) (183) 92 (10) 48 0 0 0 48 (12) 0 36 1,500 1,500

2012F 1,161 (139) 1,022 (92) (93) (679) (194) 94 (8) 50 0 0 0 50 (12) 0 37 1,500 1,500

2008 202 11 0 213 96 1,625 94 88 1,902 64 1,433 18 1,515 448 0 448 152 0 0.10

2009 182 5 0 187 58 1,786 78 93 2,015 78 1,031 424 1,533 369 0 369 300 0 0.20

2010F 245 5 0 250 58 1,928 87 101 2,174 89 1,113 439 1,642 450 0 450 332 0 0.22

2011F 236 5 0 241 121 2,063 93 109 2,386 95 1,191 436 1,722 536 0 536 368 0 0.25

2012F 227 5 0 232 197 2,187 98 117 2,599 101 1,263 436 1,800 628 0 628 403 0 0.27

(30.0) N/A N/A

2009 (12.8) (15.5) 132.6 11.2 12.3 N/A 0.0

2010F 2011F 2012F 4.7 7.0 6.0 5.5 7.0 6.0 (53.5) 0.3 4.3 5.8 5.4 5.4 3.9 4.1 4.0 32.0 25.0 25.0 0.0 0.0 12.0

2008 106.7 9.7 23.2 90.1 140.5 (40.6) 4.8

2009 67.0 10.6 20.6 87.4 100.8 1.4 4.7

2010F 2011F 2012F 73.0 73.0 73.0 10.0 10.0 10.0 20.0 20.0 20.0 88.0 88.0 88.0 101.1 101.1 101.0 (3.9) (3.9) (3.8) 4.8 4.6 4.4

KEY DRIVERS

BALANCE SHEET (RM m, end Dec) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Investments Trade debtors Other current assets Total current assets Trade creditors Provision for claims Other current liabilities Total current liabilities Unearned premium reserves Other long-term liabilities Total long term liabilities Shareholders’ funds Minority interests BV/share (RM)

2008 1.0 (1.1) (2,464. 2) (31.2)

(FYE Dec) Gross premium growth (%) Net premium growth (%) Operating profit growth (%) Pretax margins (%) Net profit margins (%) Effective tax rates (%) Net dividend payout (%)

CURRENT P/BV (X)

(FYE Dec) Net claims ratio (%) Net commission ratio (%) Management expenses ratio (%) Retention ratio (%) Combined ratio (%) Underwriting margin (%) Investment return (%)

12M - FORWARD FD CORE P/E (X) 48.0

6.40

38.0 28.0

5.40

18.0 8.0

4.40

-2.0

3.40

-12.0 -22.0

2.40

-32.0

1.40 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10

-42.0 Dec-07

Apr-08

Aug-08



[ 117 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Lafarge Malayan Cement Bhd

UNDERPERFORM

Maintained

RM7.42

@04/12/10

The cement giant

MALAYSIA

2011 OUTLOOK


Target: RM6.37 Cement

LMC MK / LMCE.KL


• Maintain UNDERPERFORM. Lafarge remains an UNDERPERFORM as we believe that newsflow on construction activities has been largely priced in. Lafarge’s share price has risen 11% since March and now trades 21.2x FY10 P/E compared to 12.7x for the FBM KLCI. Our EPS forecasts are unchanged. Although we maintain our valuation basis of a blend of P/E and the stock’s 1.2x 5-year P/BV, our target price rises from RM6.18 to RM6.37 as our target market P/E increases from 13.8x to 14.5x. Potential de-rating catalysts are 1) raw material cost inflation, and 2) Lafarge’s high P/E despite a 3-year EPS CAGR of only 3.5%. For exposure to cement, we recommend Tasek Corp (TC MK, Outperform). • No end yet to cement rebates. Earnings improved in 2010 due to the RM25/mt price hike to RM300/mt for bulk cement in May. However, cement companies continue to give RM20-30/mt rebates in order to attract buyers. • Margin contraction. Margins will remain under pressure if there are further price increases for coal and electricity, which account for 45% of Lafarge’s total costs. World coal prices usually increase during the winter months because of higher heating needs in China. Further hikes in domestic electricity rates would dampen profitability. We also expect Lafarge to incur higher maintenance costs in FY11 as it will be repairing a kiln that was damaged during 3Q10. Financial summary

Stock Information Market cap: RM6,305m/US$2,002m 12-m price range: RM8.10 RM6.06 3-m avg daily vol: 0.9m No. of shrs (m): 850 Est. free float (%): 30.5 Conv. secs (m): None Major shareholders (%): - Lafarge Cement UK Plc 53.8 - Associated International 8.4 - Employees Provident Fund 7.3


2008 2,530.8 544.6 21.5% 397.8 367.7 43.3 31.1% 17.1 40.0 21.3% 18.5 30.0 4.0% 2.1 12.4% 10.8% N/A 30.1 12.2

2009 2,483.1 602.6 24.3% 441.9 412.2 48.5 12.1% 15.3 48.5 21.1% 15.3 38.0 5.1% 2.0 13.2% N/A 0.06 12.1 10.4

2010F 2,470.7 510.1 20.6% 360.6 297.8 35.0 (27.8%) 21.2 35.0 (27.8%) 21.2 34.0 4.6% 2.0 9.3% N/A 0.16 25.9 12.1 N/A 0.88

2011F 2,624.5 666.9 25.4% 526.2 435.3 51.2 46.2% 14.5 51.2 46.2% 14.5 42.0 5.7% 1.9 13.3% N/A 0.40 12.7 9.0 N/A 1.00

2012F 2,680.5 691.2 25.8% 552.9 457.4 53.8 5.1% 13.8 53.8 5.1% 13.8 45.0 6.1% 1.8 13.4% N/A 0.68 11.8 8.3 N/A 0.98


Price chart


8.2

7.00 6.00

7.7

5.00 7.2

4.00 3.00

6.7

2.00

6.2 5.7 Dec-09


Source: Bloomberg

Oct-10 Lafarge Malayan Cement Bhd

Lafarge Malayan Cement (LMC) is 53.8% owned by the Lafarge Group, a world leader in building material solutions with operations in 78 countries. The group’s earnings are mainly from the manufacturing and distribution of cement, ready mixed concrete, and other related building materials. LMC was the first cement company in Malaysia, building its first cement plant in Rawang in 1953. Today, LMC employs some 1,200 people and is Malaysia’s largest cement player with a market share of about 43%. While the bulk of LMC’s cement is sold locally in Malaysia, the company has a presence in Singapore where it imports, sells, and trades building materials.


[ 118 ]



2008 2,531 (1,986) 545 (168) 376 (17) 9 30 0 398 (30) (1) 368 850 850

2009 2,483 (1,881) 603 (154) 449 (6) (2) 0 0 442 (36) 6 412 850 850

2010F 2,471 (1,961) 510 (155) 355 3 3 0 0 361 (61) (2) 298 850 850

2011F 2,624 (1,958) 667 (159) 508 5 13 0 0 526 (89) (2) 435 850 850

2012F 2,681 (1,989) 691 (162) 529 9 15 0 0 553 (94) (2) 457 850 850

2011F 1,691 1,209 135 3,035 560 327 313 66 1,266 286 16 118 419 207 314 521 3,336 25 2.50

2012F 1,608 1,209 128 2,945 795 334 320 67 1,516 292 17 121 430 203 307 510 3,492 29 2.69

2008 1,946 1,209 166 3,321 143 435 341 63 982 324 116 134 573 359 312 671 3,032 27 2.15

2009 1,845 1,209 152 3,205 414 309 296 62 1,081 270 146 110 527 216 329 545 3,194 21 2.34

2010F 1,770 1,209 143 3,122 365 308 295 62 1,029 269 14 111 394 211 321 533 3,202 22 2.35

2010F (0.5) (15.3) 14.6 12.1 66.9 17.0 72.8 43.6 45.6 39.8

2011F 6.2 30.8 20.1 16.6 97.0 17.0 61.5 42.2 44.1 38.6

2012F 2.1 3.6 20.6 17.1 102.1 17.0 62.7 43.1 45.0 39.3

(FYE Dec) Cement ASP - domestic (RM/tonne) Export ASP (US$/t) Thermal coal price (US$/tonne) Exchange rate (RM to US$)

2009 270 40.9 70 3.50

2010F 275 41.6 92 3.17

2011F 275 42.8 92 3.11

2012F 275 42.8 92 3.15



2009 (1.9) 10.6 17.8 16.6 25.8 8.1 58.7 46.8 54.7 43.6

KEY DRIVERS


2008 16.4 14.4 15.7 14.5 14.2 7.4 51.3 48.8 56.8 42.6


2008 398 168 (20) (23) (9) 515 (98) (33) 0 (130) (175) 0 (253) 13 (415) (31) 144 (332)

2009 442 154 95 (18) 2 674 (60) 6 0 (54) (100) 0 (255) 12 (343) 278 378 51

2010F 361 155 (1) (66) 0 448 (80) 8 0 (72) (134) 0 (289) 0 (423) (46) 87 139

2011F 526 159 (18) (94) 0 572 (80) 8 0 (72) (3) 0 (302) 0 (305) 196 199 337

2012F 553 162 (7) (99) 1 611 (80) 7 0 (73) (3) 0 (302) (1) (305) 234 236 575

19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 Dec-07

Apr-08

Aug-08



[ 119 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Latexx Partners

OUTPERFORM

Maintained

RM2.67

@07/12/10

Good things come in small packages

MALAYSIA

2011 OUTLOOK



LTX MK / LATX.KL


• Maintain OUTPERFORM. Latexx remains an OUTPERFORM. We retain our earnings forecasts and valuation basis of 30% discount to our target P/E for Top Glove. However, our target price rises from RM3.66 to RM3.85 (9.4x CY12 P/E) as we are upping Top Glove’s target P/E from 13.8x to 14.5x, in line with our revised target market P/E. Potential re-rating catalysts are 1) a better product mix, 2) demand for ultra-thin rubber gloves, and 3) resumption of its delayed capacity expansion programme.

• Access to China. Latexx derives 80% of its sales from MNCs, which gives it one of the highest exposures to MNCs in the sector. We expect the company to benefit from Cardinal Health Inc’s (CAH US, Not Rated) recent acquisition of Yong Yu, China’s largest importer of medical supplies, as 20% of Latexx’s revenues come from Cardinal and the companies have a relationship going back more than 15 years.

• Its first OBM product. Total Glove, Latexx’s 50.01:49.9% JV with Dutch R&D company Budev B.V. has been established for almost a year. We believe the collaboration to commercialise low-protein gloves will begin to bear fruit when latex prices eventually moderate. This will give Latexx a rubber glove product that can be sold alongside its nitrile gloves. Financial summary


RM584m/US$186m RM4.83 RM2.40 3-m avg daily vol: 1.4m No. of shrs (m): 219 Est. free float (%): 64.5 Conv. secs (m): 56.0 Major shareholders (%): - BT Capital Sdn Bhd 23.6 - Lembaga Tabung Haji 6.1 - Best Time Ventures 5.9

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 223.3 24.1 10.8% 15.2 15.2 6.9 212.6% 38.5 5.5 48.3 0.0 0.0% 4.8 13.4% 47.0% N/A 115.5 26.6

2009 328.5 66.7 20.3% 51.8 51.3 23.5 237.8% 11.4 18.7 14.3 2.0 0.7% 3.4 35.3% 43.0% N/A 42.5 9.9

2010F 437.4 118.8 27.2% 101.6 81.3 37.1 58.4% 7.2 29.6 9.0 7.5 2.8% 2.4 38.9% 12.5% N/A 10.9 5.2 N/A 1.00

2011F 531.8 140.2 26.4% 119.6 95.7 43.7 17.8% 6.1 34.8 7.7 11.0 4.1% 1.8 33.0% N/A 0.02 9.6 4.1 N/A 1.02

2012F 537.6 154.4 28.7% 130.3 104.2 47.6 8.9% 5.6 37.9 7.0 14.0 5.2% 1.4 27.8% N/A 0.25 6.7 3.4 N/A 0.89


Price chart

Corporate profile 1.60 1.40

4.7

1.20 4.2

1.00 3.7

0.80 0.60

3.2

0.40 2.7 2.2 Dec-09


Source: Bloomberg

Oct-10 Latexx Partners

Latexx Partners was incorporated in 1988 and was listed on Bursa Malaysia in 1996. Its office and manufacturing facilities are located in Kamunting Industrial Estate in Kamunting, Perak. The company currently owns six manufacturing plants located on a 40-acre plot that has space for expansion. With its current annual production capacity of 8.0bn pieces of gloves, Latexx ranks as the fifth largest glove manufacturer in Malaysia with 4% global market share. The company focuses on higher-quality powder-free natural rubber (NR) gloves and nitrile gloves. It is planning a staggered capacity expansion to keep pace with growing market demand.


[ 120 ]



2008 223 (199) 24 (6) 18 (3) 0 0 0 15 0 0 15 219 195

2009 328 (262) 67 (8) 58 (7) 0 0 0 52 0 0 51 219 198

2010F 437 (319) 119 (11) 107 (6) 0 0 0 102 (20) 0 81 219 219

2011F 532 (392) 140 (15) 126 (6) 0 0 0 120 (24) 0 96 219 219

2012F 538 (383) 154 (18) 136 (6) 0 0 0 130 (26) 0 104 219 219


2011F 254 20 6 280 114 64 90 0 268 106 43 0 149 67 1 68 331 0 1.42

2012F 289 20 6 315 177 65 91 0 333 108 44 0 151 77 2 79 418 0 1.82


2008 119 20 7 146 10 36 44 0 90 48 37 0 85 30 1 31 121 0 0.46

2009 173 20 21 215 19 38 59 0 116 68 43 0 111 50 1 51 170 0 0.68

2010F 215 20 6 242 69 52 74 0 196 87 43 0 130 57 1 59 249 0 1.04

2010F 33.2 78.2 23.2 18.6 17.2 20.0 15.1 55.5 37.9 64.9

2011F 21.6 18.0 22.5 18.0 18.4 20.0 18.9 56.5 39.9 66.5

2012F 1.1 10.1 24.2 19.4 18.2 20.0 22.0 61.7 43.6 72.6

2009 4,500 84.8% 24.50 3.43 4.50 1,014

2010F 8,000 70.0% 31.00 3.02 8.20 1,300

2011F 9,000 70.0% 29.45 3.05 8.00 1,381

2012F 9,000 70.0% 27.98 3.05 7.55 1,503



2009 47.1 176.9 15.8 15.6 8.8 0.9 6.4 57.1 41.4 64.3

KEY DRIVERS


2008 48.1 130.4 6.8 6.8 5.6 0.1 0.0 65.1 52.3 81.8

2008 15 6 (23) 0 2 (1) (23) 0 0 (23) 29 0 0 (21) 8 (16) (44) (57)

2009 52 8 1 0 2 63 (48) 1 0 (47) (2) 2 (4) (30) (35) (18) (16) (73)

2010F 102 12 (10) 0 (8) 95 (50) 0 0 (50) 8 0 (8) 5 4 50 42 (31)

2011F 120 15 (8) 20 (45) 101 (50) 0 0 (50) 10 0 (12) (4) (6) 45 35 4

2012F 130 18 (1) 24 (46) 126 (50) 0 0 (50) 12 0 (20) (5) (13) 63 51 56

11.0

9.0

7.0

5.0

3.0

1.0 Dec-07

Apr-08

Aug-08



[ 121 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Malayan Banking Bhd

OUTPERFORM

Maintained

RM8.41

@07/12/10

Recharging BII

MALAYSIA

2011 OUTLOOK


Target: RM10.50 Banks

MAY MK / MBBM.KL


• Maintain OUTPERFORM. We reiterate our OUTPERFORM rating on Maybank, premised on the potential re-rating catalysts of (1) strong overseas growth, especially in Indonesia, (2) an expected rebound of loan growth in Malaysia and Singapore, (3) reversal in treasury income, and (4) a pickup in investment banking income. Another plus is its attractive dividend yield of about 7%. Our earnings forecasts are intact, along with our target price of RM10.50. We continue to apply a 10% premium to its DDM value. There are no changes to the key DDM parameters, including a cost of equity of 11.3% and dividend growth rates of 7.3% in the interim growth phase and 5% in the long-term growth phase. • Projecting net earnings growth of 12-19% in FY11-12. We are projecting an 18.7% rise in Maybank’s FY6/11 net earnings to RM4.53bn, fuelled by a 16.7% increase in net interest income on the back of 11.6% loan growth and higher net interest margin. The growth in FY12 is still expected to be a healthy 12.2%, supported by a 9-10% expansion in net and non-interest income and an 18% drop in credit costs. • Continuous transformation of BII. The key focus in 2011 will be the continuous transformation of Bank Internasional Indonesia (BII) through the (1) strengthening of relationships with customers, (2) expansion of the distribution network, and (3) enhancing of product development capabilities. Going by its loan growth of 34-38% yoy in Jun-Sep 10, BII is beginning to see the early fruits of the revamp. Financial summary

Stock Information Market cap: RM59,526m/US$18,975m 12-m price range: RM9.29 RM6.71 3-m avg daily vol: 9.2m No. of shrs (m): 7,078 Est. free float (%): 51.0 Conv. secs (m): None Major shareholders (%): - Skim Amanah Saham 44.7 - Employees Provident Fund 10.9 - Permodalan Nasional 5.9 Berhad

FYE Jun Net interest income (RM m) Non-interest income (RM m) Total income (RM m) Loan loss provisions (RM m) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) % change in EPS estimates CIMB/Consensus (x)

2009 5,919.5 4,599.5 10,519.0 (1,698.8) 1,674.3 691.9 11.1 (80%) 76.0 34.9 (42%) 24.1 8.0 1.0% 2.4 3.1%

2010 6,770.9 6,100.8 12,871.7 (1,188.0) 5,370.4 3,818.2 53.8 387% 15.6 53.8 54% 15.6 55.0 6.5% 2.1 14.5%

2011F 7,670.2 4,710.2 14,117.6 (1,393.5) 6,166.7 4,532.5 63.9 19% 13.2 63.9 19% 13.2 59.6 7.1% 2.1 15.9% 1.05

2012F 8,401.6 4,847.0 15,132.5 (1,136.9) 6,917.4 5,084.3 71.7 12% 11.7 71.7 12% 11.7 66.9 8.0% 1.9 16.8% 1.05

2013F 9,211.7 5,288.3 16,541.3 (1,100.1) 7,795.1 5,729.4 80.8 13% 10.4 80.8 13% 10.4 75.4 9.0% 1.8 17.6% 1.08


Price chart

Corporate profile

9.8 3.00 9.3 2.50 8.8 2.00

8.3

1.50

7.8

1.00

7.3

0.50

6.8 6.3 De c-09


Source: Bloomberg

Oct-10 Ma la ya n Ba nking Bhd

Maybank is the largest banking group in Malaysia, with assets totalling RM347bn. In 2000, it acquired Pacific Bank and Phileo Allied Bank. The group’s lending is mostly channelled to the consumer segment, which accounts for almost half of its local loan portfolio. Maybank also has sizeable exposure to foreign markets, with foreign loans, mainly in Singapore and Indonesia, making up 33% of its total loan base. In early 2008, it embarked on an aggressive overseas expansion programme. It acquired 20% of Pakistan’s MCB Bank, 15% of Vietnam’s An Binh Bank and 97.5% of Bank Internasional Indonesia (BII) in 2008.


[ 122 ]


PROFIT & LOSS (RM m, FYE Jun) Net interest income Non-interest income Other income Total income Overhead expenses Pre-provision profit Loan loss provisions Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 5,920 4,600 0 10,519 (5,559) 4,960 (1,699) 100 (1,686) 0 1,674 (924) (59) 692 6,255 7,093

2010 6,771 6,101 0 12,872 (6,412) 6,460 (1,188) 99 0 0 5,370 (1,402) (150) 3,818 7,093 7,093

2011F 7,670 4,710 1,737 14,118 (6,668) 7,450 (1,393) 111 0 0 6,167 (1,542) (93) 4,533 7,093 7,093

2012F 8,402 4,847 1,884 15,133 (7,202) 7,930 (1,137) 124 0 0 6,917 (1,729) (104) 5,084 7,093 7,093

2013F 9,212 5,288 2,041 16,541 (7,785) 8,756 (1,100) 139 0 0 7,795 (1,949) (117) 5,729 7,093 7,093

2009 30,254 50,340 80,594 185,783 8,361 1,422 4,374 30,205 230,145 310,739 212,599 30,241 16,232 25,899 284,971 24,899 869 3.51

2010 37,995 46,534 84,529 205,555 8,943 1,405 4,481 31,787 252,171 336,700 236,910 24,604 16,873 29,648 308,035 27,877 788 3.93

2011F 37,859 48,098 85,957 229,257 6,504 1,489 4,481 33,447 275,179 361,135 245,433 35,441 16,873 33,474 331,220 29,088 827 4.10

2012F 39,374 44,621 83,995 254,086 5,311 1,522 4,481 35,965 301,365 385,361 262,268 38,412 16,873 35,587 353,140 31,353 868 4.42

2013F 39,120 42,113 81,233 279,169 5,342 1,546 4,481 38,159 328,696 409,929 278,821 41,706 16,873 37,730 375,129 33,889 912 4.78

2009 10.0 (6.7) (59.0) 2.31 52.8 55.2 54.2

2010 22.4 30.2 220.8 2.36 49.8 26.1 76.6

2011F 9.7 15.3 14.8 2.47 47.2 25.0 70.0

2012F 7.2 6.5 12.2 2.53 47.6 25.0 70.0

2013F 9.3 10.4 12.7 2.60 47.1 25.0 70.0

2009 12.9 13.6 87.4 3.5 1.5 112.9 2.0 15.0

2010 10.6 11.4 86.8 2.9 1.1 124.5 1.8 15.2

2011F 11.5 3.6 93.4 2.9 1.1 124.5 1.8 15.2

2012F 2013F 10.8 9.9 6.9 6.3 96.9 100.1 2.9 2.9 1.2 1.2 120.5 118.9 1.8 1.8 15.5 15.8

KEY DRIVERS

BALANCE SHEET (RM m, end Jun) Cash & deposits with FIs Marketable securities Total current assets Net loans & advances Long-term investments Fixed assets Intangible assets Other long-term assets Total long-term assets Total assets Customer deposits Deposits of other FIs Subordinated debts Other long-term liabilities Total liabilities Shareholders’ funds Minority interests BV/share (RM)

(FYE Jun) Total income growth (%) Pre-provision profit growth (%) Pretax growth (%) Net interest margin (%) Cost-income ratio (%) Effective tax rates (%) Net dividend payout (%)

(FYE Jun) Loan growth (%) Deposit growth (%) Loan-deposit ratio (%) Gross NPL (%) Net NPL (%) Loan loss reserve (%) GP ratio (%) RWCR (%)


CURRENT P/BV (X) 2.60

19.0

2.40 17.0

2.20 2.00

15.0

1.80

13.0

1.60 11.0

1.40 1.20

9.0


7.0 Dec-07

Apr-08

Aug-08



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Dec-10

Malaysia Airports Holdings Bhd

OUTPERFORM

Maintained

RM6.27

@07/12/10

Still on a high plane

MALAYSIA

2011 OUTLOOK


Target: RM7.50 Airports

MAHB MK / MAHB.KL


• Maintain OUTPERFORM. Thanks to its monopoly of the operations of all of Malaysia’s airports except Senai Airport, Malaysia Airports (MAHB) is poised to ride on the back of robust passenger growth, carriers’ expansion plans and the gradual liberalisation of air transport. We maintain our OUTPERFORM call but raise our DCF-based target price from RM7.05 to RM7.50 after lowering our WACC from 8.2% to 7.9% for a lower beta assumption of 0.8 (0.9 previously). Potential re-rating catalysts for the stock include 1) stronger-than-expected passenger growth, 2) continuous expansion of airlines, and 3) industry liberalisation. • 10% growth for 2011. Our economics team is projecting GDP growth of 5.5% for 2011, which bodes well for consumer sentiment and the demand for air travel and retail spending. We are projecting 10% earnings growth for 2011, largely driven by an 8% growth in passenger movements and higher contribution from its nonaeronautical segment, particularly the retail operations. We think that MAHB will focus on growing its non-aeronautical revenue by optimising its retail operations. • Sabiha Gokcen to stay in the red in 2011. We expect MAHB’s 20%-owned Sabiha Gokcen (SGIA) to remain in the red in 2011. Given the typical airport gestation period of 4-5 years, management expects SGIA to break even operationally in 2014-2015. We see MAHB’s investment in SGIA as a strategic move to gain exposure to the huge tourism potential in Turkey. We gather that the airport yields an attractive EBITDA margin of 55%, which surpasses MAHB’s 3940% margins. The current losses are mainly due to interest and depreciation costs. Financial summary

Stock Information Market cap: RM6,897m/US$2,192m 12-m price range: RM6.27 RM3.75 3-m avg daily vol: 0.6m No. of shrs (m): 1,100 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - Khazanah Nasional 54.0 - Employees Provident Fund 11.9 - T Rowe Price 1.7

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 1,435.0 534.6 37.3% 422.2 298.3 27.1 2.8% 23.1 24.5 (7.0%) 18.6 3.0% 2.2 9.7% N/A 0.61 50.4 11.5

2009 1,637.1 603.2 36.8% 480.1 379.3 34.5 27.1% 18.2 31.7 29.2% 22.9 3.7% 2.0 11.6% 7.1% N/A (29.3) 11.6

2010F 1,824.2 711.3 39.0% 507.9 375.2 34.1 (1.1%) 18.4 34.1 7.7% 22.9 3.7% 2.0 11.0% 35.6% N/A 24.0 11.3 1.04

2011F 1,917.0 761.4 39.7% 553.3 414.3 37.7 10.4% 16.6 37.7 10.4% 25.1 4.0% 1.9 11.6% 72.4% N/A 4,333.9 12.4 0.97

2012F 2,187.8 857.2 39.2% 520.3 389.6 35.4 (6.0%) 17.7 35.4 (6.0%) 25.1 4.0% 1.8 10.3% 72.4% N/A 22.9 11.2 0.95


Price chart

Corporate profile

6.5

3.50

6.0

3.00

5.5

2.50 2.00

5.0

1.50 4.5

1.00

4.0

0.50

3.5 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ma la ys ia Airports Holdings Bhd

Malaysia Airports Holdings Bhd was incorporated in 1991 with a core focus on the operations, management, maintenance, as well as the development of airports. MAHB is 54% owned by Khazanah Nasional. It operates and manages 39 airports in Malaysia comprising international, domestic and short take-off and landing ports. Apart from its local operations, MAHB also has four international airports under its portfolio, namely Delhi International Airport and Hyderabad International Airport in India, Sabiha Gokcen International Airport in Turkey and the Maldives International Airport in Maldives. The S.E.A. Navigator – Malaysia 2011

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2008 1,435 (900) 535 (155) 380 0 2 40 0 422 (123) (1) 298 1,100 1,100

2009 1,637 (1,034) 603 (150) 453 (14) 3 39 0 480 (100) (1) 379 1,100 1,100

2010F 1,824 (1,113) 711 (159) 553 (25) (20) 0 0 508 (132) (1) 375 1,100 1,100

2011F 1,917 (1,156) 761 (170) 592 (24) (15) 0 0 553 (138) (1) 414 1,100 1,100

2012F 2,188 (1,331) 857 (226) 631 (101) (10) 0 0 520 (130) (1) 390 1,100 1,100

2008 1,911 1,188 486 3,585 677 58 668 4 1,407 503 3 869 1,375 0 434 435 3,179 4 1.81

2009 1,951 1,758 547 4,256 268 60 634 0 964 638 0 47 685 508 653 1,161 3,370 5 1.46

2010F 2,832 1,715 547 5,094 244 314 707 1 1,265 711 0 30 741 1,482 653 2,136 3,477 5 1.60

2011F 4,509 1,672 547 6,727 38 330 743 1 1,111 747 0 40 787 2,708 653 3,361 3,684 6 1.83

2012F 4,824 1,628 547 6,999 133 376 848 1 1,357 853 0 42 895 2,935 653 3,589 3,866 7 2.03

2008 422 155 45 (128) (53) 442 (282) (206) 4 (485) 180 0 (145) 0 35 (8) (188) 674

2009 480 150 (296) (97) (544) (306) (326) 5 (99) (420) 505 0 (186) (14) 305 (421) (926) (240)

2010F 508 159 (253) (100) (26) 288 (950) 0 0 (950) 975 0 (312) (25) 638 (24) (999) (1,239)

2011F 553 170 (16) (132) (76) 499 (1,700) 0 0 (1,700) 1,226 0 (207) (24) 995 (206) (1,431) (2,670)

2012F 520 226 (46) (138) (15) 547 (450) 0 0 (450) 227 0 (207) (22) (2) 94 (133) (2,803)

2009 14.1 12.8 29.3 23.2 31.9 20.9 49.1 145.2 13.2 127.2

2010F 11.4 17.9 27.8 20.6 22.3 26.0 50.4 134.2 37.4 134.9

2011F 5.1 7.0 28.9 21.6 25.1 25.0 50.0 138.0 61.2 138.8

2012F 14.1 12.6 23.8 17.8 6.2 25.0 53.2 132.7 58.9 133.4

(FYE Dec) Int'l passenger traffic growth (%) Domestic pax traffic grwth (%) Int'l pax service charge (RM) Dom pax serv charge (RM)

2009 9.6% 7.1% 51 9

2010F 10.2% 9.9% 51 9

2011F 8.0% 8.0% 51 9

2012F 6.0% 6.0% 51 9



2008 4.0 (2.5) 29.4 20.8 1,346.2 29.2 49.9 131.9 14.6 78.6

KEY DRIVERS



16.0

14.0

12.0

10.0

8.0

6.0 Dec-07

Apr-08

Aug-08



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Dec-10

Malaysian Airline System Bhd

OUTPERFORM

Maintained

RM2.07

@07/12/10

Radical transformation on the cards

MALAYSIA

2011 OUTLOOK


Target: RM3.00 Airlines

MAS MK / MASM.KL

Raymond Yap CFA +603 2084 9769 – [email protected]

• Maintain OUTPERFORM. MAS is en route to a radical transformation of its structural costs as 56 passenger aircraft will be delivered from Boeing and Airbus over the next four years and it has 30 more options that has not yet been exercised. A one-for-one replacement with its present aged fleet will halve the average fleet age to just six years by 2013. This process will significantly improve fuel efficiency, reduce maintenance costs, improve the product to world-class standards, justify an increase in fares and yield intangible benefits like greater pilot and crew work satisfaction and improved staff morale. The reduction in structural costs that could permanently lift MAS’s profitability range underpins our OUTPERFORM call. Our target price stays at RM3, based on 6x CY12 EPS. • Process will take time. MAS will take delivery of three new planes in 2010, followed by eight in 2011, 13 in 2012 and 17 in 2013, 13 in 2014 and two in 2015. This fleet replacement process will take several years and the benefits will be more visible only in 2012-13. Over the past year, MAS’s yield recovery has lagged behind its peers in Singapore or HK as it is less leveraged to a business travel recovery. As a result, MAS’s share price has not re-rated as much as SIA (Outperform, TP: S$20.50) or AirAsia (Outperform, TP: RM3.85). Financial summary

Stock Information Market cap: RM6,918m/US$2,205m 12-m price range: RM2.59 RM1.80 3-m avg daily vol: 2.2m No. of shrs (m): 3,342 Est. free float (%): 15.0 Conv. secs (m): 134.3 Major shareholders (%): - Penerbangan Malaysia 70.0 - EPF 10.0

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 15,034.2 344.0 2.3% 302.7 244.4 11.9 (74.9%) 17.4 6.8 (86.0%) 30.4 7.0 29.7 0.0 0.0% 1.0 6.0% N/A 1.56 (7.2) 3.1

2009 11,309.8 (375.9) (3.3%) 462.0 490.2 23.9 100.6% 8.7 (111.8) (1,739.1%) nm (104.1) nm 0.0 0.0% 5.8 19.9% N/A 0.31 (2.6) (9.7)

2010F 12,633.7 242.0 1.9% 106.3 92.5 3.0 (87.6%) 70.0 (29.0) 74.1% nm (27.3) nm 0.0 0.0% 2.0 4.4% 27.4% N/A (2.3) 30.8 N/A (4.43)

2011F 13,827.6 1,386.1 10.0% 722.9 708.8 21.2 617.3% 9.8 17.3 159.8% 11.9 17.1 12.1 0.0 0.0% 1.6 18.4% 37.1% N/A 22.1 6.1 N/A 1.53

2012F 15,561.4 2,526.9 16.2% 1,751.8 1,734.1 51.9 144.7% 4.0 51.9 199.2% 4.0 50.3 4.1 0.0 0.0% 1.2 34.2% 14.0% N/A 4.4 3.1 N/A 2.26


Price chart

Corporate profile

2.7 2.00 2.5 1.50 2.3 1.00

2.1

0.50

1.9 1.7 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ma la ys ia n Airline S ys te m Bhd

Malaysian Airline System will operate a fleet of around 105 aircraft, including seven dedicated freighters and 20 ATR-72 turboprops. It went through a significant financial restructuring exercise, known as widespread asset unbundling in 2002, and comprehensive operational restructuring under its ex-managing director Dato’ Sri Idris Jala from 2007. Tengku Dato’ Azmil Zahruddin took over as managing director in 2008 and has continued with the reforms. Over 2010-15, MAS is expected to receive new aircraft that will completely transform the aged fleet including 35 B737-800 planes with 20 options, six A380s, and 15 A330-300s with 20 options.


[ 126 ]



2008 2009 2010F 15,034 11,310 12,634 (14,690) (11,686) (12,392) 344 (376) 242 (328) (316) (366) 16 (692) (124) 162 (25) (94) 20 12 10 104 1,167 314 0 0 0 303 462 106 (57) 31 (11) (3) (3) (1) 490 92 244 2,053 2,053 3,127 2,054 2,053 3,342

2011F 2012F (FYE Dec) 13,828 15,561 Revenue growth (%) (12,441) (13,035) EBITDA growth (%) 1,386 2,527 Pretax margins (%) (542) (613) Net profit margins (%) 844 1,913 Interest cover (x) (146) (172) Effective tax rates (%) 10 10 Net dividend payout (%) 15 0 Debtors turnover (days) 0 0 Stock turnover (days) 723 1,752 Creditors turnover (days) (11) (15) (3) (3) 709 1,734 3,342 3,342 3,342 3,342

2008 2,465 108 571 3,144 4,617 380 1,932 0 6,928 2,409 433 2,045 4,887 986 2 987 4,186 11 1.99

2009 3,044 144 545 3,733 2,952 385 1,447 0 4,785 2,236 319 3,214 5,769 2,001 0 2,001 736 12 0.29

2010F 6,710 144 555 7,409 2,817 408 1,617 0 4,842 2,372 319 2,584 5,274 3,461 0 3,461 3,502 15 1.00

2011F 7,745 144 565 8,454 3,131 410 1,770 0 5,310 2,381 319 2,455 5,154 4,381 0 4,381 4,211 18 1.22

2012F 8,612 144 575 9,331 4,710 429 1,992 0 7,131 2,495 319 2,455 5,268 5,229 0 5,229 5,945 21 1.74

2010F 11.7 164.4 0.8 0.7 (0.9) 10.2 0.0 44.3 11.5 66.6

2011F 9.4 472.8 5.2 5.1 4.4 1.5 0.0 44.7 10.8 62.7

2012F 12.5 82.3 11.3 11.1 8.3 0.8 0.0 44.1 9.8 57.2

(FYE Dec) Passenger fleet size (# of planes) Av. seat km (ASK, yoy chg %) Rev. psg km (RPK, yoy chg %) Load factor (%) Passenger yield per RPK (sen) Jet fuel price (US$/barrel) Fuel cost per ASK (sen) Non-fuel cost per ASK (sen)

2009 86 -9.5% -8.3% 68.8% 25.79 106.06 7.31 17.12

2010F 84 3.3% 14.3% 76.1% 25.03 107.00 8.85 16.23

2011F 84 5.0% 2.5% 74.4% 27.26 102.64 8.33 15.65

2012F 79 5.0% 5.0% 74.4% 29.66 105.00 8.35 15.58



2009 (24.8) (209.3) 4.1 4.3 (8.3) N/A 0.0 54.5 12.3 75.0

KEY DRIVERS


2008 0.3 (70.7) 2.0 1.6 0.3 18.8 0.0 36.0 9.0 52.3

2008 303 328 (1,213) (15) (27) (624) (764) 41 214 (509) 559 0 (56) (14) 490 (643) (1,202) 3,197

2009 462 316 307 (5) (2,677) (1,597) (914) (22) 54 (882) 901 0 (2) (83) 815 (1,664) (2,565) 633

2010F 106 366 (58) (11) (503) (99) (4,032) 0 0 (4,032) 1,460 2,674 0 (137) 3,996 (135) (1,595) (962)

2011F 723 542 (145) (11) 52 1,161 (1,576) 0 0 (1,576) 920 0 0 (191) 729 313 (607) (1,569)

2012F 1,752 613 (128) (15) 221 2,443 (1,480) 0 0 (1,480) 848 0 0 (231) 617 1,580 732 (837)

44.0 34.0 24.0 14.0 4.0 -6.0 -16.0 -26.0 -36.0 -46.0 Dec-07

Apr-08

Aug-08



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Dec-10


Malaysian Bulk Carriers Bhd

UNDERPERFORM

Maintained

RM2.97

@07/12/10

Avoid the bulk and tanker space

MALAYSIA

2011 OUTLOOK


Target: RM2.80 Dry Bulk Shipping

MBC MK / MBCB.KL


• Maintain UNDERPERFORM. Maybulk is exposed to the shipping and offshore sectors which are unlikely to do well in 2011. As a result, we expect its share price performance to remain lacklustre. Our SOP target price is unchanged at RM2.80, based on the estimated secondhand market price of its fleet. We continue to rate the stock an UNDERPERFORM. The main potential de-rating catalyst is the weak outlook for bulk, tanker and offshore markets in 2011. • Disturbing signs of weakness. Spot bulk shipping rates continue to weaken and MR tanker rates are near all-time lows. We are negative on the prospects for both segments in 2011. There is also no sign of recovery in the offshore service space. Earnings from its 22% associate POSH sank 74% yoy in 9M10. • Selective and patient acquisition strategy. Although Maybulk has been looking for ships to purchase, it executed only two secondhand bulker deals in 2009 and one tanker deal in 2010 as asset values may have moved up too quickly over the past year. The current freight market decline could create opportunities to buy but Maybulk is likely to remain very patient and selective. We have assumed two purchases this year, followed by three each in 2011-12. Separately, Maybulk recently entered in a 50% JV with Mexican partners to participate in two 32,500 dwt handysize newbuildings to service the US Gulf/Mexico markets for delivery in May and August 2011. Financial summary

Stock Information Market cap: RM2,970m/US$947m 12-m price range: RM3.25 RM2.81 3-m avg daily vol: 0.3m No. of shrs (m): 1,000 Est. free float (%): 31.0 Conv. secs (m): None Major shareholders (%): - Pacific Carriers Ltd. 34.5 - Bank Pembangunan 18.4 - PPB Group Bhd 14.0


2008 721.1 341.9 47.4% 525.8 460.9 46.1 (15.4%) 6.4 27.9 (21.5%) 10.7 51.4 17.3% 1.6 25.8% N/A 0.44 18.0 5.3

2009 303.7 105.3 34.7% 260.1 255.7 25.6 (44.5%) 11.6 18.5 (33.8%) 16.1 20.3 6.8% 1.7 13.9% N/A 0.11 166.9 18.6

2010F 427.3 222.9 52.2% 220.4 212.8 21.3 (16.8%) 14.0 21.3 15.2% 14.0 13.5 4.6% 1.6 11.7% N/A 0.08 16.4 8.8 N/A 1.01

2011F 436.2 221.1 50.7% 220.6 214.3 21.4 0.7% 13.9 21.4 0.7% 13.9 16.2 5.5% 1.5 11.2% 1.2% N/A (416.4) 9.2 N/A 0.94

2012F 604.5 330.8 54.7% 326.7 317.7 31.8 48.3% 9.3 31.8 48.3% 9.3 27.0 9.1% 1.4 15.4% 1.8% N/A 28.6 6.1 N/A 1.20


Price chart

Corporate profile

3.5 4.50

3.4

4.00

3.3

3.50

3.2

3.00

3.1

2.50

3.0

2.00

2.9

1.50

2.8

1.00

2.7

0.50

2.6 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ma la ys ia n Bulk Ca rrie rs Bhd

Malaysian Bulk Carriers operates a fleet of 11 bulk carriers and four product tankers. The company is managed by the Kuok group’s Pacific Carriers Ltd. Maybulk’s philosophy in the past has been to treat its ships as assets available for sale, rather than purely as fixed assets that trade for freight income. During 2007 and 2008, it sold eight ships and paid handsome dividends from the proceeds. Since the market turned in late 2008, Maybulk has sold only two ships, This, together with the downturn in earnings, means that future dividends are unlikely to return to previous highs. With the fall in asset prices, Maybulk has now shifted its attention to rebuilding its fleet.


[ 128 ]



2008 721 (379) 342 (30) 312 9 21 184 0 526 (4) (61) 461 1,000 1,000

2009 304 (198) 105 (32) 73 7 97 71 12 260 (1) (4) 256 1,000 1,000

2010F 427 (204) 223 (33) 190 (8) 38 0 0 220 0 (8) 213 1,000 1,000

2011F 436 (215) 221 (39) 183 (4) 42 0 0 221 0 (6) 214 1,000 1,000

2012F 605 (274) 331 (48) 283 (4) 48 0 0 327 0 (9) 318 1,000 1,000


2011F 865 0 1,054 1,919 385 7 42 199 632 88 8 1 97 401 0 401 1,964 88 1.96

2012F 1,046 0 1,102 2,148 368 9 58 199 634 112 8 1 121 401 0 401 2,162 97 2.16

(FYE Dec) Fleet size (number of vessels) Baltic Dry Index (yoy change %) Bulk rates (US$/day) Clean tanker TCE rates (US$/day)

2008 600 0 859 1,459 806 7 26 186 1,025 90 7 4 101 357 0 357 1,884 142 1.88

2009 628 0 974 1,602 460 7 29 199 695 82 8 1 90 345 0 345 1,787 74 1.79

2010F 676 0 1,012 1,688 492 7 41 199 738 84 8 1 93 401 0 401 1,850 82 1.85

2010F 40.7 111.6 51.6 49.8 25.0 0.0 47.0 29.7 5.9 70.7

2011F 2.1 (0.8) 50.6 49.1 22.3 0.0 56.0 34.4 6.0 72.1

2012F 38.6 49.6 54.0 52.6 34.6 0.0 62.9 29.9 5.1 60.6

2009 15 -59.0% 19,076 15,975

2010F 17 7.6% 26,706 12,780

2011F 2012F 20 24 -17.9% -13.0% 25,371 29,177 13,419 14,761



2009 (57.9) (69.2) 85.6 84.2 5.2 0.2 58.7 33.0 8.2 103.2

KEY DRIVERS


2008 18.6 (12.6) 72.9 63.9 11.5 0.8 82.6 17.4 3.4 38.2

2008 526 30 46 (4) (161) 437 (40) (243) 41 (241) 15 0 (386) (45) (417) (221) (236) 442

2009 260 32 (12) (1) (155) 125 (83) 14 (18) (87) (11) 0 (363) (9) (383) (345) (334) 108

2010F 220 33 (9) 0 (30) 213 (81) 0 0 (81) 56 0 (150) (8) (101) 31 (25) 83

2011F 221 39 3 0 (38) 224 (228) 0 0 (228) 0 0 (100) (4) (104) (107) (107) (24)

2012F 327 48 6 0 (44) 337 (229) 0 0 (229) 0 0 (120) (4) (124) (16) (16) (41)

18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 Dec-07

Apr-08

Aug-08



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Dec-10


Malaysian Pacific Industries Bhd

OUTPERFORM

Maintained

RM5.45

@07/12/10

A more muted outlook

MALAYSIA

2011 OUTLOOK


Target: RM6.90 Semiconductor

MPI MK / MPIM.KL


• Maintain OUTPERFORM. MPI remains an OUTPERFORM given the potential catalysts of a turnaround of the computing segment and a demand pick-up. Our earnings forecasts are intact, along with our target price of RM6.90, which we continue to base on a 20% discount to its 5-year historical adjusted average of P/BV of 0.7x. • Muted outlook. MPI is expecting a mid-single-digit qoq revenue contraction for 4QCY10 due to inventory correction and weakness in computing. Based on the fairly limited visibility right now, the company is expecting flattish revenue for 1QCY11 due to seasonality. However, 2QCY11 should see a snapback. • China to grow fast. China’s growth is outpacing MPI’s local operations due to the strong growth of its MLP and the preference of its customers in expanding there. As a result, it will be expanding its capacity by 4x the current floor space over the next 12 months. Over the medium term, MPI hopes to have a more balanced spread between its Ipoh and China operations for Carsem compared to the 15-20% contribution from its China operations currently. • Copper conversion is gradual. The take-up of copper wires has been more gradual because the products manufactured by MPI have low pin counts and lower wire lengths. It does, however, expect more conversion over the next 12 months. Financial summary

Stock Information Market cap: RM1,144m/US$365m 12-m price range: RM7.50 RM5.20 3-m avg daily vol: 0.1m No. of shrs (m): 210 Est. free float (%): 21.0 Conv. secs (m): None Major shareholders (%): - Hong Leong Industries 67.1 - ASB 4.7 - Great Eastern 2.2

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,150.6 258.1 22.4% (61.7) (39.9) (20.5) (135.6%) nm 16.0 (74.6%) 34.2 26.7 4.9% 1.5 (5.4%) 20.6% 55.2 5.7

2010 1,386.2 355.1 25.6% 85.0 105.4 54.1 364.2% 10.1 54.0 238.8% 10.1 33.3 6.1% 1.4 14.7% 9.1% 8.5 3.9

2011F 1,441.7 338.8 23.5% 123.1 94.2 48.3 (10.7%) 11.3 48.3 (10.6%) 11.3 33.3 6.1% 1.4 12.5% 12.1% 20.4 4.2 N/A 0.89

2012F 1,614.6 387.5 24.0% 165.3 123.5 63.3 31.1% 8.6 63.3 31.1% 8.6 40.0 7.3% 1.3 15.6% 7.9% 7.5 3.6 N/A 1.11

2013F 1,776.1 435.1 24.5% 220.7 164.9 84.6 33.6% 6.4 84.6 33.6% 6.4 50.0 9.2% 1.2 19.4% 2.5% 5.7 3.2 N/A 1.52


Price chart

Corporate profile

7.9

1.20

7.4

1.00

6.9

0.80

6.4

0.60

5.9

0.40

5.4

0.20

4.9 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ma la ys ia n P a cific Indus trie s Bhd

MPI is principally an investment holding company with subsidiaries (70%-owned Carsem, 100% owned Dynacraft) involved in designing, manufacturing, assembling, testing and sale of integrated circuits, semiconductor devices, electronic components and leadframes to customers worldwide. It is also currently one of the top 10 global players in the semiconductor test and assembly services (SATS) space. It is listed on the Main Board of Bursa Malaysia. About 87% of its 3QCY10 revenue is from Carsem while the balance is from Dynacraft. For 3QCY10, 46% of its revenue is from Asia, 25% from the US and 30% from Europe.


[ 130 ]



2009 1,151 (893) 258 (241) 18 (8) 0 (71) 0 (62) (4) 26 (40) 195 195

2010 1,386 (1,031) 355 (214) 141 (5) 0 (52) 0 85 41 (20) 105 195 195

2011F 1,442 (1,103) 339 (208) 131 (8) 0 0 0 123 (12) (17) 94 195 195

2012F 1,615 (1,227) 388 (217) 171 (6) 0 0 0 165 (17) (25) 123 195 195

2013F 1,776 (1,341) 435 (209) 226 (5) 0 0 0 221 (22) (34) 165 195 195

2009 1,051 12 20 1,084 77 72 166 0 316 149 193 0 343 74 63 137 699 221 3.52

2010 962 12 20 994 129 88 228 0 445 241 130 4 375 86 16 101 740 223 3.73

2011F 1,054 12 20 1,086 94 94 238 0 426 258 130 4 392 86 25 111 769 239 3.88

2012F 1,087 12 20 1,120 131 104 266 0 502 287 130 7 424 86 32 118 814 265 4.11

2013F (FYE Jun) 1,128 Global semicon sales (US$bn) 12 EBITDA Margin (%) 20 1,160 186 114 293 0 593 313 130 9 452 86 35 120 882 298 4.46

2011F 4.0 (4.6) 8.5 6.5 N/A 10.0 51.8 59.0 23.0 63.1

2012F 12.0 14.4 10.2 7.6 N/A 10.0 47.4 56.9 22.4 61.5

2013F 10.0 12.3 12.4 9.3 N/A 10.0 44.3 57.4 22.5 61.6

2010 265 25.6%

2011F 310 23.5%

2012F 325 24.0%

2013F 342 24.5%



2010 20.5 37.6 6.1 7.6 N/A N/A 46.2 52.0 21.0 51.4

KEY DRIVERS


2009 (25.2) (38.0) (5.4) (3.5) N/A N/A N/A 62.2 28.1 55.6


2009 (62) 241 41 (4) 16 232 (124) 0 0 (124) (82) 0 (52) (8) (142) (33) 48 (190)

2010 85 214 13 41 0 353 (189) 0 0 (189) (44) 0 (67) 6 (105) 58 102 (87)

2011F 123 208 2 (12) 40 360 (300) 0 0 (300) 0 0 (87) (8) (95) (35) (35) (122)

2012F 165 217 (10) (17) 41 396 (250) 0 0 (250) 0 0 (104) (6) (110) 37 37 (85)

2013F 221 209 (10) (22) 42 440 (250) 0 0 (250) 0 0 (130) (5) (135) 55 55 (30)

43.0 38.0 33.0 28.0 23.0 18.0 13.0 8.0 Dec-07

Apr-08

Aug-08



[ 131 ]

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Dec-10


Malaysian Resources Corp Bhd

TRADING BUY

Maintained

RM2.01

@07/12/10

The urge to merge

MALAYSIA

2011 OUTLOOK



MRC MK / MYRS.KL


• Maintain TRADING BUY. Newsflow on the much-talked-about 3,300-acre Sg Buloh land is likely to pick up in 2011 as the government rolls out its Economic Transformation Programme (ETP). MRCB is likely to emerge as one of the key beneficiaries and participate both as a turnkey contractor and a developer. A more attractive valuation for the merged IJM Land-MRCB entity is a potential re-rating catalyst for MRCB, along with progress on the Sg. Buloh land. We maintain our TRADING BUY recommendation and target price of RM2.53, pegged to an unchanged 20% RNAV discount. • Positive on the proposed merger. Although we are overall positive on the proposed merger, the RM2.30 swap price for MRCB was a slight negative. However, investors are not likely to be worse off as the combined listed entity will provide investors with exposure to a larger, more credible and liquid property stock, with probably more attractive upside. • To merge by end-2Q11. The deal is expected to be completed at end-2Q11 at the earliest. The combined listed entity is expected to be more liquid and have a good mix of institutional and retail investors. Financial summary

Stock Information Market cap: RM2,776m/US$882m 12-m price range: RM2.25 RM1.24 3-m avg daily vol: 6.0m No. of shrs (m): 1,381 Est. free float (%): 58.1 Conv. secs (m): None Major shareholders (%): - EPF 41.9


2008 788.6 3.8 0.5% (42.1) (56.6) (6.2) (191.6%) nm (3.4) (149.5%) nm 0.0 0.0% 2.7 (8.2%) 39.3% 14.9 504.9

2009 921.6 45.3 4.9% 46.5 34.6 3.8 161.1% 52.7 3.8 213.0% 52.7 1.0 0.5% 2.6 5.0% 37.0% 199.5 42.3

2010F 1,065.6 121.8 11.4% 68.4 51.3 3.8 (1.3%) 53.4 3.8 (1.3%) 53.4 1.0 0.5% 3.6 6.9% 26.6% 19.4 22.7 0.96

2011F 1,182.2 140.5 11.9% 88.4 66.4 4.9 29.4% 41.3 4.9 29.4% 41.3 1.0 0.5% 3.3 8.3% 14.8% 16.2 19.0 0.89

2012F 1,313.0 156.3 11.9% 107.0 80.4 5.9 21.0% 34.1 5.9 21.0% 34.1 1.0 0.5% 3.0 9.2% 2.3% 14.1 16.4 0.98


Price chart

Corporate profile

2.3

5.00

2.1

4.00

1.9

3.00

1.7 2.00 1.5 1.00

1.3 1.1 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ma la ys ia n Re s ource s Corp Bhd

MRCB is a diversified GLC with businesses in four key areas – engineering & construction, property, infrastructure & concessions and building services. The company is a leading premier property developer and a major construction player. It specialises in civil and energy infrastructure development and has built transmission networks, colleges, transportation facilities, hospitals and roads all over the country. The group is the nation’s biggest developer of high-voltage transmission networks. On the property front, its flagship development is the 72-acre KL Sentral which remains the group’s crown jewel.


[ 132 ]



2008 789 (785) 4 (8) (4) 3 (15) (26) 0 (42) (20) 5 (57) 908 908

2009 922 (876) 45 (9) 36 27 (16) 0 0 46 (9) (3) 35 908 908

2008 28 10 1,389 1,427 587 15 504 205 1,310 855 177 204 1,236 714 12 726 681 94 0.74

2009 28 10 1,389 1,427 592 15 555 211 1,373 886 177 204 1,267 714 12 726 713 94 0.77

2010F 1,066 (944) 122 (10) 112 (64) 21 0 0 68 (16) (1) 51 1,364 1,364

2011F 1,182 (1,042) 141 (11) 130 (63) 21 0 0 88 (21) (1) 66 1,364 1,365

2012F 1,313 (1,157) 156 (12) 145 (60) 22 0 0 107 (26) (1) 80 1,365 1,365

2011F 27 10 1,389 1,426 754 15 661 226 1,655 1,048 177 204 1,430 714 12 726 831 94 0.60

2012F 26 10 1,389 1,425 868 15 734 235 1,852 1,164 177 204 1,546 714 12 726 911 94 0.66

2010F 27 10 1,389 1,426 662 15 596 217 1,490 950 177 204 1,331 714 12 726 765 94 0.55

2010F 15.6 168.9 6.4 4.8 1.1 24.0 20.3 197.2 5.0 314.4

2011F 10.9 15.4 7.5 5.6 1.3 24.0 16.6 194.0 4.5 308.5

2012F 11.1 11.2 8.1 6.1 1.5 24.0 13.9 193.9 4.0 307.5

(FYE Dec) Orderbook depletion (RM' m) Orderbook replenishment (RM m) Outstanding orderbook (RM m)

2009 500 500 2,000

2010F 400 500 2,100

2011F 600 500 2,000

2012F 600 500 1,900



2009 16.9 1,089.9 5.0 3.8 0.9 19.4 20.8 209.8 5.8 344.7

KEY DRIVERS


2008 (8.7) (97.6) (5.3) (7.2) (0.1) N/A N/A 228.5 6.7 362.1


2008 (42) 8 124 30 12 132 (8) (1) 0 (9) 0 0 0 (27) (27) 96 96 (304)

2009 46 9 (20) (16) (10) 9 0 0 0 0 0 0 (6) 2 (4) 5 5 (299)

2010F 68 10 24 (5) 44 141 0 1 0 1 0 0 (10) (61) (71) 70 70 (229)

2011F 88 11 33 (5) 42 169 0 1 0 1 0 0 (13) (65) (78) 92 92 (137)

2012F 107 12 43 (4) 38 195 0 0 0 0 0 0 (57) (24) (81) 114 114 (23)

43.0

38.0

33.0

28.0

23.0

18.0 Dec-07

Apr-08

Aug-08



[ 133 ]

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Apr-10

Aug-10

Dec-10


Masterskill Education Group

OUTPERFORM

Maintained

RM2.14

@06/12/10

Making the grade for long-term investment

MALAYSIA

2011 OUTLOOK


Target: RM4.48 Education

MASEG MK / MAED.KL


• Maintain OUTPERFORM. Although uncertainty over the status of the PTPTN loan scheme may overhang Masterskill’s share price in the near term, we maintain our OUTPERFORM stance as the stock scores on long-term fundamentals and defensiveness. Applying a 10% discount to our revised target market P/E of 14.5x (previously on par with 13.8x) to reflect risks relating to the PTPTN loan scheme, our target price goes down from RM4.73 to RM4.48. The stock could be catalysed by (ii) a favourable decision on the PTPTN appeal, (ii) better-than-expected student growth, and (iii) recovery in investor sentiment. Valuations are attractive at 6-7x CY11-12 P/E. • Fundamentally still attractive. We still regard Masterskill’s (i) leading position in the industry with the highest market share in its segment, (ii) EBITDA margin of over 40% which is higher than local education companies’ 15-20%, and (iii) exposure to the growth prospects of both the healthcare and education sectors as key factors that will ensure strong fundamentals over the long term. • More of a margin impact from new PTPTN scheme. The potential new loan scheme will affect Masterskill’s margins more than its student population or enrolment. Also, it will hit only the Kuching campus as (i) this campus is new, and (ii) it offers two new diploma courses. We estimate only a 1-2% dent on group earnings. Management stressed that it will not affect the bottomline immediately as diploma programmes span three years. Though the timing of a decision on the appeal is unclear, we continue to believe that it will be in the group’s favour. Financial summary


RM877m/US$279m RM4.25 RM2.06 3-m avg daily vol: 1.8m No. of shrs (m): 410 Est. free float (%): 40.9 Conv. secs (m): None Major shareholders (%): - Dato' Seri Edmund Santhara 22.1 - Masterskill Holding Ltd 21.5 - Fidelity 9.6


2008 202.9 90.1 44.4% 80.1 72.1 17.6 40.2% 12.2 0.0 0.0% 5.5 60.7% 0.02 227.3 9.6

2009 273.4 123.5 45.2% 112.3 97.4 23.8 35.1% 9.0 0.0 0.0% 3.1 43.8% 0.17 20.0 6.5

2010F 326.4 139.5 42.7% 127.1 103.7 25.3 6.5% 8.5 12.6 5.9% 2.2 30.6% 0.49 6.9 4.8 0.98

2011F 363.0 159.0 43.8% 149.2 118.9 29.0 14.7% 7.4 14.5 6.8% 1.7 26.4% 0.75 6.2 3.6 0.95

2012F 410.0 182.4 44.5% 176.8 140.5 34.3 18.2% 6.2 17.1 8.0% 1.3 24.2% 1.07 6.9 2.4 0.94


Price chart


4.4

7.00 3.9

6.00 5.00

3.4

4.00 2.9

3.00 2.00

2.4

1.00 1.9 Ma y-10

0.00 Aug -10


Source: Bloomberg

Nov-10 Ma s te rs kill Educa tion Group

Masterskill provides education programmes that develop skilled professionals in the areas of nursing and allied health. It is the largest nursing and allied health education provider in Malaysia. Masterskill is the leading brand in healthcare education and has significant scale compared to its competitors. Based on student enrolment, the group had 22% market share of nursing education among private higher education institutions in 2010. Masterskill offers diploma and degree programmes targeted primarily at Malaysian secondary school leavers and will soon venture into medical and masters degree programmes as it moves up the value chain.


[ 134 ]



2008 203 (113) 90 (9) 81 (1) 0 0 0 80 (8) 0 72 410 410

2009 273 (150) 124 (11) 113 0 0 0 0 112 (15) 0 97 410 410

2010F 326 (187) 140 (12) 128 (1) 0 0 0 127 (23) 0 104 410 410

2011F 363 (204) 159 (14) 145 4 0 0 0 149 (30) 0 119 410 410

2012F 410 (228) 182 (14) 169 8 0 0 0 177 (36) 0 141 410 410


2011F 148 0 0 148 466 0 162 43 672 6 0 146 153 156 2 158 509 0 1.24

2012F 154 0 0 154 611 0 184 48 843 7 0 165 172 172 2 174 650 0 1.59

(FYE Dec) Number of students Average school fees (RM/student) Campus utilisation rates (%)

2008 97 0 0 97 39 0 89 23 151 2 0 56 58 30 2 32 158 0 0.39

2009 140 0 0 140 104 0 130 34 269 4 0 82 86 35 2 37 287 0 0.70

2010F 144 0 0 144 307 0 146 38 492 6 0 133 138 105 2 107 390 0 0.95

2010F 19.4 12.9 38.9 31.8 34.7 18.4 38.0 154.5 0.0 5.3

2011F 11.2 14.0 41.1 32.8 26.6 20.3 38.0 155.2 0.0 6.1

2012F 13.0 14.7 43.1 34.3 28.0 20.5 38.0 154.0 0.0 6.1

2009 17,402 48,500 43

2010F 19,594 48,500 55

2011F 21,831 48,500 58

2012F 23,989 49,955 60



2009 34.7 37.2 41.1 35.6 86.9 13.3 0.0 146.0 0.0 4.0

KEY DRIVERS


2008 60.4 40.3 39.5 35.5 40.8 10.0 0.0 128.6 0.0 3.6

2008 80 9 (12) (7) (1) 69 (46) 0 0 (47) (21) 2 0 13 (6) 16 37 9

2009 112 11 (8) (14) 0 101 (67) 0 15 (52) (4) 0 0 11 7 56 60 69

2010F 127 12 (14) (23) 33 135 (16) 0 0 (16) 70 0 (52) 65 84 203 133 202

2011F 149 14 (16) (30) (10) 106 (17) 0 0 (17) 51 0 (59) 78 69 158 107 309

2012F 177 14 (21) (36) (15) 119 (19) 0 0 (19) 16 0 (70) 100 46 145 129 438

16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 May-10

Jun-10



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Dec-10


Maxis Berhad

NEUTRAL

Maintained

RM5.36

@07/12/10

Not maxed out

MALAYSIA

2011 OUTLOOK


Target: RM5.60 Telecommunications - Mobile

MAXIS MK / MXSC.KL

Kelvin Goh CFA +60(3) 2084 9699 – [email protected]

• Maxis is a NEUTRAL as its fairly attractive dividends make up for the lack of price catalysts and low earnings growth. Voice revenue is coming under pressure due to falling tariffs and dwindling price elasticity but is compensated by rising data revenue. Our DCF-based target price remains intact at RM5.60 (WACC 10.8%). • Data-driven revenue. Maxis expects its FY11 revenue growth to accelerate to midsingle digit from an expected 3% in FY10 and also a slight rise in EBITDA margin, which is consistent with our view. This is lower than Celcom’s and DiGi’s expectation of high-single digit growth given its larger base. Maxis believes that data revenue will continue compensating for the decline in voice, where price elasticity has been maximised. FY11 capex should remain at the FY10 level of RM1.4bn though this figure is likely to fall if it inks an agreement to use Telekom Malaysia’s HSBB network. The telco indicated that it is close to signing an agreement, after being delayed for a few months. • Quad play ambitions. Maxis is investing RM200m in fibre to the home. It is engaging TM on a pricing and service level agreement to access TM’s highspeed broadband network. • Will Maxis deliver 40-50 sen net DPS? Maxis is vague over whether it will deliver the 40-50 sen net DPS that its major shareholder indicated during its IPO. We assume that it will declare a net DPS of 38 sen, implying a final special dividend of 6 sen on top of a quarterly DPS of 8 sen. Financial summary

Stock Information Market cap: RM40,200m/US$12,815m 12-m price range: RM5.52 RM5.12 3-m avg daily vol: 5.2m No. of shrs (m): 7,500 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - Maxis Communications 70.0


2008 8,449.8 4,402.0 52.1% 3,227.7 2,394.7 31.9 20.9% 16.8 31.9 1.7% 16.8 0.0 0.0% 9.4 69.5% N/A 17.7 9.0

2009 8,611.0 4,318.0 50.1% 3,007.0 2,232.0 29.8 (6.8%) 18.0 30.8 (3.6%) 17.4 73.0 13.6% 4.5 33.7% 42.8% 5.8 10.2

2010F 8,899.8 4,426.1 49.7% 3,165.6 2,320.4 30.9 4.0% 17.3 30.9 0.5% 17.3 50.7 9.5% 4.7 26.6% 57.0% 10.7 10.2 1.00

2011F 9,405.0 4,790.2 50.9% 3,472.4 2,545.3 33.9 9.7% 15.8 33.9 9.7% 15.8 53.3 10.0% 5.0 30.7% 64.1% 15.6 9.5 1.03

2012F 9,980.0 5,093.1 51.0% 3,790.8 2,778.7 37.0 9.2% 14.5 37.0 9.2% 14.5 57.3 10.7% 5.2 35.2% 71.3% 13.8 9.0 1.07


Price chart

Corporate profile

5.8 5.7

2.00

5.6 5.5

1.50

5.4 5.3

1.00

5.2 5.1

0.50

5.0 4.9 4.8 De c-09


Source: Bloomberg

Oct-10 Ma xis Be rha d

Maxis is Malaysia’s largest mobile phone operator with 40% subscriber market share and 42% share of revenue. It has dominated the mobile scene with its strong branding and good customer service. Mobile contributes 93% of group revenues, with 5% from international gateway and 2% from fixed line/Internet. Maxis began commercial operations in Aug 1995 and was listed on Bursa Malaysia in Jul 02 as Maxis Communications Bhd. It acquired Aircel in Mar 06 and Natrindo Telepon Selular in April 07. Maxis was delisted in Jul 07 but relisted in Nov 09 as Maxis Bhd with only the Malaysian operations. The S.E.A. Navigator – Malaysia 2011

[ 136 ]



2008 8,450 (4,048) 4,402 (1,192) 3,210 18 0 0 0 3,228 (833) 0 2,395 7,500 7,500

2009 8,611 (4,293) 4,318 (1,165) 3,153 (43) 0 (103) 0 3,007 (775) 0 2,232 7,500 7,500

2010F 8,900 (4,474) 4,426 (1,054) 3,372 (206) 0 0 0 3,166 (845) 0 2,320 7,500 7,500

2011F 9,405 (4,615) 4,790 (1,076) 3,714 (242) 0 0 0 3,472 (927) 0 2,545 7,500 7,500

2012F 9,980 (4,887) 5,093 (1,067) 4,026 (235) 0 0 0 3,791 (1,012) 0 2,779 7,500 7,500

2008 4,456 90 284 4,830 1,692 108 744 1,065 3,609 1,978 930 655 3,563 73 519 591 4,284 1 0.56

2009 4,555 11,019 92 15,666 1,192 134 790 16 2,132 2,496 31 784 3,311 4,992 550 5,542 8,945 0 (0.28)

2010F 4,901 11,019 92 16,012 2,157 73 735 16 2,981 2,186 0 784 2,970 6,992 550 7,542 8,481 0 (0.34)

2011F 4,924 11,019 92 16,035 1,800 77 751 16 2,644 2,255 0 784 3,039 6,992 550 7,542 8,099 0 (0.39)

2012F 4,905 11,019 92 16,016 1,512 82 770 16 2,379 2,387 0 784 3,171 6,992 550 7,542 7,682 0 (0.44)

2008 3,228 1,192 (853) (789) 443 3,222 (796) 1 (8) (803) (167) 1 (720) (568) (1,454) 965 1,132 690

2009 3,007 1,165 447 (775) (719) 3,125 (1,222) 0 1,010 (212) 4,020 0 (5,441) (1,992) (3,413) (500) (4,520) (3,830)

2010F 3,166 1,054 (195) (845) 206 3,386 (1,400) 0 0 (1,400) 1,969 0 (2,784) (206) (1,022) 965 (1,004) (4,834)

2011F 3,472 1,076 49 (927) 242 3,912 (1,100) 0 0 (1,100) 0 0 (2,927) (242) (3,169) (357) (357) (5,191)

2012F 3,791 1,067 110 (1,012) 235 4,191 (1,048) 0 0 (1,048) 0 0 (3,195) (235) (3,431) (288) (288) (5,479)

2009 1.9 (1.9) 34.9 25.9 40.9 25.8 245.3 32.5 5.1 94.8

2010F 3.4 2.5 35.6 26.1 14.3 26.7 122.8 31.3 4.2 96.0

2011F 5.7 8.2 36.9 27.1 13.5 26.7 117.9 28.8 2.9 86.2

2012F 6.1 6.3 38.0 27.8 14.6 26.7 116.1 27.8 2.9 84.9

(FYE Dec) Blended mobile ARPU (RM) Postpaid ARPU (local currency) Prepaid ARPU (local currency) Broadband ARPU (RM) No of mobile subscribers (m) No of postpaid mobile subs (m) No of prepaid mobile subs (m) No. of broadband subscribers (m)

2009 61.7 104.0 41.0 97.0 12.03 2.71 9.32 0.25

2010F 63.9 103.0 34.9 63.1 12.99 2.65 10.34 0.70

2011F 55.2 103.0 33.1 56.7 13.53 2.71 10.82 1.20

2012F 49.5 99.9 31.5 51.1 14.07 2.77 11.30 1.70



2008 9.9 22.6 38.2 28.3 82.5 25.8 0.0 31.0 3.5 92.6

KEY DRIVERS



18.0

17.5

17.0

16.5

16.0

15.5

15.0 Nov-09

Mar-10



[ 137 ]

Jul-10

Nov-10


Media Chinese International Ltd

OUTPERFORM

Maintained

RM0.88

@06/12/10

A clearer print

MALAYSIA

2011 OUTLOOK


Target: RM1.52 Media - Integrated

MCIL MK / MDCH.KL


• Maintain OUTPERFORM. We continue to like MCIL for its dominance of the recovering Chinese newspaper segment and continuing reaping of merger synergies. We maintain our EPS forecasts but increase our target price from RM1.45 to RM1.52 as we apply our revised CY12 target market P/E of 14.5x (13.8x previously) to the stock. The stock remains an OUTPERFORM in light of the potential re-rating catalysts of (i) positive earnings surprises, and (ii) the continued recovery of Chinese newspaper adex. MCIL remains one of our top picks for the sector, backed by its attractive dividend yield of 6%. • Ad rate hike shows pricing power. Although 2HFY3/11 is likely to be subdued, profitability in the next two years will be underpinned by merger synergies, superior operating efficiency for its Malaysian operations and better cost management. The 3-7% increase in ad rates for Sin Chew and China Press for 2011 is good news and signals the group’s optimism on adex trends for FY11. • Jewel is still its Malaysian operations. The group’s Malaysian operations through Sin Chew and Nanyang remain the main earnings driver (60% of pretax profit) and should continue to cushion the potential downside to earnings in the coming quarters. The broad-based recovery of newspaper adex (+15% yoy in Jan-Sep 10) is positive for the group’s Malaysian operations as it controls more than 80% of Chinese newspaper adex. Financial summary

Stock Information Market cap: RM1,482m/US$471m 12-m price range: RM0.92 RM0.53 3-m avg daily vol: 0.9m No. of shrs (m): 1,684 Est. free float (%): 50.0 Conv. secs (m): None Major shareholders (%): - Tan Sri Datuk Tiong Hiew 50.0 King

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,437.8 119.7 8.3% 113.2 61.2 3.6 (40.6%) 24.2 4.1 (32.8%) 21.5 2.9 3.2% 1.3 5.6% 0.18 38.2 9.8

2010 1,226.7 176.4 14.4% 179.8 134.2 8.0 119.2% 11.1 7.8 90.5% 11.3 4.2 4.8% 1.2 11.5% 0.22 11.7 6.3

2011F 1,636.5 206.8 12.6% 196.6 151.4 9.0 12.8% 9.8 9.0 14.9% 9.8 5.0 5.7% 1.1 12.1% 0.26 12.0 5.0 N/A 2.99

2012F 1,698.5 227.6 13.4% 216.4 166.6 9.9 10.0% 8.9 9.9 10.0% 8.9 5.0 5.7% 1.0 12.2% 0.32 10.2 4.2 N/A 3.09

2013F 1,822.4 245.3 13.5% 232.5 178.8 10.6 7.3% 8.3 10.6 7.3% 8.3 5.0 5.6% 1.0 12.1% 0.36 11.3 3.5 N/A 3.21


Price chart

Corporate profile

1.0 1.0

5.00

0.9 0.9

4.00

0.8 3.00

0.8 0.7

2.00

0.7 0.6

1.00

0.6 0.5 De c-09

0.00 Ma y-10


Oct-10 Me dia Chine s e Inte rna tiona l Ltd

Media Chinese International Ltd (MCIL) is the product of a merger of Sin Chew Media Corporation, Nanyang Press and Ming Pao Enterprise Corp (Hong Kong). The enlarged group is the largest print publisher in Malaysia as well as the region and controls 77% of the Chinese print segment in Malaysia. MCIL’s earnings are anchored by the Malaysian operations which contribute 80% of group pretax profit. Over the long run, the group’s exposure to Hong Kong, San Francisco, Vancouver, Toronto and New York will provide a global dimension to earnings.

Source: Bloomberg


[ 138 ]



2009 1,438 (1,318) 120 (11) 109 19 0 (14) 0 113 (50) (2) 61 1,686 1,686

2010 1,227 (1,050) 176 (12) 165 14 0 1 0 180 (45) (1) 134 1,686 1,686

2011F 1,637 (1,430) 207 (12) 195 2 0 0 0 197 (45) 0 151 1,686 1,686

2012F 1,699 (1,471) 228 (12) 215 1 0 0 0 216 (50) 0 167 1,686 1,686

2013F 1,822 (1,577) 245 (13) 233 0 0 0 0 233 (54) 0 179 1,686 1,686

2009 184 46 17 247 445 485 289 0 1,219 193 91 2 286 43 11 54 1,126 0 0.64

2010 186 46 17 249 498 497 297 0 1,293 181 91 18 290 43 11 54 1,201 0 0.69

2011F 188 46 17 251 576 513 314 0 1,403 204 91 2 297 43 11 54 1,302 0 0.75

2012F 189 46 17 252 670 528 326 0 1,524 210 91 2 303 43 11 54 1,419 0 0.81

2013F (FYE Mar) 191 Adex revenue growth (%) 46 Market share of adex (%) 17 254 748 566 350 0 1,664 225 91 2 318 43 11 54 1,545 0 0.89

2010 (14.7) 47.3 14.7 10.9 67.0 24.8 27.0 87.3 146.1 55.7

2011F 33.4 17.2 12.0 9.3 N/A 23.0 30.0 68.1 112.6 43.0

2012F 3.8 10.1 12.7 9.8 N/A 23.0 30.0 68.7 111.9 44.5

2013F 7.3 7.8 12.8 9.8 N/A 23.1 30.2 67.6 109.5 43.6

2010 -3.0% 85.0%

2011F 6.0% 86.0%

2012F 3.0% 87.0%

2013F 8.0% 87.0%



2009 2.2 (15.6) 7.9 4.3 23.1 44.1 56.6 71.0 119.2 47.4

KEY DRIVERS



2009 113 11 (38) (34) (3) 49 (13) 0 0 (13) 0 0 (35) 35 1 37 37 311

2010 180 12 (15) (36) (2) 138 (13) 0 0 (13) 0 0 (36) (35) (71) 54 54 364

2011F 197 12 (26) (45) (2) 135 (14) 0 0 (14) 0 0 (45) 3 (43) 79 79 442

2012F 216 12 (21) (50) (1) 157 (14) 0 0 (14) 0 0 (50) 3 (47) 96 96 536

2013F 233 13 (46) (54) 0 145 (14) 0 0 (14) 0 0 (54) 2 (52) 79 79 614

20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 May-08

Sep-08

Jan-09



[ 139 ]

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May-10

Sep-10

Jan-11

Media Prima Bhd

NEUTRAL

Maintained

RM2.34

@06/12/10

Fruits of consolidation

MALAYSIA

2011 OUTLOOK


Target: RM2.78 Media - Integrated

MPR MK / MPRM.KL


• Staying NEUTRAL. Despite the sustained ad volume momentum for the FTA TV segment, we remain NEUTRAL on Media Prima as we believe its share price already reflects the positives from the consolidation of NSTP. However, we raise our FY10-12 EPS forecasts by 2-8% for stronger ad volume assumptions, partly because of an expected pre-election adex boost, especially for NSTP. This, coupled with an increase in our CY12 target market P/E from 13.8x to 14.5x, raises our target price from RM2.46 to RM2.78. For exposure to the media sector, we prefer Star Publications and Media Chinese International given their higher upside and dividend yields. • Still driven by TV. Due to the inclusion of NSTP, Media Prima’s revenue from TV notched up 22% yoy growth in 9M10, which was also in line with the ad volume momentum in the TV segment. A lower effective rate discount of 67% compared to 68% in 2009 signals a sustained recovery of TV ad volume. But viewership has come off from 50% in 2009 to 46%, which is a slight concern. • Cushioned by NSTP. Media Prima currently controls 98% of NSTP. NSTP, which contributes 44% of group revenue, is benefiting from lower newsprint cost and growth of Malay newspaper ad volume. This should offset potential downside to Media Prima’s earnings. Financial summary

Stock Information Market cap: RM2,345m/US$745m 12-m price range: RM2.40 RM1.60 3-m avg daily vol: 0.9m No. of shrs (m): 1,002 Est. free float (%): 41.6 Conv. secs (m): 150 Major shareholders (%): - EPF 25.3 - Gabungan Kesturi 14.4 - KWAP 4.9

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 781.3 190.1 24.3% 159.3 117.7 12.0 0.2% 19.4 12.3 4.1% 19.1 10.9 21.5 5.8 2.5% 9.5 58.0% 93.1% N/A 16.0 13.2

2009 744.1 146.7 19.7% 275.8 251.8 25.8 114.0% 9.1 27.4 123.1% 8.6 24.3 9.6 12.0 5.1% 8.0 96.0% 44.4% N/A 7.8 16.5

2010F 1,418.9 309.7 21.8% 199.5 158.2 16.2 (37.2%) 14.5 16.2 (40.8%) 14.5 14.7 15.9 8.1 3.5% 6.0 47.6% 15.9% N/A 18.1 7.6 1.5% 0.95

2011F 1,500.3 340.2 22.7% 225.4 181.7 18.6 14.9% 12.6 18.6 14.9% 12.6 16.9 13.9 9.3 4.0% 4.6 41.7% 0.0% N/A 17.6 6.8 3.0% 1.07

2012F 1,593.5 375.3 23.6% 255.8 207.4 21.2 14.2% 11.0 21.2 14.2% 11.0 19.2 12.2 10.8 4.6% 3.7 37.1% N/A 0.08 14.6 5.9 8.2% 1.08


Price chart


2.5

0.70 0.60

2.3

0.50 2.1

0.40 0.30

1.9

0.20 1.7 1.5 De c-09

0.10 0.00 Ma y-10 Volume 10m (R.H.S c a le )

Source: Bloomberg

Oct-10 Me dia P rima Bhd

Media Prima became a media entity after the restructuring of Malaysian Resources Corporation (MRCB) which resulted in it owning TV3 and print media company NSTP. Today, Media Prima is the dominant free-to-air (FTA) TV company in Malaysia. With control of all private TV stations, the group also generates revenue streams from the print, radio and outdoor platforms. This diversification allows the group to capture a substantial portion of the advertising spending in Malaysia. The well-defined target audience of its four key TV channels exposes the company to minimal competitive risks. The successful privatisation of NSTP will be long-term positive for the group. The S.E.A. Navigator – Malaysia 2011

[ 140 ]



2008 781 (591) 190 (47) 143 (2) 21 (3) 0 159 (42) 0 118 977 977

2009 744 (597) 147 (50) 96 (15) 17 178 0 276 (24) 0 252 977 977

2010F 1,419 (1,109) 310 (93) 217 (18) 0 0 0 200 (36) (5) 158 977 977

2011F 1,500 (1,160) 340 (96) 244 (18) 0 0 0 225 (38) (6) 182 977 977

2012F 1,593 (1,218) 375 (100) 275 (19) 0 0 0 256 (45) (3) 207 977 977

2008 182 35 324 541 231 2 336 0 569 359 49 22 431 407 31 438 240 2 0.21

2009 154 35 324 514 328 2 320 0 650 365 49 22 436 407 31 438 285 5 0.26

2010F 212 35 324 571 394 2 609 0 1,006 674 49 22 746 407 31 438 380 10 0.35

2011F 265 35 324 625 456 2 645 0 1,103 705 49 22 777 407 31 438 492 16 0.47

2012F 314 35 324 673 534 2 685 0 1,220 741 49 22 812 407 31 438 625 19 0.60

2008 159 47 11 (42) (16) 160 (20) (13) 0 (33) 0 0 (43) 16 (27) 100 100 (225)

2009 276 50 124 (37) 2 415 (19) (103) 0 (122) 0 0 (26) (171) (197) 96 96 (129)

2010F 200 93 20 (36) 5 281 (150) 0 0 (150) 0 0 (59) (5) (65) 67 67 (62)

2011F 225 96 (4) (38) 18 297 (150) 0 0 (150) 0 0 (68) (17) (86) 62 62 0

2012F 256 100 (5) (45) 18 324 (149) 0 0 (149) 0 0 (79) (18) (98) 77 77 77

2010F 90.7 111.1 14.1 11.1 12.4 18.0 37.5 119.6 0.6 133.7

2011F 5.7 9.8 15.0 12.1 13.3 16.8 37.5 152.5 0.6 167.8

2012F 6.2 10.3 16.1 13.0 14.2 17.7 38.3 152.2 0.5 165.6

(FYE Dec) Market share of adex (%) Market share of viewers (%) Programming costs (% of op costs) Programming costs (RM' million)

2009 30.0% 50.0% 25.0% 150

2010F 30.0% 50.0% 25.0% 277

2011F 30.0% 50.0% 25.0% 290

2012F 30.0% 50.0% 25.0% 305



2009 (4.8) (22.8) 37.1 33.8 3.9 8.7 10.3 160.8 1.1 177.7

KEY DRIVERS


2008 13.0 17.7 20.4 15.1 84.3 26.1 36.7 147.8 1.1 159.2


21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 3.0 Dec-07

Apr-08

Aug-08



[ 141 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


MISC Bhd

UNDERPERFORM

Maintained

RM8.75

@07/12/10

Battling cyclical and structural negatives

MALAYSIA

2011 OUTLOOK


Target: RM7.00 Tanker Shipping

MISC MK / MISC.KL


• Maintain UNDERPERFORM. MISC is battling unfavourable fundamentals in the crude tanker and chemical shipping markets. We retain our UNDERPERFORM call and target price of RM7 based on 18x CY12 EPS or a 25% premium over our target market P/E. MISC is also trading at a premium over its US-listed tanker peers. The premium over the KLCI is counterintuitive given MISC’s relatively poor prospects. This may be due to MISC’s low free float of only 17% and low foreign interest in the stock with just 5% holdings. • Shipping rates to remain weak. Rates for crude tanker and chemical are expected to remain weak for at least another year. In addition, MISC’s liner shipping division is still making large losses even though the industry enjoyed record profitability during Jul-Sep 10. While its offshore and heavy engineering businesses continue to grow and earn higher profits, we think that investors in MISC are focused on the prospects of its shipping earnings, especially since investors can gain direct access to its heavy engineering business (MMHE MK, Not Rated) that was recently listed. • Baffling liner losses. Despite securing very cheap chartered-in ships, MISC’s liner division recorded a negative EBIT margin of 16.3% in Jul-Sep 10 against APL’s 14% and probably even higher margins at OOCL and CSCL. The business appears to be structurally unsound and will continue to be a millstone around MISC’s neck. Financial summary

Stock Information Market cap: RM39,058m/US$12,451m 12-m price range: RM9.00 RM7.80 3-m avg daily vol: 1.3m No. of shrs (m): 4,464 Est. free float (%): 17.0 Conv. secs (m): None Major shareholders (%): - Petronas 62.7 - EPF 11.0

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 15,783.4 4,943.9 31.3% 3,271.4 3,081.0 79.9 26.8% 10.9 79.9 39.1% 10.9 46.7 5.3% 1.6 15.6% 38.2% 10.8 8.5

2010 13,775.0 2,514.4 18.3% 911.8 681.9 17.4 (78.2%) 50.2 23.3 (70.8%) 37.5 50.1 5.7% 1.7 3.1% 20.5% 104.5 15.7

2011F 14,056.7 3,332.8 23.7% 1,624.3 1,330.5 29.8 71.1% 29.4 29.8 27.8% 29.4 46.7 5.3% 1.7 5.6% 27.1% (279.8) 13.9 N/A 0.74

2012F 14,350.7 3,643.5 25.4% 2,013.9 1,603.2 35.9 20.5% 24.4 35.9 20.5% 24.4 46.7 5.3% 1.7 6.8% 25.4% 21.0 12.7 N/A 0.75

2013F 15,319.7 3,805.8 24.8% 2,208.6 1,771.6 39.7 10.5% 22.0 39.7 10.5% 22.0 46.7 5.3% 1.6 7.5% 24.4% 23.1 12.2 N/A 0.76


Price chart


9.4

0.80 0.70 8.9

0.60 0.50

8.4

0.40 0.30

7.9

0.20 0.10

7.4 De c-09


Source: Bloomberg

Oct-10 MIS C Bhd

MISC is Malaysia’s premier shipping company, engaged primarily in energy-related shipping of LNG and crude petroleum. Other divisions include container shipping, chemical shipping, offshore oil and gas solutions (FPSO/FSO) and heavy engineering (shipbuilding and repair). A significant proportion of MISC’s earnings, i.e. from the LNG and offshore businesses, are stable due to the long-term nature of its contracts. However, earnings from the petroleum, chemical and liner divisions do fluctuate with changes in spot freight rates. MISC is leveraged to Petronas’s expansion and will benefit from its development of offshore oil and gas fields in Malaysia and abroad.


[ 142 ]



2009 2010 2011F 15,783 13,775 14,057 (10,840) (11,261) (10,724) 4,944 2,514 3,333 (1,676) (1,288) (1,688) 3,268 1,226 1,645 (356) (316) (293) 37 33 118 0 (231) 0 324 199 155 3,271 912 1,624 (68) (90) (65) (140) (229) (123) 682 1,331 3,081 3,854 3,915 4,464 3,720 4,464 4,464

2012F 2013F (FYE Mar) 14,351 15,320 Revenue growth (%) (10,707) (11,514) EBITDA growth (%) 3,643 3,806 Pretax margins (%) (1,677) (1,681) Net profit margins (%) 1,966 2,124 Interest cover (x) (306) (302) Effective tax rates (%) 199 231 Net dividend payout (%) 0 0 Debtors turnover (days) 155 155 Stock turnover (days) 2,014 2,209 Creditors turnover (days) (81) (88) (330) (349) 1,603 1,772 4,464 4,464 4,464 4,464

2009 27,385 1,028 961 29,373 3,725 442 2,844 373 7,384 3,380 3,104 102 6,586 8,748 129 8,877 20,953 341 5.17

2010 28,229 963 1,642 30,834 7,849 345 1,994 39 10,226 3,959 3,577 78 7,614 9,194 215 9,410 23,662 374 5.09

2011F 28,041 963 3,316 32,320 6,239 328 2,035 39 8,640 3,771 3,577 78 7,426 9,194 215 9,410 23,522 603 5.05

2012F 27,864 963 3,515 32,342 6,540 328 2,077 39 8,983 3,765 3,577 78 7,420 9,194 215 9,410 23,563 933 5.06

2013F 28,182 963 3,746 32,892 6,666 352 2,217 39 9,275 4,048 3,577 78 7,703 9,194 215 9,410 23,772 1,282 5.11

2011F 2.0 32.5 11.6 9.5 3.8 4.0 117.4 52.3 8.7 100.4

2012F 2.1 9.3 14.0 11.2 4.5 4.0 97.4 52.3 8.3 95.8

2013F 6.8 4.5 14.4 11.6 4.9 4.0 88.2 51.2 8.1 93.1

(FYE Mar) Fleet size (number of vessels) No of LNG tankers No of petroleum tankers No of chemical tankers No of container shipped No of offshore vessels Petroleum TCE rate (yoy chg %) Chemical TCE rate (yoy chg %) Liner rates (yoy change %)

2010 174 29 75 24 35 7 -31.1% -12.3% -30.0%

2011F 191 29 84 32 35 7 10.0% -5.0% 0.0%

2012F 194 29 87 32 35 7 -5.0% 10.0% 10.0%

2013F 194 29 87 32 35 7 -5.0% 10.0% 10.0%



2010 (12.7) (49.1) 6.6 5.0 3.3 9.8 215.7 64.1 10.4 97.2

KEY DRIVERS


2009 21.8 31.4 20.7 19.5 8.1 2.1 43.8 58.7 9.7 69.6

2009 3,271 1,676 85 (68) (1,556) 3,409 (4,011) 0 81 (3,930) 4,324 0 (1,349) (693) 2,282 1,761 (2,563) (8,127)

2010 912 1,288 1,527 (90) (119) 3,518 (4,696) 0 (26) (4,722) 920 5,203 (1,408) 612 5,327 4,124 3,204 (4,923)

2011F 1,624 1,688 (213) (65) 20 3,055 (1,500) (1,556) 0 (3,056) 0 0 (1,471) (138) (1,609) (1,610) (1,610) (6,533)

2012F 2,014 1,677 (48) (81) (48) 3,515 (1,500) 0 0 (1,500) 0 0 (1,562) (151) (1,714) 301 301 (6,232)

2013F 2,209 1,681 119 (88) (84) 3,836 (2,000) 0 0 (2,000) 0 0 (1,562) (147) (1,710) 127 127 (6,105)

34.0

29.0

24.0

19.0

14.0

9.0 Dec-07

Apr-08

Aug-08



[ 143 ]

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Dec-09

Apr-10

Aug-10

Dec-10


MTD ACPI Engineering

UNDERPERFORM

Maintained

RM0.51

@07/12/10

Down and out for now

MALAYSIA

2011 OUTLOOK



ACP MK / MTDA.KL


• Maintain UNDERPERFORM. MTD-ACPI remains an UNDERPERFORM. We maintain our target price of RM0.32, which is based on an unchanged 30% discount to the stock’s average 12-month P/BV of 0.6x. Continuous quarterly losses and depleting order book are potential de-rating catalysts. We continue to rate MTDACPI an UNDERPERFORM and prefer Muhibbah Engineering (MUHI MK, Outperform) for a mid-cap construction play. • Dwindling order book a major concern. The group’s outstanding order book of only RM900m can sustain it for just another year or so. This continues to be a major concern. Over the past year, it has not secured any construction jobs, whether overseas or locally. Its largest construction job is the East Coast Expressway 2, (Package 10), which is expected to be fully completed by FY12. • Potential loss from Bakun? Furthermore, MTD-ACPI could still be liable for losses relating to Bakun as it has a 7.7% equity stake in the consortium involved in the Bakun dam. There are still no details on the potential provisions for the project. In the worst-case scenario, MTD-ACPI may have to bear RM100m loss for Bakun though we believe this is unlikely. • Selling part of its precast business. The company is talking to a few parties on selling some of its manufacturing precast concrete assets. Negotiations, however, are at a preliminary stage. We estimate the total book value for its precast concrete business to be around RM180m. But given that the assets are loss-making and are not showing any signs of a major turnaround, any asset sale would probably be at a deep discount to the book value. Furthermore, sale of the assets could dampen the group’s long-term earnings growth prospects. Financial summary


RM118m/US$38m RM0.69 RM0.37 3-m avg daily vol: 1.3m No. of shrs (m): 232 Est. free float (%): 25.0 Conv. secs (m): None Major shareholders (%): - MTD Capital 38.1 - Metacorp 11.8 - EPF 10.6

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 966.4 28.0 2.9% (4.0) (12.8) (5.8) (455.6%) nm 0.0 0.0% 0.5 (5.3%) 3.9% N/A 4.0 4.7

2010 642.1 5.0 0.8% (11.7) (18.5) (8.0) (38.3%) nm 0.9 1.8% 0.7 (9.5%) 2.5% N/A 24.7 26.4

2011F 677.0 4.4 0.6% (14.0) (18.4) (7.9) 0.5% nm 0.9 1.8% 0.7 (10.9%) 2.8% N/A 107.6 30.6 1.00

2012F 701.8 35.5 5.1% 20.5 11.3 4.9 161.2% 10.5 0.9 1.8% 0.7 6.9% N/A 0.13 3.3 2.9 0.99

2013F 601.8 34.0 5.7% 19.0 10.0 4.3 (11.4%) 11.9 0.9 1.8% 0.7 5.8% N/A 0.23 5.0 2.5 1.00


Price chart

Corporate profile

0.8 0.8

25.00

0.7 0.7

20.00

0.6 15.00

0.6 0.5

10.00

0.5 0.4

5.00

0.4 0.3 De c-09


Source: Bloomberg

Oct-10 MTD ACP I E ngine e ring

MTD-ACPI is MTD Capital’s construction and building material arm. Its outstanding construction order book is currently around RM900m. The company should benefit from the implementation of the major infrastructure projects as it is the country’s biggest precast concrete producer, supplying a third of the products needed for domestic infrastructure construction. It has 11 plants located across Peninsular Malaysia with 1.5m tonnes of annual production capacity. MTD-ACPI has a niche in higher-margin specialised precast concrete products like segmental box girders (SBG), precast tunnel lining segment and concrete railway sleepers. The S.E.A. Navigator – Malaysia 2011

[ 144 ]



2009 966 (938) 28 (19) 10 (16) 3 0 0 (4) (14) 5 (13) 222 222

2010 642 (637) 5 (19) (14) 4 (2) 0 0 (12) (5) (2) (19) 232 232

2011F 677 (673) 4 (19) (14) 0 1 0 0 (14) (2) (2) (18) 232 232

2012F 702 (666) 36 (19) 17 3 1 0 0 21 (6) (4) 11 232 232

2013F 602 (568) 34 (19) 16 3 1 0 0 19 (5) (4) 10 232 232


2012F 121 57 27 205 132 70 260 52 514 409 98 1 507 4 25 29 168 14 0.48

2013F 113 57 32 201 154 75 260 52 542 409 98 1 507 4 38 42 176 18 0.51

(FYE Mar) Construction margins (%) Production capacity (million tonnes) Utilisation rate (%)

2009 149 60 31 240 128 67 232 80 506 380 133 1 513 4 11 15 209 9 0.67

2010 138 57 27 222 61 44 246 52 403 357 57 1 415 9 12 21 180 9 0.53

2011F 130 57 27 213 33 77 259 52 421 409 34 1 443 4 17 21 159 11 0.44

2011F 5.4 (12.3) (2.1) (2.7) (36.8) N/A N/A 136.1 32.4 206.5

2012F 3.7 709.8 2.9 1.6 N/A 28.0 14.2 135.0 38.1 212.5

2013F (14.3) (4.2) 3.2 1.7 N/A 28.0 16.0 157.7 44.0 247.8

2010 1.0% 1.5 50.0%

2011F -3.0% 1.5 55.0%

2012F 3.0% 1.5 60.0%

2013F 3.0% 1.5 65.0%



2010 (33.6) (82.1) (1.8) (2.9) N/A N/A N/A 135.6 31.3 209.5

KEY DRIVERS


2009 10.9 (26.5) (0.4) (1.3) 0.6 N/A N/A 108.1 25.4 138.0

2009 (4) 19 (26) (2) 67 54 (10) 2 (2) (10) 0 0 0 83 83 127 127 (9)

2010 (12) 19 (30) 0 3 (21) (10) 17 14 21 0 0 (2) 5 3 4 4 (5)

2011F (14) 19 5 1 (1) 9 (10) 2 0 (8) 0 0 (2) 0 (1) 0 0 (5)

2012F 21 19 6 0 (4) 40 (10) 2 0 (8) 0 0 (2) 4 2 34 34 30

2013F 19 19 (5) 0 (4) 29 (10) 2 0 (8) 0 0 (2) 4 2 23 23 52

-5.0 -10.0 -15.0 -20.0 -25.0 -30.0 -35.0 -40.0 -45.0 -50.0 Dec-07

Apr-08

Aug-08



[ 145 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Muhibbah Engineering

TRADING BUY

Maintained

RM1.36

@06/12/10

Dig in

MALAYSIA

2011 OUTLOOK



MUHI MK / MUHI.KL


• Maintain TRADING BUY. We continue to like this midsized contractor for its earnings and recovery story. Muhibbah’s share price is down more than 70% from the historical high of RM4.24 reached in Jul 07. We reiterate our TRADING BUY call with a higher RNAV-based target price of RM2.06 (RM2.00 previously) as we apply our revised target market P/E of 14.5x (13.8x before) CY12 to our construction and shipping net profit forecast. We continue to value the stock at a 20% discount to its RNAV. Factors that could catalyse the stock include (i) a resolution to the APH project, (ii) contract wins, and (iii) a recovery of investor sentiment on the stock. • Diversified earnings. Though infrastructure construction remains the major contributor at 65% of revenue, Muhibbah has a fairly diversified business model that provides exposure to oil & gas and airport/road maintenance concessions. The group’s outstanding order book of RM3bn is good for another three years and has more room for upside as it is actively bidding for jobs, both locally and overseas. • APH resolution is a major catalyst. We continue to believe that there is a strong chance of a resolution to the APH project. We do not discount the possibility of a shareholding restructuring that could bring in additional funds to revive the project. This should be positive for the recovery in investor sentiment and is the main premise of our Trading Buy stance. The stock is trading at attractive CY11-12 P/Es of 9-10x. Share price weakness presents a buying opportunity. Financial summary


RM542m/US$172m RM1.39 RM0.84 3-m avg daily vol: 5.0m No. of shrs (m): 398 Est. free float (%): 73.0 Conv. secs (m): None Major shareholders (%): - Mac Ngan Boon 17.3 - Lembaga Tabung Haji 9.9


2008 2,033.5 55.2 2.7% 44.9 21.8 5.5 (68.9%) 24.8 2.5 (85.9%) 54.9 4.7 3.4% 1.2 5.3% 6.9% 6.7 12.1

2009 2,252.0 76.2 3.4% 68.2 12.7 3.2 (41.8%) 42.7 3.8 51.7% 36.2 3.0 2.2% 1.2 2.8% 10.7% 10.5 9.2

2010F 1,756.6 86.7 4.9% 65.5 31.6 7.9 149.0% 17.1 7.9 111.0% 17.1 2.5 1.8% 0.9 6.0% 45.8% 4.9 11.4 0.72

2011F 1,931.9 130.5 6.8% 95.6 52.7 13.3 67.0% 10.3 13.3 67.0% 10.3 3.0 2.2% 0.9 8.8% 55.5% 4.1 8.3 1.00

2012F 2,028.4 146.6 7.2% 107.0 60.3 15.1 14.3% 9.0 15.1 14.3% 9.0 3.5 2.6% 0.9 10.1% 65.5% 3.7 8.1 1.04


Price chart

Corporate profile

1.5

4.50

1.4

4.00

1.3

3.50 3.00

1.2

2.50

1.1

2.00

1.0

1.50

0.9

1.00

0.8 0.7 De c-09


Source: Bloomberg

Oct-10 Muhibba h E ngine e ring

Set up in 1972 as a marine and civil engineering construction company, Muhibbah Engineering was listed on the Main Board of Bursa Malaysia in 1994. Over the years, it expanded into infrastructure construction, cranes, shipyard and airports as well as road maintenance concessions. Through its construction, cranes and shipbuilding businesses, it offers exposure to the oil and gas segment. This, plus its concessions, gives it a diversified business model. The group’s earnings are also diversified geographically as it has exposure to 14 countries – the US, UK, Denmark, Germany, Syria, Sudan, Bahrain, Qatar, UAE, Yemen, Cambodia, Malaysia, Singapore and Australia. The S.E.A. Navigator – Malaysia 2011

[ 146 ]



2008 2,034 (1,978) 55 (30) 25 (7) 27 0 0 45 (10) (13) 22 398 398

2009 2,252 (2,176) 76 (25) 51 (6) 23 0 0 68 (39) (16) 13 398 398

2010F 1,757 (1,670) 87 (40) 46 (7) 26 0 0 65 (18) (16) 32 398 398

2011F 1,932 (1,801) 131 (43) 87 (20) 29 0 0 96 (26) (17) 53 398 398

2012F 2,028 (1,882) 147 (46) 100 (25) 32 0 0 107 (29) (18) 60 398 398

2008 481 24 170 675 213 223 739 742 1,916 784 135 1,002 1,921 115 25 141 441 88 1.05

2009 515 22 190 727 197 202 940 411 1,750 803 86 829 1,717 171 36 207 451 102 1.08

2010F 463 22 187 672 257 262 1,092 485 2,097 709 355 709 1,773 232 42 274 603 118 1.46

2011F 485 22 183 689 334 340 1,270 576 2,520 846 423 846 2,116 315 50 365 594 135 1.44

2012F (FYE Dec) 503 Outstanding orderbook (RM m) 22 Construction margins (%) 177 702 434 442 1,475 687 3,038 1,000 500 1,000 2,499 427 60 487 600 153 1.45

2008 45 30 (132) (19) (20) (96) (138) (3) 20 (121) 298 5 (19) 233 518 301 3 (37)

2009 68 25 224 (11) (17) 289 (67) 9 24 (34) (203) 3 (12) (268) (481) (226) (23) (59)

2010F 65 40 (9) (7) (19) 71 (70) 36 34 0 39 4 (10) (335) (303) (232) (270) (330)

2011F 96 43 (2) (7) (8) 121 (69) (15) 50 (34) 45 4 (12) (154) (117) (29) (75) (404)

2012F 107 46 3 (8) (7) 141 (68) (52) 74 (46) 50 4 (14) (175) (135) (40) (89) (494)

2010F (22.0) 13.9 3.7 1.8 4.7 27.0 23.3 211.1 48.2 157.1

2011F 10.0 50.5 4.9 2.7 3.7 27.0 16.8 223.1 56.9 147.0

2012F 5.0 12.3 5.3 3.0 3.4 27.0 17.1 247.0 70.3 166.1

2009 3,118 2.0%

2010F 2,946 5.0%

2011F 3,346 6.0%

2012F 3,746 7.0%



2009 10.7 38.0 3.0 0.6 5.7 57.6 70.5 136.0 34.4 128.6

KEY DRIVERS


2008 44.1 (48.0) 2.2 1.1 2.5 22.4 62.9 100.4 34.3 109.4


47.0 42.0 37.0 32.0 27.0 22.0 17.0 12.0 7.0 Dec-07

Apr-08

Aug-08



[ 147 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Nestle (Malaysia) Berhad

UNDERPERFORM

Maintained

RM43.50

@07/12/10

No sugar rush

MALAYSIA

2011 OUTLOOK



NESZ MK / NESM.KL


• Maintain UNDERPERFORM. Our earnings forecasts and DCF-based target price of RM38.85 (8.2% WACC) are intact. Given its demanding valuations, Nestle remains an UNDERPERFORM. The potential de-rating catalysts are 1) a further upturn in commodity prices, and 2) deceleration of export growth. We advise investors to switch to our top F&B pick CI Holdings. • Record export sales. Nestle’s export sales are going from strength to strength. Thanks to investment in major production lines for Nescafe and Coffee-mate in the past three years, exports chipped in 23.9% of group revenue in 3Q10, its highest ever. Nescafe is Nestle’s largest brand after Milo and Maggi. Nestle’s biggest export market is Asean which is gobbling up Nestle’s additional capacity, aided by economic growth and rising demand for halal products. • No price increase planned. Although prices of raw materials such as robusta and Arabica coffee beans, crude palm oil and wheat flour remain high, a selling price hike is not in the cards for 2011. Increasing selling prices is Nestle’s last resort as the company wants to make its products affordable to the masses while protecting its market share. The last price adjustment was made in 1Q10 when the prices of Milo powder and 3-in-1 mixes were raised by 9%. • Halal tax incentives. Nestle has the distinction of being the Nestle group’s global halal hub. Because of this status, the company enjoyed a low effective tax rate of around 16% in FY10-12 due to halal tax incentives and reinvestment allowances. Nestle is likely to continue benefiting from the low tax structure during our forecast period. We impute an effective tax rate assumption of 16% p.a. in our FY10-12 forecasts. Financial summary

Stock Information Market cap: RM10,201m/US$3,252m 12-m price range: RM44.60 RM32.50 3-m avg daily vol: 0.0m No. of shrs (m): 235 Est. free float (%): 19.8 Conv. secs (m): None Major shareholders (%): - Nestle S.A. 72.5 - EPF 7.7

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 3,877.1 538.9 13.9% 441.4 340.9 145.4 16.7% 29.9 258.4 5.9% 24.8 60.6% 51.3% 37.3 19.3

2009 3,744.2 548.9 14.7% 440.3 351.8 150.0 3.2% 29.0 202.7 4.7% 20.9 78.2% 61.8% 35.1 19.1

2010F 3,837.2 610.8 15.9% 518.9 435.9 185.9 23.9% 23.4 202.7 4.7% 14.0 71.6% 15.5% 20.1 16.9 1.00

2011F 3,952.3 634.9 16.1% 544.3 457.2 195.0 4.9% 22.3 202.7 4.7% 11.8 57.3% 8.6% 28.3 16.2 1.00

2012F 4,070.8 659.9 16.2% 570.5 479.1 204.3 4.8% 21.3 202.7 4.7% 9.9 50.7% 3.6% 28.1 15.5 0.99


Price chart

Corporate profile

46.8 44.8

5.00

42.8

4.00

40.8

3.00

38.8 36.8

2.00

34.8

1.00

32.8 30.8 De c -09

0.00 Ma y-10

Volume 100k (R.H.S c a le )

Source: Bloomberg

Oct-10 Ne s tle (Ma la ys ia ) Be rha d

Nestle is Malaysia’s largest F&B company, boasting household brands such as Nescafe, Milo, Maggi and Kit Kat. The bulk of sales are generated domestically although the company has been steadily expanding its export business, with Asean, Europe and Oceania being its main focus. Nestle became the regional production centre for Milo and baby cereals after completion of the group’s rationalisation programme in 2003. It is also the global halal hub for the Nestle group. Its management is renowned for good corporate governance and astute marketing capabilities. The S.E.A. Navigator – Malaysia 2011

[ 148 ]



2008 3,877 (3,338) 539 (74) 465 (23) 0 0 0 441 (100) 0 341 235 235

2009 3,744 (3,195) 549 (88) 461 (21) 0 0 0 440 (88) 0 352 235 235

2010F 3,837 (3,226) 611 (84) 527 (9) 1 0 0 519 (83) 0 436 235 235

2011F 3,952 (3,317) 635 (84) 551 (7) 1 0 0 544 (87) 0 457 235 235

2012F 4,071 (3,411) 660 (85) 575 (4) 0 0 0 571 (91) 0 479 235 235

2011F 682 51 8 740 93 351 440 66 950 316 110 228 654 57 113 170 865 0 3.47

2012F 1,123 47 9 1,178 114 361 452 67 994 326 105 556 987 46 114 160 1,026 0 4.17

2008 520 64 6 589 30 303 385 64 782 273 129 336 738 112 111 223 411 0 1.48

2009 703 59 6 768 (90) 321 406 64 701 290 122 368 780 90 111 200 489 0 1.83

2010F 513 55 7 574 74 340 428 65 908 307 116 147 570 72 112 183 729 0 2.88

2010F 2.5 11.3 13.5 11.4 75.1 16.0 80.7 39.7 31.5 28.4

2011F 3.0 4.0 13.8 11.6 88.3 16.0 76.9 40.1 31.9 28.8

2012F 3.0 3.9 14.0 11.8 102.9 16.0 73.4 40.0 31.9 28.8

(FYE Dec) Manufacturing overhead growth (%) Capacity utilisation (%) SKU

2009 10.0% 96.0% 580

2010F 10.0% 96.0% 609

2011F 10.0% 96.0% 640

2012F 10.0% 96.0% 700



2009 (3.4) 1.9 11.8 9.4 21.8 20.1 100.0 38.6 30.4 27.5

KEY DRIVERS


2008 16.9 10.9 11.4 8.8 N/A 22.8 131.5 35.8 28.1 25.4


2008 441 74 (11) (111) (10) 383 (82) 8 0 (74) (35) 0 (434) 0 (468) (160) (125) (211)

2009 440 88 (23) (112) 1 395 (83) 8 0 (75) (29) 0 (411) 0 (440) (120) (91) (302)

2010F 519 84 (24) (113) 141 607 (84) 8 0 (76) (24) 0 (342) 0 (366) 165 189 (113)

2011F 544 84 (13) (83) (75) 458 (85) 8 0 (77) (20) 0 (342) 0 (362) 19 39 (75)

2012F 571 85 (13) (87) (97) 458 (86) 8 0 (78) (17) 0 (342) 0 (359) 21 38 (37)

23.0

22.0

21.0

20.0

19.0

18.0

17.0 Dec-07

Apr-08

Aug-08



[ 149 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Pelikan International Corp Bhd

NEUTRAL

Maintained

RM1.21

@07/12/10

Flying low in Europe

MALAYSIA

2011 OUTLOOK


Target: RM1.40 Retail

PELI MK / PELK.KL


• Reiterate NEUTRAL. Pelikan continues to be a NEUTRAL. We maintain our target basis of 7.2x P/E, a 45% discount to the regional sector target P/E of 13x, which pegs the stock at RM1.40. Until we see strong signs of demand recovery in Europe, we prefer Asia File which offers an attractive dividend yield of 7% and has been gaining market share in the US and Europe. • Focus on merging both operations. Management’s focus in 2011 is to merge Pelikan’s and Herlitz’s operations, leading to cost savings and economies of scale. Herlitz, which was acquired in 2010, is one of Europe’s largest and oldest stationery players. It has a strong distribution network in east Europe and complements Pelikan as 80% of its product range does not overlap with Pelikan’s. • But synergies to take time. While there could be strong synergies and cost savings in areas such as distribution, logistics, production and branding with Herlitz, we believe it will take time, possibly 1-2 years, and a lot of effort to extract economies of scale and synergies. One of the initial initiatives is the consolidation of the logistic and distribution centre in Falkensee, near Berlin, Germany. Cost savings from this move are as much as €5m (RM20m) annually. • Market conditions in Europe remain sluggish. Market conditions in Europe remain sluggish despite the rebound of the global economy over the past year. This is a concern for Pelikan as more than 70% of the group’s revenue comes from Europe. Financial summary


RM620m/US$198m RM1.37 RM1.02 3-m avg daily vol: 0.5m No. of shrs (m): 513 Est. free float (%): 35.0 Conv. secs (m): None Major shareholders (%): - Lembaga Tabung Haji 30.3 - Loo Hooi Keat 24.3 - Pembinaan Redzai S/B 5.9


2008 1,286.6 108.3 8.4% 53.7 40.5 7.9 (56.5%) 15.3 1.8 1.5% 0.8 7.9% 47.8% (55.9) 8.4

2009 1,153.8 115.6 10.0% 58.7 43.1 8.4 6.3% 14.4 1.8 1.5% 0.7 7.7% 54.3% (33.3) 8.4

2010F 1,798.0 152.1 8.5% 79.4 65.0 12.7 51.0% 9.5 1.8 1.5% 0.7 9.0% 45.2% (2.4) 7.0 1.03

2011F 2,013.8 155.6 7.7% 90.8 76.2 14.9 17.2% 8.1 1.8 1.5% 0.7 8.5% 32.6% 6.8 6.3 0.97

2012F 2,315.8 172.1 7.4% 115.2 100.4 19.6 31.7% 6.2 1.8 1.5% 0.6 10.2% 21.0% 6.4 5.2 1.03


Price chart

Corporate profile

1.5 2.50 1.4 2.00 1.3 1.50

1.2

1.00

1.1

0.50

1.0 0.9 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 P e lika n Inte rna tiona l Corp Bhd

Pelikan International Corporation owns a global stationery brand, Pelikan, which is recognised for fine writing instruments, painting and printer consumables. Products can be broken down into three segments: office, writing instruments and hobby/craft, with roughly equal contributions to group sales. More than 80% of revenue comes from Europe. The group has manufacturing plants in Germany, Mexico and Malaysia. In 2010, Pelikan acquired Herlitz, one of Europe’s largest and oldest stationery players. The acquisition almost doubled the group’s revenue and should generate strong synergies and economies of scale for the group.


[ 150 ]



2008 1,287 (1,178) 108 (27) 82 (32) 4 0 0 54 (12) (1) 41 513 342

2009 1,154 (1,038) 116 (33) 83 (28) 4 0 0 59 (8) (7) 43 513 342

2010F 1,798 (1,646) 152 (40) 112 (35) 2 0 0 79 (7) (7) 65 513 513

2011F 2,014 (1,858) 156 (41) 114 (27) 4 0 0 91 (7) (7) 76 513 513

2012F 2,316 (2,144) 172 (41) 131 (19) 4 0 0 115 (7) (7) 100 513 513

2011F 567 119 285 971 120 518 598 31 1,267 466 299 28 794 139 330 469 934 42 1.59

2012F 556 119 285 960 213 537 598 49 1,396 483 299 28 810 139 330 469 1,027 49 1.77

2008 364 119 285 768 77 312 311 31 731 249 165 28 442 182 313 494 543 20 1.24

2009 360 122 317 799 63 290 311 34 697 207 235 21 463 153 280 433 573 27 1.32

2010F 579 119 285 983 102 515 596 31 1,245 464 369 28 860 139 329 468 864 34 1.45

2010F 55.8 31.6 4.4 3.6 3.3 8.8 10.6 92.1 81.7 68.1

2011F 12.0 2.3 4.5 3.8 4.2 7.9 9.0 108.2 93.7 84.3

2012F 15.0 10.6 5.0 4.3 6.8 6.4 6.9 94.2 83.1 74.8

(FYE Dec) Revenue growth-Germany (%) Exchange rate (Euro/USD) Rev growth-Latin America, Asia (%)

2009 -10.0% 1.40 5.0%

2010F -5.0% 1.35 5.0%

2011F -3.0% 1.35 5.0%

2012F 6.0% 1.35 0.0%



2009 (10.3) 6.7 5.1 3.7 3.0 14.1 16.0 98.3 95.2 72.2

KEY DRIVERS


2008 7.7 (30.7) 4.2 3.1 2.6 22.5 17.0 89.9 90.0 78.3


2008 54 27 (44) (11) 29 55 (34) 11 (12) (35) 1 0 (7) (52) (57) (38) (39) (269)

2009 59 33 (21) (18) 26 78 (43) 8 (68) (102) 33 0 (7) (25) 2 (22) (55) (324)

2010F 79 40 (95) (8) 8 24 (250) 0 0 (250) 0 185 (7) (35) 143 (83) (83) (407)

2011F 91 41 (4) (8) 29 149 (30) 0 0 (30) 0 0 (7) (24) (30) 89 89 (319)

2012F 115 41 (23) (8) 21 146 (30) 0 (1) (31) 0 0 (7) (16) (22) 93 93 (225)

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Dec-07

Apr-08

Aug-08



[ 151 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Petra Perdana

TRADING BUY

Maintained

RM0.77

@07/12/10

In calmer waters

MALAYSIA

2011 OUTLOOK



PETR MK / PTRD.KL


• Maintain TRADING BUY. We maintain our forecasts and RNAV-based target price of RM0.98. Petra Perdana remains a TRADING BUY, premised on the expectations of 1) an earnings recovery, and 2) contract wins by 29.6%-owned Petra Energy (PENB MK, Not Rated) by year-end. Also, the departure of Tengku Datuk Ibrahim Petra has eliminated the risk of another fight for control. • Putting its house back in order. The boardroom tussle, which was a major drag on operations, finally ended when management received the support of the majority at an EGM on 20 Jul. The close of this disruptive episode has allowed management to rebuild after 10 months of less-than-optimal running of the business. Consequently, vessel utilisation rate improved to 60% in 3Q from around 50% in 2Q. • Hope floats. Petra Perdana could break even in 4Q, thanks to further improvement in the vessel utilisation rate, which is now more than 60%. Currently, only two vessels are without contracts, an improvement on five idle vessels in 2Q. Meanwhile, associate company Petra Energy is bidding for a sizeable topside maintenance contract after winning a RM400m Petronas Carigali hook-up and commissioning (HUC) job on 5 Dec. In addition to an associate contribution, Petra Perdana could also benefit from the HUC contract by chartering its vessels to Petra Energy, which will need extra capacity to execute the new contract. Financial summary


RM347m/US$110m RM1.55 RM0.75 3-m avg daily vol: 3.1m No. of shrs (m): 450 Est. free float (%): 60.8 Conv. secs (m): None Major shareholders (%): - PNB 18.2 - Shamsul & Kho brothers 11.8 - Lembaga Tabung Haji 9.2

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 669.6 163.8 24.5% 119.3 84.9 28.5 (45.5%) 2.7 21.0 (19.5%) 3.7 21.0 3.7 2.8 3.6% 0.5 19.0% 35.2% 32.0 2.8

2009 605.7 85.3 14.1% 48.7 29.3 9.9 (65.5%) 7.8 5.7 (72.9%) 13.6 5.7 13.6 2.0 2.6% 0.4 5.8% 26.6% 38.4 5.7

2010F 448.7 19.5 4.3% (36.7) (40.3) (12.0) (222.1%) nm (9.3) (264.1%) nm (7.9) nm 2.0 2.6% 0.4 (6.9%) 25.1% 4.9 26.4 1.19

2011F 501.2 84.3 16.8% 37.9 31.6 7.0 158.4% 11.0 6.0 163.9% 12.9 5.2 14.7 2.0 2.6% 0.6 5.3% 24.8% 42.0 7.2 0.71

2012F 536.2 99.3 18.5% 48.2 41.9 9.3 32.5% 8.3 8.2 38.3% 9.4 7.2 10.6 2.0 2.6% 0.6 7.1% 24.5% 41.7 6.1 0.82


Price chart

Corporate profile

1.7

2.50 1.5

2.00 1.3

1.50 1.1

1.00

0.9 0.7 De c-09


Source: Bloomberg

Oct-10 P e tra P e rda na

Petra Perdana started out in 1995 as an oil & gas engineering and maintenance player. Without abandoning its engineering roots, the company widened its scope of operations and made a move into marine support in early FY04, taking advantage of what appeared to be a potent combination for marine support success at that time – high crude oil price and shortage of local vessels. With the move into marine support, Petra now has a presence along the entire oil & gas upstream chain. In Jul 07, the engineering arm, Petra Energy, was spun off and listed on Bursa Malaysia. Currently, Petra Perdana owns 29.6% of Petra Energy. The S.E.A. Navigator – Malaysia 2011

[ 152 ]



2008 670 (506) 164 (42) 121 (25) 0 23 0 119 (18) (17) 85 298 298

2009 606 (520) 85 (49) 36 0 0 12 0 49 (12) (7) 29 298 298

2010F 449 (429) 20 (36) (16) (12) 0 (9) 0 (37) (1) (3) (40) 335 335

2011F 501 (417) 84 (40) 44 (12) 0 5 0 38 (1) (5) 32 450 450

2012F 536 (437) 99 (45) 55 (12) 0 5 0 48 (1) (5) 42 450 450

2008 444 0 0 444 56 36 212 110 414 53 230 66 349 1 10 11 439 59 1.47

2009 492 0 0 492 58 36 217 151 461 54 230 6 290 1 10 11 570 82 1.91

2010F 493 0 0 493 59 36 221 174 490 57 230 0 287 1 11 12 599 85 1.79

2011F 493 0 0 493 61 37 225 174 497 61 230 1 292 1 12 13 594 90 1.32

2012F 493 0 0 493 63 37 230 174 503 64 230 1 295 1 13 14 591 95 1.31

2008 119 42 (1) (18) 313 456 (451) 1 3 (448) 10 0 (6) (12) (8) 1 (9) (175)

2009 49 49 (4) (18) 487 563 (678) 130 3 (545) 0 0 (4) (12) (16) 2 2 (173)

2010F (37) 36 (2) (16) 714 695 (678) 1 0 (677) 46 0 (5) (12) 30 48 2 (172)

2011F 38 40 (1) 0 618 696 (678) 2 0 (676) 0 0 (6) (12) (18) 2 2 (170)

2012F 48 45 (2) (1) 605 695 (678) 3 0 (675) 0 0 (6) (12) (18) 2 2 (168)

2010F (25.9) (77.1) (8.2) (9.0) (1.3) N/A N/A 178.0 29.4 45.2

2011F 11.7 332.5 7.6 6.3 3.6 2.9 21.1 162.6 26.6 43.1

2012F 7.0 17.7 9.0 7.8 4.4 2.3 15.9 155.0 25.1 42.7

(FYE Dec) Charter rate (US$ per horse power) Number of vessels Order book (RM m) Overseas rev contribution (%) Vessel utilisation rate (%)

2009 2.30 20 1,500 16.0% 55.0%

2010F 2.50 29 1,500 16.0% 60.0%

2011F 2.70 29 1,500 16.0% 65.0%

2012F 2.80 29 1,500 16.0% 70.0%



2009 (9.5) (47.9) 8.0 4.8 1.1 25.4 15.0 129.3 21.5 32.4

KEY DRIVERS


2008 0.7 1.4 17.8 12.7 3.7 14.8 7.3 114.7 19.3 28.0


41.0 31.0 21.0 11.0 1.0 -9.0 -19.0 -29.0 -39.0 -49.0 Dec-07

Apr-08

Aug-08



[ 153 ]

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Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Petronas Dagangan Bhd

OUTPERFORM

Maintained

RM11.70

@07/12/10

Refuel for dividends here

MALAYSIA

2011 OUTLOOK


Target: RM15.40 Oil & Gas - Retail

PETD MK / PETR.KL


• Maintain OUTPERFORM. We maintain our forecasts for Petronas Dagangan (PetDag) but raise our target price from RM14.70 to RM15.40, pegged to a revised target market P/E of 14.5x (13.8x previously). PetDag remains an OUTPERFORM, with the potential share price triggers being 1) leadership of the retail and lubricant segments, and 2) M&As. • Aiming for leadership positions all around. PetDag is Malaysia’s No. 1 petroleum retailer. It is also the leader in the commercial and liquefied petroleum gas (LPG) businesses. But PetDag trails behind Shell in the retail and lubricant businesses. To boost retail income, PetDag is aggressively pushing for sales at the pumps and Mesra convenience stores, and is hopeful that it will overtake Shell in 23 years’ time. Meanwhile, the low-revenue, high-margin lubricant business is expected to benefit from tie-ups and improved distribution. Management targets the lubricant business to be in the top position in five years’ time. • Attractive growth and dividend plays. PetDag’s 3-year EPS CAGR of 12.8% is expected to outpace that of selected upstream players. Furthermore, cash-rich PetDag makes a reliable dividend play despite a regulated operating environment and high capital requirements. For FY11-13, we forecast capex of RM500m and generous DPS of 85 sen p.a. PetDag tops the dividend list among local oil & gas stocks with a 7.3% yield for CY11. The company does not have a dividend policy and does not intend to have one. We believe management prefers to have the flexibility to undertake an M&A exercise should the opportunity arise. Financial summary

Stock Information Market cap: RM11,623m/US$3,705m 12-m price range: RM11.80 RM8.55 3-m avg daily vol: 0.2m No. of shrs (m): 993 Est. free float (%): 24.2 Conv. secs (m): None Major shareholders (%): - Petronas 69.9 - EPF 6.0 - Valuecap 3.3

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 24,367.6 1,039.0 4.3% 810.3 578.7 58.2 (12.5%) 20.1 45.0 3.8% 2.2 11.7% 0.62 23.1 10.6

2010 20,687.0 1,280.4 6.2% 1,046.0 752.9 75.8 30.1% 15.4 60.0 5.1% 1.9 13.2% 0.69 17.7 8.6

2011F 25,395.6 1,460.2 5.8% 1,220.2 883.8 89.0 17.4% 13.2 85.0 7.3% 1.8 14.1% 0.76 12.7 7.5 1.13

2012F 27,932.3 1,592.1 5.7% 1,341.7 972.5 97.9 10.0% 12.0 85.0 7.3% 1.6 14.3% 0.83 12.6 6.8 1.17

2013F 30,782.3 1,753.6 5.7% 1,492.3 1,082.1 108.9 11.3% 10.7 85.0 7.3% 1.5 14.4% 0.91 12.5 6.1 1.21


Price chart

Corporate profile

12.1

2.50

11.6 11.1

2.00

10.6

1.50

10.1 9.6

1.00

9.1

0.50

8.6 8.1 De c -09

0.00 Ma y-10


Source: Bloomberg

Oct-10 P e trona s Da g a ng a n Bhd

PetDag undertakes the retail business of Petronas, Malaysia’s sole representative in the Fortune 500 list. However, the retailer is mandated to operate only in the local market as Petronas’s overseas retail operations are handled by the holding company itself. PetDag is the biggest local oil & gas company by market capitalisation, commanding some 25% of the sector’s total market capitalisation. It is also Malaysia’s biggest petroleum retailer after replacing Shell in 2002. Furthermore, the company is the only pure oil & gas retailer that is listed on Bursa Malaysia. As at end-Sep 10, it operated 938 Petronas stations nationwide.


[ 154 ]



2009 2010 2011F 24,368 20,687 25,396 (23,329) (19,407) (23,935) 1,039 1,280 1,460 (235) (246) (258) 804 1,034 1,202 6 11 17 0 0 1 0 0 0 0 0 0 810 1,046 1,220 (229) (288) (329) (5) (7) (3) 753 884 579 993 993 993 993 993 993

2012F 2013F (FYE Mar) 27,932 30,782 Revenue growth (%) (26,340) (29,029) EBITDA growth (%) 1,592 1,754 Pretax margins (%) (270) (284) Net profit margins (%) 1,322 1,470 Interest cover (x) 19 21 Effective tax rates (%) 1 1 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 1,342 1,492 Creditors turnover (days) (362) (403) (7) (7) 972 1,082 993 993 993 993

2009 4,446 0 487 4,933 620 971 2,746 0 4,337 3,315 0 525 3,840 0 90 90 5,290 50 5.33

2010 5,201 0 576 5,777 682 1,067 2,870 0 4,619 3,390 0 775 4,165 0 90 90 6,091 50 6.13

2011F 5,437 0 670 6,107 751 1,252 3,278 0 5,281 3,757 0 1,052 4,809 0 90 90 6,439 50 6.48

2012F 5,737 0 769 6,505 826 1,454 3,695 0 5,974 4,132 0 1,086 5,218 0 91 91 7,120 50 7.17

2013F 6,125 0 872 6,998 908 1,687 4,163 0 6,758 4,554 0 1,128 5,682 0 92 92 7,932 50 7.98

2011F 2012F 2013F 22.8 10.0 10.2 14.0 9.0 10.1 4.8 4.8 4.8 3.5 3.5 3.5 1,997.7 2,196.0 2,442.3 27.0 27.0 27.0 70.7 64.3 57.7 44.2 45.6 46.6 16.7 17.7 18.6 51.4 51.5 51.5

2010 936 371 43.5% 15.4

(FYE Mar) No. of petrol stations Capex (RMm) Market share (%) Sales volume (bn litres)

2011F 966 500 44.0% 17.1

2012F 996 500 44.0% 18.7

2013F 1,026 500 44.0% 20.6



2010 (15.1) 23.2 5.1 3.6 304.2 27.6 58.6 49.5 18.0 59.1

KEY DRIVERS


2009 9.3 (7.0) 3.3 2.4 365.6 28.2 57.2 39.3 13.6 48.0

2009 810 235 (142) (200) 0 703 (500) 0 (65) (565) 0 0 (447) 366 (81) 56 56 620

2010 1,046 246 (145) (301) 68 915 (500) 0 (68) (568) 0 0 (596) 312 (284) 62 62 682

2011F 1,220 258 (226) (329) 256 1,179 (500) 0 (75) (575) 0 0 (844) 309 (535) 68 68 751

2012F 1,342 270 (243) (362) 257 1,264 (500) 0 (78) (578) 0 0 (844) 234 (610) 75 75 826

2013F 1,492 284 (280) (403) 259 1,353 (500) 0 (81) (581) 0 0 (844) 155 (689) 83 83 908

15.0

14.0

13.0

12.0

11.0

10.0

9.0 Dec-07

Apr-08

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Dec-10

Proton Holdings Bhd

TRADING BUY

Maintained

RM4.84

@06/12/10

Steering a restructuring course

MALAYSIA

2011 OUTLOOK


Target: RM5.95 Autos

PROH MK / PROT.KL


• Maintain TRADING BUY. We are encouraged by management’s ongoing efforts to restructure Proton. Apart from the recent management restructuring of Lotus and the current push for its turnaround, Proton is also pursuing initiatives which could address its overcapacity, i.e. a push for exports and a study on plant consolidation. Proton’s improving financials are also encouraging. We maintain our TRADING BUY call in view of the emergence of potential near-term catalysts such as 1) ongoing restructuring of its internal operations, 2) more inroads into export markets, and 3) renewed consolidation talks. We also retain our target price of RM5.95 as we continue to value it at a 20% premium over its 5-year historical P/BV of 0.5x. • Consolidation talks to dominate in 2011? Now that partnership talks with Volkswagen AG (VW) have ended, discussions on consolidation of the local auto players are likely to dominate in 2011. From Proton’s point of view, there are merits in collaboration as Proton’s Achilles heel is the negative perception of the quality of its cars. With Perodua on board, Proton might be able to leverage Toyota’s support which should help it gain mileage in its export aspirations, among others. • Tackling the overcapacity. Proton’s two manufacturing plants in Shah Alam, Selangor and Tanjung Malim, Perak have a combined installed capacity of 380,000 units, which is only about half utilised currently. The Tanjung Malim plant alone has a designed capacity of 1m cars p.a. We gather that feasibility studies on Proton’s plant consolidation are ongoing. A decision on the plant consolidation could be made as early as the beginning of 2011, in our opinion. Financial summary

Stock Information Market cap: RM2,658m/US$845m 12-m price range: RM5.00 RM3.81 3-m avg daily vol: 0.6m No. of shrs (m): 549 Est. free float (%): 33.5 Conv. secs (m): None Major shareholders (%): - Khazanah Nasional Bhd 42.7 - Employees Provident Fund 12.4 - Petroliam Nasional Bhd 7.9

FYE Mar Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 6,518.8 347.0 5.3% (319.2) (301.8) (55.0) (263.5%) nm (4.3) (154.4%) nm 5.0 1.0% 0.5 (5.7%) 1.01 (13.6) 5.6

2010 8,226.9 667.2 8.1% 260.9 218.9 39.9 172.5% 12.1 41.2 1,064.4% 11.7 20.0 4.1% 0.5 4.2% 2.69 3.7 1.5

2011F 9,001.6 838.2 9.3% 414.5 360.6 65.7 64.7% 7.4 65.7 59.2% 7.4 10.0 2.1% 0.5 6.6% 2.10 (6.8) 1.6 1.13

2012F 9,531.6 915.3 9.6% 458.1 398.5 72.6 10.5% 6.7 72.6 10.5% 6.7 10.0 2.1% 0.4 6.8% 2.76 6.8 1.1 1.14

2013F 10,012.7 964.0 9.6% 489.6 426.0 77.6 6.9% 6.2 77.6 6.9% 6.2 10.0 2.1% 0.4 6.9% 3.52 6.0 0.6 1.15


Price chart

Corporate profile

5.2

4.50

5.0

4.00 3.50

4.8

3.00

4.6

2.50

4.4

2.00

4.2

1.50

4.0

1.00

3.8 3.6 De c-09


Oct-10 P roton Holding s Bhd

Founded in 1983, Proton Holdings is Malaysia’s first car manufacturer. It is headquartered in Shah Alam, Selangor and has a manufacturing plant in Tanjung Malim, Perak. Formerly the top player in Malaysia, Proton has lost ground over the years due partly to tepid response to its products and keener competition, especially from Perodua. However, it managed to claw back some market share recently through the successful launches of the Persona, Saga and Exora. But it remains the number two player with a market share of about 26% vs. 31% for Perodua.

Source: Bloomberg


[ 156 ]



2009 6,519 (6,172) 347 (450) (103) 28 20 (278) 15 (319) 17 0 (302) 549 549

2010 8,227 (7,560) 667 (433) 235 16 6 (9) 13 261 (42) 0 219 549 549

2011F 9,002 (8,163) 838 (458) 380 28 6 0 0 414 (54) 0 361 549 549

2012F 9,532 (8,616) 915 (483) 432 20 6 0 0 458 (60) 0 399 549 549

2013F 10,013 (9,049) 964 (508) 456 27 6 0 0 490 (64) 0 426 549 549


2012F 3,238 593 398 4,228 1,657 1,422 1,066 81 4,226 1,889 115 346 2,350 26 67 93 6,010 0 9.86

2013F 3,197 593 393 4,184 2,061 1,494 1,120 81 4,755 1,984 104 363 2,451 23 67 91 6,395 0 10.56

(FYE Mar) Production capacity (units) Car sales (units) Market share (%)

2009 2,827 461 407 3,694 914 1,395 890 206 3,405 1,278 306 300 1,884 55 59 114 5,102 0 8.45

2010 2,633 593 407 3,634 1,652 1,227 920 81 3,881 1,630 142 300 2,073 32 67 99 5,333 0 8.63

2011F 3,253 593 403 4,248 1,308 1,343 1,007 81 3,738 1,784 128 326 2,238 29 67 96 5,652 0 9.21

2011F 9.4 25.6 4.6 4.0 51.2 13.0 11.4 39.1 52.1 69.2

2012F 5.9 9.2 4.8 4.2 64.7 13.0 10.3 39.7 52.9 70.3

2013F 5.0 5.3 4.9 4.3 75.8 13.0 9.7 39.9 53.1 70.6

2010 380,000 156,653 26.9%

2011F 2012F 2013F 380,000 380,000 380,000 170,885 178,005 186,577 27.0% 27.0% 27.8%



2010 26.2 92.3 3.2 2.7 19.5 16.1 37.6 40.2 58.2 64.5

KEY DRIVERS


2009 16.0 16.5 (4.9) (4.6) (7.2) N/A N/A 52.1 69.9 70.4

2009 (319) 450 (234) 40 365 302 (500) 0 (142) (642) 117 0 (21) (68) 28 (312) (429) 553

2010 261 433 609 17 (30) 1,290 (500) 0 108 (392) (186) 0 0 27 (160) 738 925 1,478

2011F 414 458 (49) (42) (684) 98 (500) 0 0 (500) (17) 0 (82) 157 58 (344) (327) 1,151

2012F 458 483 (33) (54) 33 886 (500) 0 0 (500) (16) 0 (41) 20 (37) 349 365 1,516

2013F 490 508 (30) (60) 24 932 (500) 0 0 (500) (14) 0 (41) 27 (28) 404 418 1,933

43.0 38.0 33.0 28.0 23.0 18.0 13.0 8.0 3.0 Dec-07

Apr-08

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Dec-10

Public Bank Bhd

OUTPERFORM

Maintained

RM12.80

@07/12/10

Banking on its tradition of consistency

MALAYSIA

2011 OUTLOOK



PBK MK / PUBM.KL


• Reaffirm OUTPERFORM. Public remains an OUTPERFORM and our top pick among the big-cap Malaysian banks. Potential share price triggers include (1) a potential improvement in its loan growth, (2) increased contributions from Greater China, and (3) stronger-than-expected non-interest income. We retain our earnings forecasts and target price of RM16.10, pegged to an unchanged 10% premium over the DDM value. Also intact are the key DDM parameters, including a cost of equity of 11.2% and dividend growth rates of 10.2% in the interim growth phase and 5% in the long-term growth phase. • Healthy earnings growth. Although net earnings growth is expected to slow down from a projected 20.3% for FY10, the pace will remain healthy at 16.5% in FY11. This will be driven by the 14.2% rise in the topline, emanating from a (1) 15.9% increase in net interest income, on the back of mid-teens loan growth, and (2) 11% expansion of non-interest income, partly from the wealth management and bancassurance businesses. • Projecting loan growth in the mid-teens. The group will continue its tradition of expanding loans at a robust pace. We estimate loan growth of 15.5% for FY11, led by an 18% rise in residential mortgages. Auto and general commerce loans are projected to expand 10-11%. Financial summary

Stock Information Market cap: RM45,209m/US$14,411m 12-m price range: RM12.84 RM10.76 3-m avg daily vol: 2.5m No. of shrs (m): 3,532 Est. free float (%): 75.0 Conv. secs (m): None Major shareholders (%): - Tan Sri Dr. Teh Hong Piow 24.1 - EPF 9.6 - Valuecap 3.0

FYE Dec Net interest income (RM m) Non-interest income (RM m) Total income (RM m) Loan loss provisions (RM m) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) % change in EPS estimates CIMB/Consensus (x)

2008 3,727.3 1,609.7 5,739.2 (548.6) 3,379.1 2,581.2 70.1 20% 18.2 87.0 6.8% 4.9 27.3%

2009 4,036.4 1,874.7 6,124.9 (691.0) 3,321.4 2,517.3 69.3 (1%) 18.5 77.2 6.0% 4.2 24.5%

2010F 4,745.8 2,036.6 6,998.6 (596.6) 4,159.3 3,027.3 85.1 23% 15.0 62.4 4.9% 3.5 25.2% 1.00

2011F 5,499.7 2,254.4 7,992.8 (675.1) 4,894.1 3,525.5 99.8 17% 12.8 73.2 5.7% 3.0 25.1% 1.04

2012F 6,283.6 2,454.0 8,999.7 (711.8) 5,756.2 4,150.3 117.5 18% 10.9 86.2 6.7% 2.6 25.4% 1.08


Price chart

Corporate profile

13.2

1.20

12.7

1.00

12.2

0.80

11.7

0.60

11.2

0.40

10.7

0.20

10.2 De c-09


Source: Bloomberg

Oct-10 P ublic Ba nk Bhd

Public Bank is Malaysia’s third largest banking group with assets totalling RM220.6bn. As an anchor bank, it acquired Hock Hua Bank, Advance Finance and Sime Merchant Bank in 2000-01. The bank also took Public Finance private in 2003 and merged it with its banking business in Sep 04. The group’s major operations include commercial banking, Islamic banking, investment banking and management of unit trust funds. As part of its overseas expansion, Public acquired HK-based Asia Commercial Bank in 2006 for HK$4.5bn. It also forged a strategic alliance with ING Asia in 2007 to distribute the latter’s bancassurance products.


[ 158 ]


PROFIT & LOSS (RM m, FYE Dec) Net interest income Non-interest income Other income Total income Overhead expenses Pre-provision profit Loan loss provisions Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2008 3,727 1,610 402 5,739 (1,791) 3,948 (549) 12 0 (33) 3,379 (757) (41) 2,581 3,680 3,532

2009 4,036 1,875 214 6,125 (2,110) 4,015 (691) 12 0 (15) 3,321 (770) (34) 2,517 3,635 3,532

2010F 4,746 2,037 216 6,999 (2,247) 4,752 (597) 10 0 (6) 4,159 (1,008) (124) 3,027 3,558 3,532

2011F 5,500 2,254 239 7,993 (2,393) 5,599 (675) 11 0 (41) 4,894 (1,235) (134) 3,525 3,532 3,532

2012F 6,284 2,454 262 9,000 (2,535) 6,465 (712) 11 0 (8) 5,756 (1,450) (156) 4,150 3,532 3,532

2008 43,680 11,940 55,620 118,386 13,913 1,303 2,072 4,868 140,543 196,163 151,185 21,221 7,163 6,365 185,934 9,537 692 2.59

2009 47,863 8,268 56,131 135,336 18,786 1,341 2,058 3,485 161,005 217,136 170,892 22,636 8,032 3,861 205,421 11,023 692 3.08

2010F 50,194 10,204 60,397 157,670 16,578 1,394 2,058 3,456 181,156 241,554 190,959 24,735 8,032 4,125 227,851 13,011 692 3.68

2011F 53,314 9,501 62,814 181,965 18,070 1,439 2,058 3,623 207,156 269,970 214,522 27,035 8,032 4,561 254,150 15,127 692 4.28

2012F 58,071 10,507 68,578 207,562 18,375 1,483 2,058 3,767 233,245 301,823 241,017 29,556 8,032 5,025 283,631 17,501 692 4.95

2008 12.3 15.5 12.5 2.24 31.2 22.4 91.8

2009 6.7 1.7 (1.7) 2.21 34.4 23.2 83.6

2010F 14.3 18.4 25.2 2.32 32.1 24.2 55.0

2011F 14.2 17.8 17.7 2.38 29.9 25.2 55.0

2012F 12.6 15.5 17.6 2.41 28.2 25.2 55.0

2008 19.1 9.0 78.3 1.0 0.9 159.7 1.5 13.7

2009 14.4 13.0 79.2 1.0 0.8 172.4 1.5 14.7

2010F 16.6 11.7 82.6 1.0 0.8 175.5 1.5 15.5

2011F 2012F 15.5 14.1 12.3 12.4 84.8 86.1 1.0 1.0 0.7 0.7 181.8 185.0 1.5 1.5 15.4 15.5

KEY DRIVERS

BALANCE SHEET (RM m, end Dec) Cash & deposits with FIs Marketable securities Total current assets Net loans & advances Long-term investments Fixed assets Intangible assets Other long-term assets Total long-term assets Total assets Customer deposits Deposits of other FIs Subordinated debts Other long-term liabilities Total liabilities Shareholders’ funds Minority interests BV/share (RM)

(FYE Dec) Total income growth (%) Pre-provision profit growth (%) Pretax growth (%) Net interest margin (%) Cost-income ratio (%) Effective tax rates (%) Net dividend payout (%)

(FYE Dec) Loan growth (%) Deposit growth (%) Loan-deposit ratio (%) Gross NPL (%) Net NPL (%) Loan loss reserve (%) GP ratio (%) RWCR (%)


CURRENT P/BV (X)

17.0

4.60

16.0

4.10

15.0 14.0

3.60

13.0 12.0

3.10

11.0 10.0


9.0 Dec-07

Apr-08

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Dec-10


Puncak Niaga Holdings Bhd

NEUTRAL

Maintained

RM2.54

@06/12/10

Waiting for the takeover lifeboat

MALAYSIA

2011 OUTLOOK


Target: RM2.89 Water Treatment & Services

PNH MK / PNHB.KL


• Maintain NEUTRAL. The takeover of water assets in Selangor made little progress in 2010, which was a disappointment. As the takeover is likely to be protracted, we remain NEUTRAL on the stock at this juncture but would relook at our call if the takeover progress picks up. Also intact is our target price of RM2.89, which imputes a 40% discount to its DCF value to reflect the risks of further delays. Puncak’s effective takeover price is backed by Splash’s RM4.54/share offer in Mar 10. • Looking to 2011 for progress on takeover. Although the takeover of water assets in Selangor has made little headway, we expect it to advance in 2011, with the push factor being the risk that the concessionaires (PNSB, Syabas, Abass and Splash) will default on their bond redemptions in 2011. Splash’s bonds, for example, are due in Jul 2011. A successful takeover of the concessionaires would resolve the payment issues, which stem from the absence of a water tariff increase for Puncak Niaga in 2009. • Takeover likely to remain long-drawn. Unless (i) the payment issues are dealt with, (ii) consideration is given to Syabas’s outstanding compensation, and (iii) the state government pushes for a resolution to all the issues, the takeover is likely to be protracted. Financial summary

Stock Information Market cap: RM1,044m/US$332m 12-m price range: RM3.15 RM2.38 3-m avg daily vol: 0.2m No. of shrs (m): 411 Est. free float (%): 61.1 Conv. secs (m): None Major shareholders (%): - Central Plus (M) Sdn Bhd 30.0 - EPF 9.0


2008 1,476.1 649.6 44.0% 57.0 24.9 6.1 (81.4%) 41.9 13.5 5.3% 0.7 1.7% 9.5% N/A (4.5) 2.0

2009 1,885.4 1,072.3 56.9% 313.1 142.6 34.7 472.7% 7.3 13.5 5.3% 0.6 9.0% 39.9% N/A 1.7 1.9

2010F 2,214.8 1,354.4 61.2% 312.4 193.2 47.0 35.5% 5.4 13.5 5.3% 0.6 11.0% 40.4% N/A 3.3 1.6 1.25

2011F 2,342.1 1,449.5 61.9% 418.1 248.8 60.5 28.8% 4.2 13.5 5.3% 0.5 12.7% 35.9% N/A 1.7 1.5 1.30

2012F 3,095.9 2,169.4 70.1% 701.2 330.6 80.4 32.9% 3.2 13.5 5.3% 0.4 14.9% N/A 1.26 0.8 0.5 1.24


Price chart


3.2

4.00 3.50

3.0

3.00 2.50

2.8

2.00 2.6

1.50 1.00

2.4

0.50 2.2 De c-09

0.00 Ma y-10


Oct-10 P unc a k Nia g a Holding s Bhd

Puncak Niaga is the largest water supply concessionaire in Malaysia, holding two concessions from the Selangor state government. The first, awarded in 1994, allows Puncak to operate water treatment plants formerly under the management of Perbadanan Urus Air Selangor (PUAS). The second concession, awarded in 1995, allows Puncak to operate a new water treatment plant at Bukit Badoh. Both concessions will expire in 2020. 70%-owned Syabas holds a 30-year concession and is the biggest water supply privatisation in Malaysia.

Source: Bloomberg


[ 160 ]



2008 1,476 (827) 650 (433) 217 (160) 0 0 0 57 (36) 4 25 411 411

2009 1,885 (813) 1,072 (509) 563 (250) 0 0 0 313 (85) (86) 143 411 411

2010F 2,215 (860) 1,354 (1,016) 339 (26) 0 0 0 312 (81) (38) 193 411 411

2011F 2,342 (893) 1,449 (1,074) 375 43 0 0 0 418 (109) (61) 249 411 411

2012F 3,096 (926) 2,169 (1,420) 750 (49) 0 0 0 701 (182) (188) 331 411 411

2011F 3,555 0 1,232 4,786 3,278 47 243 71 3,638 1,405 71 7 1,483 4,056 517 4,573 2,073 294 5.04

2012F 3,450 0 1,232 4,681 4,637 62 243 87 5,028 1,858 64 8 1,929 4,056 867 4,923 2,375 483 5.78

2008 1,164 0 1,232 2,396 1,299 29 243 50 1,621 869 97 7 974 1,356 69 1,425 1,495 123 3.64

2009 2,762 0 1,232 3,993 2,397 42 243 64 2,746 1,257 88 7 1,352 3,056 460 3,516 1,676 196 4.08

2010F 3,059 0 1,232 4,290 2,694 44 243 67 3,049 1,329 79 7 1,415 3,456 386 3,842 1,848 234 4.49

2010F 17.5 26.3 14.1 8.7 1.6 26.0 20.7 40.0 7.1 213.0

2011F 5.7 7.0 17.9 10.6 2.1 26.0 16.0 37.8 7.1 213.0

2012F 32.2 49.7 22.6 10.7 5.2 26.0 12.1 28.6 6.4 192.3

(FYE Dec) Utilisation rate (%) Tafiff hike (%) Tariff rate (RM per cubic metre)

2009 90.0% 37.0% 2

2010F 90.0% 0.0% 2

2011F 90.0% 0.0% 3

2012F 90.0% 25.0% 4



2009 27.7 65.1 16.6 7.6 1.6 27.1 28.0 47.0 6.9 205.8

KEY DRIVERS


2008 7.5 (27.3) 3.9 1.7 0.7 62.5 160.3 60.0 7.0 209.3


2008 57 433 42 (188) 0 344 (563) 0 0 (563) (11) 0 (15) 230 205 (14) (3) (154)

2009 313 509 361 287 0 1,470 (858) 0 0 (858) (10) 0 (15) (1,189) (1,214) (601) (592) (746)

2010F 312 1,016 66 (162) 0 1,233 (912) 0 0 (912) (9) 0 (15) (400) (424) (103) (94) (840)

2011F 418 1,074 70 14 0 1,576 (970) 0 0 (970) (8) 0 (15) (598) (621) (14) (7) (847)

2012F 701 1,420 421 154 0 2,696 (1,315) 0 0 (1,315) (7) 0 (15) 0 (22) 1,359 1,366 520

44.0 39.0 34.0 29.0 24.0 19.0 14.0 9.0 4.0 Dec-07

Apr-08

Aug-08



[ 161 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


QSR Brands

NEUTRAL

Maintained

RM5.63

@07/12/10

No birdie for suitors

MALAYSIA

2011 OUTLOOK



QSR MK / QSRB.KL


• Maintain NEUTRAL. We retain our EPS forecasts and target price of RM6.50, pegged to an unchanged 16x forward P/E, which factors in a 10% discount to the average valuation of bigger F&B producers. QSR remains a NEUTRAL after our recent downgrade which was prompted by the limited share price upside after an earlier rise on the expectation of a race for control. Our top F&B pick is CI Holdings. • Not for sale. The statements issued by Kulim and QSR after they turned down the takeover bids by Carlyle and Idaman Saga as well as the news that Johor Corp has engaged CIMB to restructure its debt suggest that QSR and KFC Holdings will remain within Johor Corp, at least for now. We are not disappointed that the two offers were rejected. Johor Corp has done a commendable job growing the Pizza Hut and KFC franchises at home and abroad since the emergence of Kulim as the controlling shareholder of QSR in Jun 06. • Spicy India. We believe that the main factor that influenced the decision to keep both companies is the growth opportunities in India. KFC India is now operating three outlets, which are raking in encouraging monthly sales of RM450,000/outlet vs. RM250,000/outlet in Malaysia. This may increase KFC India’s chances of taking over five profitable outlets which are now under Yum!. • Record average ticket prices. Operationally, QSR and KFCH are at their strongest. As at end-Sep, the same-store sales growth was encouraging at 5% for Pizza Hut and 3% for KFC. There were no selling price revisions in 9M10. Also, average ticket prices remained at all-time highs of RM40 for Pizza Hut and RM20 for KFC for the second consecutive quarter in 2Q10. Financial summary

Stock Information Market cap: RM1,635m/US$521m 12-m price range: RM6.26 RM3.17 3-m avg daily vol: 1.3m No. of shrs (m): 290 Est. free float (%): 42.1 Conv. secs (m): 40.9 Major shareholders (%): - Kulim 57.9

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 532.8 90.0 16.9% 97.7 85.3 29.8 8.6% 18.9 26.0 21.6 11.0 2.0% 3.5 18.5% 39.1% 80.5 14.7

2009 2,760.3 354.0 12.8% 230.3 90.9 31.8 6.6% 17.7 27.7 20.3 13.0 2.3% 3.5 19.8% 40.1% 89.9 3.7

2010F 2,830.9 400.7 14.2% 254.4 110.1 38.5 21.1% 14.6 33.6 16.8 15.0 2.7% 3.5 24.1% 40.8% 63.7 3.3 0.87

2011F 2,979.5 436.1 14.6% 274.5 125.1 43.7 13.5% 12.9 38.1 14.8 15.0 2.7% 3.5 27.2% 40.8% 47.6 3.0 0.87

2012F 3,137.9 466.6 14.9% 287.4 133.2 46.5 6.5% 12.1 40.6 13.9 15.0 2.7% 3.5 28.7% 41.4% 38.4 2.9 0.76


Price chart

Corporate profile

6.5

6.00

6.0

5.00

5.5

4.00 5.0

3.00

4.5

2.00

4.0

1.00

3.5 3.0 De c-09


Source: Bloomberg

Oct-10 QS R Bra nds

QSR is Malaysia’s biggest quick-service restaurant operator with three main brands under its belt: Pizza Hut, KFC and Ayamas. The other brands are RasaMas and Life. In Malaysia, the Pizza Hut chain is run by QSR while the KFC and Ayamas chains are under 51.3%-owned KFC Holdings. The Pizza Hut and KFC brands are owned by Yum!, which also owns the Long John Silver’s, Taco Bell and A&W brands. The home-grown Ayamas, RasaMas and Life brands are owned by the QSR group. The group has a presence in Malaysia, Singapore, Brunei, Cambodia and India. QSR is 57.9% owned by Kulim, which is 54.3% held by Johor Corp. The S.E.A. Navigator – Malaysia 2011

[ 162 ]



2008 533 (443) 90 (25) 65 (8) 41 0 0 98 (14) 2 85 286 286

2009 2,760 (2,406) 354 (115) 239 (9) 0 0 0 230 (72) (67) 91 286 286

2010F 2,831 (2,430) 401 (128) 273 (18) 0 0 0 254 (80) (64) 110 286 286

2011F 2,979 (2,543) 436 (143) 293 (19) 0 0 0 274 (84) (66) 125 286 286

2012F 3,138 (2,671) 467 (159) 308 (20) 0 0 0 287 (88) (67) 133 286 286

2008 313 0 558 870 36 15 21 20 92 17 8 44 69 208 222 430 463 0 1.62

2009 314 0 558 871 37 15 21 21 95 17 9 45 70 212 226 439 457 0 1.60

2010F 320 0 558 877 39 15 22 21 98 17 9 45 71 216 230 447 457 0 1.60

2011F 334 0 559 892 41 16 22 21 100 17 9 45 72 221 235 456 464 0 1.62

2012F 341 0 560 900 43 16 23 20 102 17 10 46 73 225 239 464 464 0 1.62

2008 98 25 0 (23) 25 125 (51) 0 (91) (141) 4 6 (31) 38 18 2 (3) (181)

2009 230 115 0 (76) (133) 135 (50) 0 (90) (140) 5 6 (37) 33 6 2 (3) (184)

2010F 254 128 0 (80) (151) 151 (50) 0 (90) (140) 5 6 (43) 24 (9) 2 (3) (186)

2011F 274 143 0 (84) (178) 155 (50) 0 (94) (144) 5 6 (43) 23 (9) 2 (3) (189)

2012F 287 159 0 (88) (199) 159 (49) 0 (98) (147) 5 6 (43) 22 (10) 2 (3) (192)

2010F 2.6 13.2 9.0 3.9 12.0 31.4 28.9 2.8 2.0 2.2

2011F 5.3 8.8 9.2 4.2 12.0 30.5 25.4 2.7 1.9 2.1

2012F 5.3 7.0 9.2 4.2 11.5 30.5 23.9 2.6 1.8 2.0

(FYE Dec) Consumer: EBITDA margins (%) Raw material price change (%) No. of outlets Same store sales growth (%) Average ticket price (RM)

2009 12.8% -2.4% 265 -5.0% 36

2010F 14.2% 25.9% 281 6.0% 40

2011F 14.6% 4.7% 297 6.0% 40

2012F 14.9% 5.0% 313 6.0% 40



2009 418.1 293.3 8.3 3.3 20.5 31.2 30.3 2.8 2.0 2.2

KEY DRIVERS


2008 14.2 28.8 18.3 16.0 6.9 14.3 27.3 14.1 10.3 11.4


15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 Dec-07

Apr-08

Aug-08



[ 163 ]

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Apr-09

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Dec-09

Apr-10

Aug-10

Dec-10

RGB International Bhd

UNDERPERFORM

Maintained

RM0.06

@07/12/10

Bad dream coming to an end?

MALAYSIA

2011 OUTLOOK



RGB MK / RGBI.KL


• Still an UNDERPERFORM. RGB remains an UNDERPERFORM in our books, with the key de-rating catalyst being slow turnaround efforts. Although RGB has been showing qoq improvements, its still-struggling key TSM division remains our main concern. We retain our end-CY11 target price of RM0.061 based on 8x P/E or an unchanged 50% discount to its larger peers. • Starting to turn around? RGB’s three straight quarters of narrowing losses could be an early sign of a turnaround after two disastrous years of regulatory changes, outlet closures, slow machine mobilisations and weak sales. Although the worst may be over, we remain cautious as the TSM division is still grappling with idle machines and underperforming sites. Meanwhile, machine sales could see some boost as Galaxy Macau is slated to open in early 2011 and both the Singapore IRs still have room for more slot machines. Orders from the Philippines are also expected to pick up after the completion of the May 10 election. • Back to basics. RGB remains in active negotiations to dispose of a 40% equity interest in its 60%-owned Chateau de Bavet. The stake sale is expected to be completed in late 2010 or early next year. Given the uninspiring performance of its Bavet casino so far, the disposal should help reduce losses and shift RGB’s focus back to its core strengths, i.e. slot machines and the Indochina market. Financial summary


RM69m/US$22m RM0.18 RM0.06 3-m avg daily vol: 0.8m No. of shrs (m): 1,151 Est. free float (%): 25.0 Conv. secs (m): None Major shareholders (%): - Datuk Chuah Kim Seah 29.4 - Gerak Juara Sdn Bhd 14.1 - Chuah Kim Chiew 2.3


2008 227.8 73.7 32.3% (3.3) (2.9) (0.3) (107.3%) nm 1.0 (78.7%) 6.2 0.0 0.0% 0.3 (1.6%) 63.6% (2.7) 2.3

2009 170.2 20.3 11.9% (60.5) (57.8) (5.6) (1,585.3%) nm (3.2) (427.7%) nm 0.0 0.0% 0.4 (35.8%) 82.2% (1.1) 9.0

2010F 159.1 45.2 28.4% (46.2) (39.0) (3.7) 32.6% nm (3.7) (17.7%) nm 0.0 0.0% 0.8 (34.4%) 232.6% (12.6) 5.3 1.01

2011F 238.6 93.2 39.0% 5.8 4.6 0.4 111.9% 13.5 0.4 111.9% 13.5 0.0 0.0% 0.7 5.5% 161.5% 1.3 2.1 1.11

2012F 266.4 102.3 38.4% 10.0 7.9 0.8 70.9% 7.9 0.8 70.9% 7.9 0.0 0.0% 0.7 8.7% 92.1% 1.0 1.4 0.95


Price chart

Corporate profile

0.2

1.20

0.2 0.2

1.00

0.1

0.80

0.1 0.1

0.60

0.1

0.40

0.1 0.0

0.20

0.0 0.0 De c-09


Source: Bloomberg

Oct-10 RGB Inte rna tiona l Bhd

Owned by the Chuah family of Penang, RGB International, previously Dreamgate, is an agent and distributor of gaming equipment to all Asia ex-Japan countries. Besides representing many renowned global gaming machine manufacturers, this company has also started selling its in-house RGBGames and Elaut gaming machines. Its key earnings contributor is its revenue sharing operations with casino operators under its technical support and management division (TSM). Despite only opening its maiden casino venture, Chateau De Bavet in Aug-09, RGB is currently exploring options to divest a stake in the venture to focus on its core strengths.


[ 164 ]



2008 228 (154) 74 (56) 17 (9) 0 (11) 0 (3) 0 1 (3) 872 872

2009 170 (150) 20 (48) (28) (8) 0 (25) 0 (61) 0 3 (58) 1,042 1,042

2010F 159 (114) 45 (82) (37) (10) 1 0 0 (46) 1 6 (39) 1,042 1,042

2011F 239 (145) 93 (76) 17 (12) 1 0 0 6 0 (1) 5 1,042 1,042

2012F 266 (164) 102 (82) 21 (11) 1 0 0 10 0 (2) 8 1,042 1,042


2011F 243 0 10 253 69 22 122 37 250 145 194 68 408 11 1 12 87 (3) 0.08

2012F 207 0 11 218 129 25 137 41 331 162 204 78 444 11 1 12 95 (1) 0.09

(FYE Dec) Number of machines sold Average price per machine (RM) No. of revenue sharing machines Avg net win/machine/day (RM)

2008 238 0 9 247 36 12 91 25 163 60 128 13 201 25 1 25 178 5 0.20

2009 283 0 9 292 27 16 87 26 156 103 138 50 291 10 1 11 144 2 0.14

2010F 275 0 9 284 22 15 82 24 143 97 194 46 337 10 1 11 82 (4) 0.08

2010F (6.5) 122.6 (29.0) (24.5) (3.4) N/A N/A 193.6 35.6 229.2

2011F 49.9 106.0 2.4 1.9 1.4 2.5 0.0 156.0 28.7 184.6

2012F 11.7 9.9 3.7 3.0 1.6 2.5 0.0 177.4 32.6 210.0

2009 1,213 73,337 5,348 35

2010F 750 73,337 6,160 39

2011F 1,030 74,804 7,275 50

2012F 1,150 76,300 7,702 53



2009 (25.3) (72.4) (35.6) (34.0) (3.0) N/A N/A 190.8 29.6 175.3

KEY DRIVERS


2008 (17.6) (15.3) (1.4) (1.3) 1.8 N/A N/A 171.6 15.2 115.4

2008 (3) 56 5 (1) 13 70 (99) 6 0 (93) 12 5 (4) 3 15 (7) (19) (116)

2009 (61) 48 42 0 61 90 (136) 0 0 (136) (5) 25 0 16 36 (9) (4) (121)

2010F (46) 82 0 0 (48) (12) (40) 0 0 (40) 57 0 0 (10) 47 (5) (62) (183)

2011F 6 76 0 1 26 109 (50) 0 0 (50) 1 0 0 (12) (12) 47 47 (136)

2012F 10 82 0 0 22 113 (53) 0 0 (53) 10 0 0 (11) (1) 60 50 (87)

43.0 33.0 23.0 13.0 3.0 -7.0 -17.0 -27.0 -37.0 -47.0 Dec-07

Apr-08

Aug-08



[ 165 ]

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Apr-09

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Dec-09

Apr-10

Aug-10

Dec-10

RHB Capital Bhd

OUTPERFORM

Maintained

RM8.59

@07/12/10

Surfing on brisk loan growth

MALAYSIA

2011 OUTLOOK



RHBC MK / RHBC.KL


• Reaffirm OUTPERFORM. RHB Capital remains an OUTPERFORM and our top pick among the Malaysian banks in light of the potential re-rating catalysts of (1) bright earnings outlook, (2) group revamp, (3) vibrant investment banking income, (4) brisk loan growth, (5) stronger overseas growth prospects, and (6) attractive valuations. We retain our EPS forecasts and target basis of 10% premium over the DDM value (cost of equity of 12.9% and dividend growth rates of 16.2% for the interim growth phase and 5% for the long-term growth phase). This leads to an unchanged target price of RM10.50. • Positive outlook. We are forecasting 16.9% growth in the group’s FY11 net profit to RM1.7bn, which is expected to be driven by 11.3% expansion at the topline coming from a 10.1% increase in net interest income and 13.8% rise in non-interest income. The credit charge-off rate is also projected to improve from 80bp in FY10 to 75bp in FY11, thanks to stable asset quality. • Fastest loan growth. Among the local banks, RHB Capital recorded the fastest loan growth of 19.6% yoy in Sep 10 vs. 11.9% for the industry. This was fuelled by the 229% yoy jump in loans classified as “others”, which are believed to be mostly extended to government agencies, and double-digit rates for residential mortgages, auto loans and construction loans. Management is targeting strong loan growth of 15% for FY11-12, higher than our forecasts of 11.3% for FY11 and 10% for FY12. Financial summary

Stock Information Market cap: RM18,498m/US$5,897m 12-m price range: RM8.59 RM5.17 3-m avg daily vol: 2.1m No. of shrs (m): 2,153 Est. free float (%): 17.5 Conv. secs (m): None Major shareholders (%): - EPF 54.0 - Abu Dhabi Commercial 25.0 - Amanah Saham Bumiputera 2.0

FYE Dec Net interest income (RM m) Non-interest income (RM m) Total income (RM m) Loan loss provisions (RM m) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) % change in EPS estimates CIMB/Consensus (x)

2008 2,216.4 841.3 3,445.1 (499.6) 1,422.4 1,048.7 48.7 36% 17.6 19.6 2.3% 2.4 14.1%

2009 2,413.2 946.4 3,665.0 (578.8) 1,538.5 1,201.4 55.8 15% 15.4 22.5 2.6% 2.1 14.5%

2010F 2,737.1 1,188.9 4,243.8 (595.3) 1,941.7 1,455.2 67.6 21% 12.7 27.0 3.1% 1.9 15.8% 1.05

2011F 3,014.1 1,372.9 4,722.3 (629.1) 2,280.3 1,701.0 79.0 17% 10.9 31.6 3.7% 1.7 16.6% 1.09

2012F 3,330.2 1,427.7 5,113.8 (581.3) 2,620.9 1,956.5 90.9 15% 9.5 36.3 4.2% 1.5 16.9% 1.10


Price chart


8.9

0.90

8.4

0.80

7.9

0.70

7.4

0.60

6.9

0.50 0.40

6.4

0.30

5.9

0.20

5.4 4.9 De c-09


Source: Bloomberg

Oct-10 RHB Ca pita l Bhd

RHB Capital is the fourth largest banking group in Malaysia with total assets of RM127.1bn. RHB Bank started out as D&C Bank and merged with Kwong Yik Bank in 1997, Sime Bank in 1999 and Utama Bank in 2002. In 1H07, EPF acquired 82% of RHB Capital via its full control of RHB and a general offer. Subsequently, the group embarked on corporate exercises to acquire the remaining 30% stake in RHB Bank on 12 Jul 07 and refinance the INCPS in 1Q08. EPF sold a 25% stake in RHB Capital to Abu Dhabi Commercial Bank on 8 May 08. In Oct 09, the group announced the acquisition of an 80% stake in PT Bank Mestika, which will be completed in 1Q11.


[ 166 ]


PROFIT & LOSS (RM m, FYE Dec) Net interest income Non-interest income Other income Total income Overhead expenses Pre-provision profit Loan loss provisions Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2008 2,216 841 387 3,445 (1,513) 1,932 (500) 0 0 (10) 1,422 (373) (1) 1,049 2,154 2,154

2009 2,413 946 305 3,665 (1,566) 2,099 (579) 1 0 18 1,539 (330) (7) 1,201 2,154 2,154

2010F 2,737 1,189 318 4,244 (1,677) 2,567 (595) 0 0 (30) 1,942 (476) (10) 1,455 2,154 2,154

2011F 3,014 1,373 335 4,722 (1,781) 2,941 (629) 0 0 (32) 2,280 (570) (9) 1,701 2,154 2,154

2012F 3,330 1,428 356 5,114 (1,894) 3,220 (581) 0 0 (18) 2,621 (655) (9) 1,956 2,154 2,154

2008 2009 15,008 20,489 11,539 9,953 26,547 30,441 60,596 66,923 9,617 10,980 895 931 3,786 3,786 3,092 1,890 77,986 84,510 104,533 114,951 73,962 84,841 7,416 8,682 6,662 5,673 7,292 8,375 96,692 106,211 8,708 7,814 32 27 4.04 3.63

2010F 19,117 10,427 29,544 76,770 10,728 933 3,786 1,853 94,070 123,615 91,014 7,787 6,662 8,442 113,904 9,677 34 4.49

2011F 20,740 9,459 30,199 85,503 10,045 936 3,786 1,853 102,123 132,322 97,556 8,176 6,662 9,024 121,418 10,868 36 5.05

2012F 21,781 9,501 31,282 94,177 9,605 941 3,786 1,903 110,412 141,695 104,478 8,585 6,662 9,685 129,409 12,248 38 5.69

2008 1.7 2.6 14.1 2.49 43.9 26.2 29.8

2009 6.4 8.6 8.2 2.62 42.7 21.4 30.2

2010F 15.8 22.3 26.2 2.69 39.5 24.5 30.0

2011F 11.3 14.6 17.4 2.72 37.7 25.0 30.0

2012F 8.3 9.5 14.9 2.76 37.0 25.0 30.0

2008 11.2 (2.4) 81.9 4.5 2.2 90.3 1.8 12.7

2009 10.3 14.7 78.9 4.7 2.2 83.4 1.4 14.0

2010F 14.5 7.3 84.4 4.0 1.8 93.4 1.5 15.7

2011F 2012F 11.3 10.0 7.2 7.1 87.6 90.1 3.8 3.7 1.7 1.7 96.4 95.9 1.5 1.6 16.5 17.1

KEY DRIVERS

BALANCE SHEET (RM m, end Dec) Cash & deposits with FIs Marketable securities Total current assets Net loans & advances Long-term investments Fixed assets Intangible assets Other long-term assets Total long-term assets Total assets Customer deposits Deposits of other FIs Subordinated debts Other long-term liabilities Total liabilities Shareholders’ funds Minority interests BV/share (RM)

(FYE Dec) Total income growth (%) Pre-provision profit growth (%) Pretax growth (%) Net interest margin (%) Cost-income ratio (%) Effective tax rates (%) Net dividend payout (%)

(FYE Dec) Loan growth (%) Deposit growth (%) Loan-deposit ratio (%) Gross NPL (%) Net NPL (%) Loan loss reserve (%) GP ratio (%) RWCR (%)


CURRENT P/BV (X)

13.0

1.90

12.0 11.0

1.70

10.0

1.50

9.0

1.30

8.0

1.10

7.0 6.0

0.90 5.0


4.0 Dec-07

Apr-08

Aug-08



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Apr-10

Aug-10

Dec-10


SapuraCrest Petroleum

OUTPERFORM

Maintained

RM2.82

@07/12/10

Pumped up by a huge order book

MALAYSIA

2011 OUTLOOK



SCRES MK / SCRS.KL


• Maintain OUTPERFORM. We maintain our forecasts but raise our target price from RM3.14 to RM3.30, pegged to a revised target market P/E of 14.5x (13.8x previously). SapuraCrest remains an OUTPERFORM and our top pick in the oil & gas sector. The potential re-rating catalysts are 1) active order book replenishment, 2) success in new markets (i.e. Australia, Japan and the Middle East), and 3) a growing fleet of strategic assets (i.e. pipelay barges and drilling rigs). • Fleet expansion. Two new pipelay barges, namely the LTS3000 and the Quippo Prakash, joined the Sapura3000 this year. The barges are held through JVs with Indian partners. Through the partnerships, SapuraCrest will have access to the sought-after barges without having to incur an otherwise substantial capital outlay. The two new barges are suitable for shallow-water works while the Sapura3000 is a deepwater barge. The Sapura3000 will be used to execute the recently-announced US$160m Montara decommissioning project in Australia. We believe the ownership of the barge tilted the odds in SapuraCrest’s favour. • RM13.6bn order book. To date, SapuraCrest has clinched three contracts valued at RM935m inclusive of the Montara contract. The estimated order book value stands at RM13.6bn, of which 84% comes from the installation of pipelines and facilities activities. The jobs in hand will keep the company busy for the next four years. Although management concedes that the flow has contracts has slowed significantly this year, it foresees an increase in deepwater activities in Asia (Malaysia, Indonesia, India and China) and Australia in the next three years. Financial summary

Stock Information Market cap: RM3,600m/US$1,148m 12-m price range: RM2.83 RM1.89 3-m avg daily vol: 1.6m No. of shrs (m): 1,277 Est. free float (%): 28.1 Conv. secs (m): None Major shareholders (%): - Sapura Technology 40.1 - Seadrill 23.6 - EPF 8.2

FYE Jan Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 3,483.8 463.4 13.3% 280.0 114.7 9.0 37.1% 31.2 5.0 1.8% 3.8 13.2% 25.1% 13.2 9.3

2010 3,257.3 339.0 10.4% 364.4 170.2 13.4 47.9% 21.1 7.0 2.5% 4.2 18.8% 19.4% 35.6 13.0

2011F 4,245.3 589.6 13.9% 458.4 213.5 16.8 25.4% 16.8 8.0 2.8% 4.0 24.2% 13.1% 32.2 7.4 0.96

2012F 4,661.2 649.2 13.9% 550.1 272.5 21.4 27.6% 13.2 9.0 3.2% 3.7 29.3% 7.2% 29.2 6.8 1.09

2013F 5,117.7 678.6 13.3% 601.7 290.9 22.8 6.7% 12.3 10.0 3.5% 3.7 30.2% 1.7% 25.7 6.5 0.97


Price chart


2.9

0.70

2.7

0.60

2.5

0.50 0.40

2.3

0.30 2.1

0.20 1.9 1.7 De c-09


Source: Bloomberg

Oct-10 S a pura Cre s t P e trole um

SapuraCrest came into being in Jan 03 when Sapura Telecommunications bought a 38.56% stake in Crest Petroleum from Renong for RM105.2m. It was transferred to the Main Board in Feb 06. Today, SapuraCrest is the leader in drilling and installation of pipelines and facilities, which are the company’s two biggest income generators with more than 80% contribution. Other businesses are marine services and operations & maintenance. SapuraCrest owns a fleet of assets, which include drilling rigs, barges and support vessels. The rigs are jointly owned with Seadrill, which is also a substantial shareholder.


[ 168 ]


PROFIT & LOSS (RM m, FYE Jan) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 3,484 (3,020) 463 (81) 382 (58) (44) 0 0 280 (31) (134) 115 1,269 1,269

2010 3,257 (2,918) 339 0 339 (22) 47 0 0 364 (31) (163) 170 1,272 1,272

2011F 4,245 (3,656) 590 (90) 500 (75) 33 0 0 458 (83) (162) 213 1,272 1,272

2012F 4,661 (4,012) 649 (94) 555 (56) 51 0 0 550 (99) (179) 272 1,272 1,273

2013F 5,118 (4,439) 679 (99) 580 (15) 37 0 0 602 (114) (196) 291 1,273 1,273

2012F 1,061 140 110 1,311 791 50 1,814 0 2,654 1,309 481 99 1,888 428 8 436 957 684 0.64

2013F 1,097 141 111 1,349 871 50 1,832 0 2,753 1,322 482 115 1,919 419 10 429 967 788 0.65

2009 904 150 118 1,171 594 50 1,760 0 2,404 1,270 478 17 1,765 454 9 463 946 401 0.63

2010 949 140 108 1,196 653 50 1,778 0 2,481 1,283 479 69 1,830 445 8 453 860 534 0.57

2011F 1,014 122 109 1,245 719 50 1,796 0 2,564 1,296 480 83 1,858 436 8 444 903 604 0.61

2011F 30.3 73.9 10.8 5.0 6.1 18.0 35.8 153.6 4.3 110.8

2012F 9.8 10.1 11.8 5.8 8.7 18.0 31.5 141.3 3.9 102.0

2013F 9.8 4.5 11.8 5.7 25.2 19.0 32.8 130.0 3.6 93.8

(FYE Jan) Overseas rev contribution (%) Downstream contribution to rev (%) Upstream contribution to rev (%) Order book (RM m) Overall Gross Margin (%) Charter rate (US$ per horse power) Number of vessels Vessel utilisation rate (%) O&G contribution to order book (%)

2010 30.0% 1.0% 99.0% 15,000 10.4% 1.80 3 90.0% 100.0%

2011F 2012F 2013F 40.0% 50.0% 50.0% 1.0% 1.0% 1.0% 99.0% 99.0% 99.0% 13,500 12,000 10,500 13.9% 13.9% 13.3% 2.00 2.00 2.00 4 4 4 90.0% 90.0% 90.0% 100.0% 100.0% 100.0%


CASH FLOW (RM m, FYE Jan) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 (6.5) (26.8) 11.2 5.2 7.5 8.6 38.7 198.2 5.6 143.0

KEY DRIVERS

BALANCE SHEET (RM m, end Jan) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 54.0 35.5 8.0 3.3 5.8 11.1 40.4 165.0 5.6 110.2

(FYE Jan) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 280 81 72 (31) 164 566 (200) (5) 62 (143) (125) 15 (47) (26) (183) 240 365 (338)

2010 364 0 (5) (69) (74) 217 (80) (5) 0 (85) (8) 15 (56) (23) (73) 59 68 (270)

2011F 458 90 (5) (83) (179) 281 (300) (5) 0 (305) (8) 15 (61) 143 89 65 73 (197)

2012F 550 94 (5) (99) (193) 347 (300) (5) 0 (305) (8) 15 (66) 89 30 72 80 (117)

2013F 602 99 (5) (114) (182) 399 (79) (4) 0 (83) (8) 16 (75) (169) (236) 80 88 (30)

22.0 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 Dec-07

Apr-08

Aug-08



[ 169 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Sime Darby Bhd

TRADING BUY

Maintained

RM8.74

@07/12/10

Making a fresh start

MALAYSIA

2011 OUTLOOK


Target: RM10.78 Conglomerate

SIME MK / SIME.KL


• Maintain TRADING BUY. We continue to like Sime Darby for its attractive valuations, its new management’s restructuring efforts and the potential turnaround of its energy and utilities (E&U) division. Its CY12 P/E of 14.5x is below the ratings of other big-cap plantation plays in Malaysia. There is earnings upside if the group succeeds in selling some of its non-core assets, enhancing the value of its property landbank and turning around its loss-making E&U unit. Our EPS forecasts are unchanged but we raise our SOP-based target price from RM9.84 to RM10.78 as we apply a higher plantation P/E multiple of 17x (prev. 16x) and remove the 5% SOP discount given management’s restructuring efforts. Potential share price triggers include rising CPO price and better-than-expected earnings. • Better earnings prospects. We project an 18% rise in Sime’s FY11 net profit due to higher earnings contribution from all major business segments and lower losses from its oil and gas division. • Sime’s KPIs below estimates. Sime Darby’s FY11 KPI targets include a net profit of RM2.5bn and an ROE of 11.5%. The net profit target is 15% below our forecast due to lower sales estimates for the non-plantation divisions. We suspect that Sime is choosing to err on the conservative side given the uncertain external markets. The disappointing KPI target is offset by the group’s plans to unlock the value of its property landbank and its expectation of a narrowing of oil & gas losses if it secures some local projects soon. Financial summary

Stock Information Market cap: RM52,523m/US$16,743m 12-m price range: RM9.10 RM7.50 3-m avg daily vol: 6.3m No. of shrs (m): 6,009 Est. free float (%): 38.1 Conv. secs (m): None Major shareholders (%): - Permodalan Nasional 53.0 - Employees Provident Fund 15.7

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 31,013.7 3,901.0 12.6% 3,071.6 2,280.1 37.9 (35.1%) 23.0 37.9 (34.8%) 23.0 25.7 2.9% 2.5 10.6% 8.9% 1,346.7 13.8

2010 32,951.6 2,805.0 8.5% 1,741.5 726.8 12.1 (68.1%) 72.3 48.2 27.1% 18.1 13.6 1.6% 2.6 3.5% 12.1% 18.9 19.5

2011F 35,659.2 5,384.2 15.1% 4,186.7 2,943.2 49.0 305.0% 17.8 49.0 1.6% 17.8 33.1 3.8% 2.3 13.5% 23.0% 20.3 10.8 0.94

2012F 37,585.9 6,245.4 16.6% 4,948.9 3,479.1 57.9 18.2% 15.1 57.9 18.2% 15.1 39.1 4.5% 2.1 14.4% 22.0% 30.3 9.3 1.02

2013F 39,413.9 6,705.7 17.0% 5,290.2 3,719.0 61.9 6.9% 14.1 61.9 6.9% 14.1 41.8 4.8% 2.0 14.3% 21.5% 23.7 8.8 1.00


Price chart

Corporate profile

9.6 4.00 9.1

3.50 3.00

8.6

2.50 2.00

8.1

1.50 1.00

7.6

0.50 7.1 De c-09


Source: Bloomberg

Oct-10 S ime Da rby Bhd

Sime Darby, Malaysia’s leading multinational conglomerate, is one of the largest conglomerates in Southeast Asia. It was founded in 1910 and listed on the Main Board of Bursa Malaysia in 1980. In 2007, Sime was restructured through a landmark merger with Golden Hope and Kumpulan Guthrie. Today, it is the world’s largest-listed oil palm player by planted area and the largest listed Malaysian property developer by landbank. It retains three other core businesses, i.e. motor, heavy equipment and energy & utilities. It is also the fourth largest listed company on Bursa Malaysia, accounting for 8.7% of the FBM30 weighting as at 28 November 2010.


[ 170 ]



2009 2010 2011F 31,014 32,952 35,659 (27,113) (30,147) (30,275) 3,901 2,805 5,384 (750) (893) (1,100) 3,151 1,912 4,284 (94) (170) (97) 15 0 0 0 0 0 0 0 0 3,072 1,742 4,187 (731) (887) (1,089) (128) (155) (61) 727 2,943 2,280 6,009 6,009 6,009 6,009 6,009 6,009

2012F 2013F (FYE Jun) 37,586 39,414 Revenue growth (%) (31,340) (32,708) EBITDA growth (%) 6,245 6,706 Pretax margins (%) (1,200) (1,300) Net profit margins (%) 5,045 5,405 Interest cover (x) (96) (115) Effective tax rates (%) 0 0 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 4,949 5,290 Creditors turnover (days) (1,287) (1,375) (183) (196) 3,479 3,719 6,009 6,009 6,009 6,009

2009 9,740 81 7,756 17,578 3,638 5,627 5,875 2,724 17,863 6,421 3,594 592 10,607 2,013 814 2,827 21,385 621 3.55

2010 10,844 109 8,175 19,128 5,033 5,217 5,263 3,275 18,787 6,919 3,302 1,468 11,689 4,287 819 5,106 20,450 681 3.39

2011F 14,300 109 7,728 22,138 4,000 6,470 6,833 3,275 20,577 7,188 4,594 592 12,374 4,968 1,172 6,140 23,309 860 3.86

2012F 16,300 109 7,448 23,857 4,000 6,819 7,240 3,275 21,334 7,440 5,594 592 13,627 4,146 1,370 5,516 25,049 1,043 4.15

2013F 18,300 109 7,664 26,073 4,000 7,151 7,631 3,275 22,056 7,765 6,594 592 14,952 3,459 1,459 4,918 26,908 1,239 4.46

2011F 8.2 92.0 11.7 8.3 15.3 26.0 50.0 61.9 59.8 72.2

2012F 5.4 16.0 13.2 9.3 18.0 26.0 50.0 68.3 64.5 71.0

2013F 4.9 7.4 13.4 9.4 18.0 26.0 50.0 68.9 64.7 70.4

2010 2,350 9,573 75,615 633,607 484,420 560,035

(FYE Jun) CPO price per tonne (RM) FFB output (000' tonnes) Immature area (ha) Land bank (ha) Mature area (ha) Planted area (ha)

2011F 2012F 2013F 2,650 2,780 2,780 9,785 10,307 10,967 70,324 66,453 63,616 633,607 633,607 633,608 491,605 497,884 503,517 561,929 564,338 567,132



2010 6.2 (28.1) 5.3 2.2 6.9 50.9 83.0 61.7 60.1 73.9

KEY DRIVERS


2009 (8.9) (34.3) 9.9 7.4 12.5 23.8 50.2 68.9 62.9 79.2

2009 3,072 750 (1,957) (731) (391) 742 (2,123) 0 736 (1,387) 778 0 (2,366) (94) (1,682) (2,327) (3,105) (1,970)

2010 1,742 893 802 (887) 1,104 3,654 (2,885) 0 0 (2,885) 2,182 0 (1,404) (170) 607 1,377 (805) (2,556)

2011F 4,187 1,100 (913) (757) (906) 2,711 (2,000) 0 0 (2,000) 1,973 0 (1,472) (97) 404 1,115 (857) (5,562)

2012F 4,949 1,200 (504) (1,089) (907) 3,650 (2,000) 0 0 (2,000) 178 0 (1,740) (96) (1,658) (8) (186) (5,740)

2013F 5,290 1,300 (397) (1,287) (888) 4,019 (2,000) 0 0 (2,000) 313 0 (1,859) (115) (1,662) 357 44 (6,053)

27.0 25.0 23.0 21.0 19.0 17.0 15.0 13.0 11.0 Dec-07

Apr-08

Aug-08



[ 171 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


SP Setia Bhd

OUTPERFORM

Maintained

RM5.24

@07/12/10

Raring for the good fight

MALAYSIA

2011 OUTLOOK


Target: RM6.88 Property Devt & Invt

SPSB MK / SETI.KL


• Still our top property pick. FY10/10 was an excellent year for SP Setia as property sales amounted to RM2.31bn, beating its full-year target of RM2bn. SP Setia is aiming to sell RM3bn worth of properties in FY11, a figure we believe is achievable. The group may not be actively seeking M&A partners but is on an aggressive landbanking and organic growth path. In view of its excellent execution track record, it stands a good chance of keeping its position as the top developer in terms of sales and profit. We maintain our OUTPERFORM recommendation and target price of RM6.88, based on an unchanged 20% premium over its FD RNAV of RM5.73. Potential re-rating catalysts include 1) continued robust sales, 2) newsflow on landbanking and 3) strong earnings growth. SP Setia remains our top pick in the property sector. • KL EcoCity excitement. The RM6bn KL EcoCity project will be launched in Jan/Feb 2011. The commercial component of the first phase is worth RM1bn while the residential portion is worth RM800m. Pricing of both the office space and residential properties is at least RM1,000 psf. Despite the high selling price, indicative demand is very strong, being 2-3x the available supply. The attraction of the project, besides its strategic location next to Bandar MidValley, is its excellent accessibility. The LRT, KTM and MRT will all stop at the project. Financial summary

Stock Information Market cap: RM5,674m/US$1,808m 12-m price range: RM5.36 RM3.53 3-m avg daily vol: 2.3m No. of shrs (m): 1,017 Est. free float (%): 57.0 Conv. secs (m): 168.2 Major shareholders (%): - PNB 31.0 - EPF 16.0 - Tan Sri Liew Kee Sin 12.0

FYE Oct Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,408.4 194.6 13.8% 231.1 171.2 16.8 (19.8%) 31.2 16.3 (14.7%) 32.1 14.0 40.0 14.0 2.7% 2.8 8.5% 27.1% 13.3 31.9

2010 1,745.9 293.6 16.8% 331.0 251.8 24.8 47.1% 21.1 21.1 30.0% 24.8 18.1 30.8 20.0 3.8% 2.6 11.9% 26.4% 17.7 21.2

2011F 1,934.6 367.5 19.0% 377.7 283.3 27.9 12.5% 18.8 27.9 31.8% 18.8 23.9 23.3 22.0 4.2% 2.5 12.6% 15.0% 11.1 16.3 N/A 1.15

2012F 2,398.5 468.6 19.5% 485.7 364.3 35.8 28.6% 14.6 35.8 28.6% 14.6 30.7 18.2 24.0 4.6% 2.3 15.2% 11.3% 15.0 12.6 N/A 1.29

2013F 2,346.2 477.8 20.4% 499.2 374.4 36.8 2.8% 14.2 36.8 2.8% 14.2 31.6 17.7 26.0 5.0% 2.1 14.5% 8.1% 13.8 12.3 N/A N/A


Price chart


5.4

0.70 0.60

4.9

0.50 0.40

4.4

0.30 0.20

3.9

0.10 3.4 De c-09


Source: Bloomberg

Oct-10 S P S e tia Bhd

Incorporated in Aug 1974 and listed on the Second Board in Apr 1993, SP Setia was transferred to the Main Board in 1996. The group has four ongoing township projects in Johor, one key one in the Klang Valley and another in Vietnam. It also has smaller parcels of landbank for development in the Klang Valley, Penang, Sabah and Vietnam. Recently, the group made inroads into China where it is developing 25 acres in the growth corridor of XiaoShan, Hangzhou in the Zhejiang province. The group’s landbank totals some 3,500 acres. Its flagship project remains the 3,930-acre Bandar Setia Alam township in Klang/Shah Alam.


[ 172 ]


PROFIT & LOSS (RM m, FYE Oct) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 1,408 (1,214) 195 0 195 29 0 8 0 231 (60) 0 171 1,017 1,017

2010 1,746 (1,452) 294 (18) 275 7 0 48 0 331 (79) 0 252 1,017 1,017

2011F 1,935 (1,567) 368 (17) 351 27 0 0 0 378 (94) 0 283 1,017 1,017

2012F 2,399 (1,930) 469 (17) 451 34 0 0 0 486 (121) 0 364 1,017 1,017

2013F 2,346 (1,868) 478 (18) 460 39 0 0 0 499 (125) 0 374 1,017 1,017

2012F 84 0 1,704 1,789 1,534 54 619 1,005 3,211 564 797 134 1,494 1,016 3 1,019 2,486 0 2.44

2013F 72 0 1,780 1,852 1,705 52 606 1,050 3,412 546 905 132 1,582 1,016 3 1,019 2,662 0 2.62

2009 146 0 1,469 1,615 886 27 437 987 2,337 406 331 69 805 1,107 2 1,110 2,037 0 2.00

2010 108 0 1,564 1,672 1,059 24 669 963 2,714 471 621 86 1,178 1,016 2 1,019 2,189 0 2.15

2011F 97 0 1,632 1,729 1,375 43 499 946 2,863 458 703 107 1,268 1,016 3 1,019 2,305 0 2.27

2010 24.0 50.9 19.0 14.4 29.9 23.9 60.6 115.6 5.3 91.7

2011F 10.8 25.2 19.5 14.6 24.3 25.0 59.2 110.2 6.3 87.6

2012F 24.0 27.5 20.3 15.2 29.7 25.0 50.2 85.1 7.4 77.7

2013F (2.2) 2.0 21.3 16.0 28.6 25.0 53.0 95.3 8.2 86.3

(FYE Oct) Margin - Property development (%) Undeveloped landbank (acres) Sales (RMm) Company's targeted sales (RMm) Unrecognised billings (RMm)

2010 21.4% 3,678 1,231 2,000 1,780

2011F 20.9% 3,478 1,735 3,000 2,000

2012F 21.1% 3,278 2,195

2013F 22.0% 3,078 2,137

2,200

2,300

CURRENT P/BV(X)

CASH FLOW (RM m, FYE Oct) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2009 6.0 (22.0) 16.4 12.2 24.2 25.9 62.4 101.1 7.4 93.4

KEY DRIVERS

BALANCE SHEET (RM m, end Oct) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

(FYE Oct) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 231 0 (142) (60) 2 31 (65) (38) (8) (111) 477 5 (107) (1) 374 294 (183) (551)

2010 331 18 (127) (73) 2 151 19 (95) 38 (38) 199 15 (153) (3) 58 172 (27) (579)

2011F 378 17 160 (79) 2 477 (5) (69) 0 (74) 82 0 (168) (2) (87) 316 234 (345)

2012F 486 17 (66) (112) 2 327 (5) (72) 0 (77) 94 0 (183) (2) (91) 159 65 (280)

2013F 499 18 (51) (124) 2 344 (5) (76) 0 (81) 108 0 (198) (2) (92) 171 63 (216)

3.00 2.80 2.60 2.40 2.20 2.00 1.80 1.60 1.40 1.20 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10



[ 173 ]


Star Publications Bhd

OUTPERFORM

Maintained

RM3.39

@06/12/10

Still a dividend play

MALAYSIA

2011 OUTLOOK


Target: RM4.52 Newspaper

STAR MK / STAR.KL


• Maintain OUTPERFORM. Star Publications remains the key beneficiary of the continued recovery of English newspaper adex. We maintain our OUTPERFORM call but raise our target price from RM4.31 to RM4.52 as we apply our revised CY12 target market P/E of 14.5x (13.8x previously) to the stock. Potential re-rating catalysts include better-than-expected quarterly performances and advertising volume. Star remains one of our top picks for the media sector.

• Bright sparks for 2011. Newspaper adex chalked up 15% yoy growth in Jan-Sep 10, driven by 18% growth in the Chinese segment and 15% in the English segment. Growth was only 13% for the Malay segment. Ad volume momentum continues to be encouraging and should spill over into 2011. This trend is positive for Star which dominates the English segment with 70% share of English newspaper adex.

• Margin and dividend attraction. Our FY10-12 forecasts factor in a rise in EBITDA margins, backed by the low average newsprint cost of US$650-700/tonne which is good for another 12 months. Our FY11-12 DPS forecasts of 21 sen, which do not factor in a repeat of the recent 53 sen bumper special dividend, translate into an attractive dividend yield of 6%, which is the highest in the media sector. Financial summary

Stock Information Market cap: RM2,504m/US$798m 12-m price range: RM4.13 RM3.14 3-m avg daily vol: 1.0m No. of shrs (m): 739 Est. free float (%): 76.1 Conv. secs (m): None Major shareholders (%): - EPF 16.6 - Amanah Raya Nominees 7.3


2008 831.0 223.7 26.9% 201.3 138.7 18.8 (13.0%) 18.0 22.1 2.3% 15.4 21.1 6.2% 2.0 11.2% 0.44 20.2 9.7

2009 974.4 232.3 23.8% 197.1 144.6 19.6 4.2% 17.3 19.6 (11.3%) 17.3 21.0 6.2% 2.0 11.4% 0.47 14.3 9.3

2010F 1,189.9 305.6 25.7% 271.3 184.3 25.0 27.5% 13.6 25.0 27.5% 13.6 73.6 21.7% 2.3 15.8% 0.05 36.5 8.1 1.04

2011F 1,284.1 337.5 26.3% 293.7 193.5 26.2 5.0% 12.9 26.2 5.0% 12.9 21.0 6.2% 2.2 17.6% 0.14 13.0 7.2 1.02

2012F 1,337.3 365.7 27.3% 325.4 230.3 31.2 19.0% 10.9 31.2 19.0% 10.9 21.0 6.2% 2.0 19.4% 0.29 10.9 6.3 1.09


Price chart

Corporate profile

4.3 5.00

4.1 3.9

4.00

3.7

3.00

3.5 2.00 3.3 1.00

3.1 2.9 Dec-09


Source: Bloomberg

Oct-10 Star Publications Bhd

Star Publications publishes The Star, Malaysia’s largest circulating English daily with a readership of over 1m. Apart from publishing various magazines and publications, it operates two radio stations. The Star (English) online newspaper was the first in Malaysia to establish its presence on the Internet and is recognised as the most widely read in Malaysia. In 2008, Star acquired a stake in Cityneon for exposure to the meetings, incentives, conventions and exhibitions (MICE) sector in Asia and the Middle East. The Star is the single largest source of adex in the country and extended its coverage to East Malaysia in late 2009.


[ 174 ]



2008 831 (607) 224 (44) 180 22 0 0 0 201 (63) 0 139 739 739

2009 974 (742) 232 (48) 184 18 (5) 0 0 197 (48) (5) 145 739 739

2008 763 34 21 818 573 200 112 12 897 96 0 7 103 250 102 352 1,261 0 1.66

2009 759 34 21 814 597 190 98 12 897 91 0 7 98 250 102 352 1,266 0 1.67

2010F 1,190 (884) 306 (53) 252 19 0 0 0 271 (76) (11) 184 739 739

2011F 1,284 (947) 338 (53) 285 9 0 0 0 294 (82) (18) 193 739 739

2012F 1,337 (972) 366 (53) 313 12 0 0 0 325 (91) (4) 230 739 739


2011F 748 34 21 803 356 342 176 12 885 164 0 7 171 250 102 352 1,135 22 1.49

2012F 741 34 21 796 461 351 183 12 1,006 169 0 7 176 250 102 352 1,242 26 1.63

(FYE Dec) Adex revenue growth (%) Ad rate per ccm (RM) Cover price (RM) Newsprint cost (US$/tonne) Newsprint usage (tonnes p.a.)

2010F 753 34 21 809 287 319 163 12 781 154 0 7 160 250 102 352 1,066 11 1.40

2010F 22.1 31.5 22.8 15.5 N/A 28.0 205.5 40.1 78.1 37.6

2011F 7.9 10.5 22.9 15.1 N/A 28.0 64.1 48.2 94.0 45.2

2012F 4.1 8.4 24.3 17.2 N/A 28.0 53.9 49.0 94.5 45.5

2009 -14.9% 56 1.20 638 75,690

2010F 12.3% 57 1.20 660 79,474

2011F 14.4% 58 2.20 660 80,666

2012F 7.1% 59 3.20 680 82,615



2009 17.3 3.8 20.2 14.8 11.7 24.2 80.7 39.5 73.1 35.1

KEY DRIVERS


2008 6.6 (5.7) 24.2 16.7 12.7 31.2 84.1 48.2 87.0 41.8

2008 201 44 (8) (63) (22) 152 (50) 0 0 (50) 0 0 (117) 65 (51) 51 51 323

2009 197 48 19 (45) (19) 200 (49) 0 0 (49) 0 0 (117) (11) (128) 24 24 347

2010F 271 53 (132) (76) (19) 98 (48) 0 0 (48) 0 0 (379) 19 (360) (310) (310) 37

2011F 294 53 (25) (82) (9) 231 (47) 0 0 (47) 0 0 (124) 9 (115) 69 69 106

2012F 325 53 (12) (91) (12) 263 (46) 0 0 (46) 0 0 (124) 12 (112) 105 105 211

17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 13.0 12.5 12.0 Dec-07

Apr-08

Aug-08



[ 175 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Supermax Corp Bhd

OUTPERFORM

Maintained

RM4.38

@07/12/10

Supercharged

MALAYSIA

2011 OUTLOOK



SUCB MK / SUPM.KL


• Reiterate OUTPERFORM. Supermax, the most liquid rubber glove stock, remains an OUTPERFORM. Our EPS forecasts are unchanged. However, our target price increases from RM7.82 to RM8.22 after raising Top Glove’s CY11 target P/E from 13.8x to 14.5x while maintaining Supermax at a 20% discount to Top Glove or 11.6x P/E. Potential re-rating catalysts include 1) higher nitrile glove sales, 2) refurbishment of the company’s Sungai Buloh plant to manufacture surgical gloves, and 3) tax savings from the company’s regional distribution hub in Malaysia. • Unique business model. Supermax’s own brand gloves make up 63% of its sales, making it the sector’s largest original brand glovemaker and giving it superior pricing power. Through its ownership of distributors, the group has gained its own distribution channels that give it direct access to customers. Distribution income now accounts for 44% of net profit compared with just 21% in 2001. • Flexible glovemaking capabilities. 60-70% of Supermax’s production lines are dual mode, enabling the company to switch seamlessly between natural rubber and nitrile glove production. In our view, this enhances Supermax’s ability to gain market share and maintain high utilisation rates by meeting market demand quickly. Financial summary

Stock Information Market cap: RM1,490m/US$475m 12-m price range: RM6.55 RM3.11 3-m avg daily vol: 2.7m No. of shrs (m): 340 Est. free float (%): 49.3 Conv. secs (m): None Major shareholders (%): - Thai Kim Sim, Stanley 20.7 - Tan Bee Geok, Cheryl 14.8 - Koperasi Permodalan Felda 5.2


2008 811.8 98.9 12.2% 52.0 47.0 13.8 (16.0%) 31.7 18.2 10.9% 24.0 2.6 0.6% 3.6 11.7% 90.0% N/A 58.1 17.7

2009 803.6 169.0 21.0% 151.5 126.6 37.2 169.3% 11.8 38.5 111.2% 11.4 8.8 2.0% 2.7 26.0% 31.5% N/A 13.9 8.9

2010F 946.5 226.4 23.9% 216.2 183.8 54.0 45.2% 8.1 54.0 40.2% 8.1 9.0 2.1% 2.0 28.0% 14.0% N/A 13.4 6.3 N/A 1.01

2011F 1,184.2 261.5 22.1% 245.5 208.7 61.4 13.5% 7.1 61.4 13.5% 7.1 11.0 2.5% 1.6 24.7% 0.5% N/A 8.2 5.0 N/A 1.06

2012F 1,381.4 306.2 22.2% 283.5 241.0 70.9 15.5% 6.2 70.9 15.5% 6.2 12.0 2.7% 1.3 23.1% N/A 0.42 6.4 3.8 N/A 1.08


Price chart

Corporate profile

6.9

1.00

6.4

0.90 0.80

5.9

0.70

5.4

0.60

4.9

0.50

4.4

0.40 0.30

3.9

0.20

3.4 2.9 Dec-09


Oct-10 Supermax Corp Bhd

Founded by Dato' Seri Stanley Thai in 1987, Supermax exports to over 145 countries. It is Malaysia’s first and largest original brand glove manufacturer, with brands such as Supermax, Aurelia and Maxter. Although traditionally a natural rubber glovemaker, Supermax has ramped up nitrile glove production to 20-24% of capacity. Today, the company produces 16.5bn pieces of gloves p.a., meeting 11% of the world’s glove demand. Supermax also has six of its own distribution centres in the US, Brazil, Germany, Belgium and Canada.

Source: Bloomberg


[ 176 ]



2008 812 (713) 99 (29) 70 (20) 19 (17) 0 52 (5) 0 47 340 265

2009 804 (635) 169 (32) 137 (22) 42 (5) 0 151 (25) 0 127 340 268

2010F 947 (720) 226 (39) 187 (15) 44 0 0 216 (32) 0 184 340 340

2011F 1,184 (923) 262 (46) 215 (16) 46 0 0 246 (37) 0 209 340 340

2012F 1,381 (1,075) 306 (54) 253 (17) 48 0 0 284 (43) 0 241 340 340

2008 383 29 127 539 31 136 125 116 407 68 231 49 347 175 8 183 416 0 1.14

2009 368 29 167 564 119 116 79 67 381 38 129 46 214 166 7 173 559 0 1.56

2010F 406 29 190 625 203 104 142 72 521 43 135 32 210 174 7 181 755 0 2.14

2011F 427 29 199 655 334 130 178 74 716 53 148 36 237 191 8 199 936 0 2.67

2012F 441 29 208 678 514 152 207 76 949 62 162 39 263 210 8 218 1,146 0 3.29

2008 52 29 (43) (2) 17 53 (39) 0 (19) (57) 30 (6) (9) (19) (4) (8) (38) (375)

2009 151 32 75 (13) (19) 226 (17) 0 0 (17) (101) 27 (15) (22) (111) 97 199 (176)

2010F 216 39 (64) (25) 0 167 (70) 0 0 (70) 14 0 (28) 1 (13) 84 70 (106)

2011F 246 46 (49) (32) 0 210 (60) 0 0 (60) 30 0 (26) (24) (19) 131 101 (4)

2012F 284 54 (40) (37) 0 260 (60) 0 0 (60) 33 0 (28) (26) (21) 179 146 142

2010F 17.8 34.0 22.8 19.4 12.4 15.0 16.7 42.6 42.5 15.6

2011F 25.1 15.5 20.7 17.6 13.3 15.0 17.9 49.3 36.1 14.8

2012F 16.7 17.1 20.5 17.4 14.2 15.0 16.9 50.8 37.3 15.3


2009 14,476 83.7% 23.35 3.50 4.50 1,014

2010F 17,588 85.0% 23.00 3.02 8.20 1,300

2011F 21,738 85.0% 23.23 3.05 8.00 1,381

2012F 23,238 85.0% 23.69 3.05 7.55 1,503



2009 (1.0) 70.9 18.8 15.8 6.2 16.4 23.6 46.3 57.2 24.1

KEY DRIVERS


2008 41.4 32.1 6.4 5.8 3.4 9.6 18.8 49.9 54.4 29.9


11.0

9.0

7.0

5.0

3.0

1.0 Dec-07

Apr-08

Aug-08



[ 177 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Tan Chong Motor Holdings Bhd

OUTPERFORM

Maintained

RM5.44

@06/12/10

Following a regional roadmap

MALAYSIA

2011 OUTLOOK



TCM MK / TNCS.KL


• Maintain OUTPERFORM; top auto pick. Although Tan Chong’s share price has risen 73% relative to the KLCI’s 18%, we still see value in the stock. It is trading at close to 10% discount to its average historical P/E of 8.5x. In addition to the strategic expansion of its model mix and excitement from its regional plans, we think that Tan Chong is a good cyclical play on the economy. We continue to rate it an OUTPERFORM and our top pick in the auto sector. Potential re-rating catalysts include 1) a stronger earnings growth trajectory, 2) new model pipeline, and 3) strategic positioning which will help it tap into regional demand. Our SOP-based target price stays at RM9.15. • New models to drive earnings growth next year. For 2011, Tan Chong plans to launch three new facelifts, two new CKD models and two CBUs. Among them will be the Nissan March, which is currently produced by Nissan’s Thai plant with a localisation rate of close to 90%. This model is expected to hit Malaysian shores towards end-2011. 2011 will also capture the full-year contribution from Nissan Teana, which was officially launched on 23 Nov 10. The launch of the Teana marked Nissan’s re-entry into the D-segment after a five-year hiatus. • Building a platform for sustainable growth. Tan Chong’s FY11-12 earnings should be largely driven by the domestic market. However, the group is building a regional platform that should provide a new leg of growth post FY12 when the local auto industry will be closer to saturation point. Having gained a foothold in the Indochina region, Tan Chong is paving the way for a possible entry into Indonesia. It was recently awarded a manufacturing licence in Sabah that could give the group a springboard into Indonesia given Sabah’s proximity to Kalimantan and Sulawesi. Financial summary

Stock Information Market cap: RM3,656m/US$1,162m 12-m price range: RM6.00 RM2.46 3-m avg daily vol: 0.7m No. of shrs (m): 672 Est. free float (%): 37.0 Conv. secs (m): None Major shareholders (%): - Tan Chong Consolidated 45.6 - Nissan Motor Corp 5.6 - Employees Provident Fund 5.2


2008 3,195.8 374.9 11.7% 307.2 245.8 36.6 318.6% 14.9 10.0 1.8% 2.6 18.5% 17.5% 58.0 10.4

2009 2,856.9 234.0 8.2% 177.2 153.3 22.8 (37.6%) 23.8 11.0 2.0% 2.4 10.4% 6.3% 37.1 16.0

2010F 3,518.8 451.5 12.8% 393.3 274.4 40.8 78.9% 13.3 12.0 2.2% 2.1 16.9% 7.2% 183.7 8.3 1.03

2011F 4,072.0 516.3 12.7% 458.5 342.9 51.0 25.0% 10.7 13.0 2.4% 1.8 18.4% 0.4% 17.8 7.1 1.03

2012F 5,314.8 696.9 13.1% 636.7 476.6 70.9 39.0% 7.7 14.0 2.6% 1.5 21.6% 0.4% 35.5 5.2 1.18


Price chart

Corporate profile

6.3 5.8

6.00

5.3

5.00

4.8

4.00

4.3

3.00

3.8 2.00

3.3

1.00

2.8 2.3 De c-09

0.00 Ma y-10


Source: Bloomberg

Oct-10 Ta n Chong Motor Holdings Bhd

Tan Chong Motor is the exclusive assembler and distributor of the Nissan and Renault marques in Malaysia. It is 5.6% owned by Nissan Motor Japan. Through Nissan and Renault, Tan Chong accounts for close to 6% share of total vehicle sales in Malaysia currently compared with a mere 3.8% in 2007. Beyond the domestic market, Tan Chong holds the exclusive distribution rights for Nissan vehicles in Cambodia and Laos. Recently, it rounded off its Indochina strategy with the proposed acquisition of a 74% stake in the exclusive importer and distributor of Nissan vehicles in Vietnam.


[ 178 ]



2008 3,196 (2,821) 375 (58) 317 (10) 1 0 0 307 (61) 0 246 672 672

2009 2,857 (2,623) 234 (51) 183 (6) 0 0 0 177 (23) (1) 153 672 672

2010F 3,519 (3,067) 452 (51) 400 (7) 0 0 0 393 (118) (1) 274 672 672

2011F 4,072 (3,556) 516 (54) 462 (4) 0 0 0 458 (115) (1) 343 672 672

2012F 5,315 (4,618) 697 (58) 639 (3) 0 0 0 637 (159) (1) 477 672 672

2008 521 0 280 801 320 854 276 0 1,450 214 379 7 600 191 36 226 1,421 4 2.12

2009 494 0 393 887 553 673 352 0 1,578 267 388 1 656 261 31 292 1,514 4 2.25

2010F 522 0 393 916 524 872 441 0 1,837 329 388 7 724 261 31 292 1,728 5 2.57

2011F 548 0 393 941 659 1,010 519 0 2,189 381 407 35 823 261 31 292 2,005 6 2.98

2012F 591 0 393 984 678 1,321 690 0 2,689 497 427 34 959 261 31 292 2,411 7 3.59

2008 307 58 (293) (61) 15 27 (79) (1) 1 (79) 115 (7) (49) 0 58 6 (109) (250)

2009 177 51 60 (52) 4 241 (56) (144) (20) (220) 78 (12) (49) 0 18 38 (40) (95)

2010F 393 51 (226) (23) (96) 100 (80) 0 0 (80) 0 0 (64) 15 (49) (29) (29) (125)

2011F 458 54 (165) (118) 36 266 (80) 0 0 (80) 19 0 (69) (1) (50) 136 116 (8)

2012F 637 58 (365) (115) (32) 183 (100) 0 0 (100) 20 0 (74) (10) (64) 19 (1) (9)

2010F 23.2 92.9 11.2 7.8 18.5 30.0 22.0 41.2 80.2 30.9

2011F 15.7 14.3 11.3 8.4 21.0 25.0 19.1 43.0 84.4 31.8

2012F 30.5 35.0 12.0 9.0 28.2 25.0 14.8 41.5 80.1 30.2

(FYE Dec) Unit sales Unit sales growth (%) Exchange rate (RM to US$)

2009 31,731 2.6% 3.60

2010F 35,077 10.5% 3.30

2011F 39,949 13.9% 3.25

2012F 55,453 38.8% 3.25



2009 (10.6) (37.6) 6.2 5.4 9.0 12.9 36.2 40.1 97.6 30.8

KEY DRIVERS


2008 71.4 178.6 9.6 7.7 14.8 20.0 20.2 33.3 82.1 24.8


13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 Dec-07

Apr-08

Aug-08



[ 179 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Tasek Corporation Bhd

OUTPERFORM

Maintained

RM7.59

@07/12/10

Concrete prospects

MALAYSIA

2011 OUTLOOK


Target: RM9.00 Cement

TC MK / TKCS.KL


• Maintain OUTPERFORM. Tasek remains an OUTPERFORM given our upbeat outlook for the construction sector and the potential improvement in cement selling prices. Our target price remains RM9.00 as we continue to use a blend of 12.4x P/E and 1.0x BV. Potential re-rating catalysts for Tasek include 1) construction starts, 2) stable selling prices for cement, and 3) product diversification. • Positive on M&A. In November, it was reported that Tasek could use its RM354m net cash to acquire MTD ACPI’s (ACP MK, Underperform) precast concrete business. We would view this positively as Tasek would be able to take advantage of MTD ACPI’s presence in Johor since Tasek’s parent company, Hong Leong Asia Ltd is a leading supplier of cement and prefabrication products in Singapore. • Mega construction jobs. The 10th Malaysia Plan and Budget 2011 revealed big projects such as the KL MRT, LRT, new LCCT and high-speed rail project, which should boost construction activities and reinvigorate demand for building materials such as cement. Awards for RM1.6bn out of the RM7bn LRT extension have already been announced and we expect more announcements in 2011. Financial summary


RM938m/US$299m RM8.57 RM5.66 3-m avg daily vol: 0.0m No. of shrs (m): 124 Est. free float (%): 11.8 Conv. secs (m): None Major shareholders (%): - HL Cement (M) Sdn Bhd 72.6 - Amanah Raya 8.6 - Lembaga Tabung Haji 6.5

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 509.8 122.6 24.0% 98.6 75.1 40.7 99.8% 18.7 40.7 99.8% 18.7 1.6 9.2% 1.39 27.4 9.0

2009 526.8 124.2 23.6% 87.2 67.1 36.3 (10.8%) 20.9 36.3 (10.8%) 20.9 1.5 7.6% 1.90 13.0 8.5

2010F 575.9 139.0 24.1% 161.4 121.0 97.9 169.6% 7.8 66.7 83.6% 11.4 1.1 13.7% 3.00 12.9 4.1 N/A 0.68

2011F 611.2 157.1 25.7% 174.5 130.9 105.9 8.2% 7.2 79.4 19.2% 9.6 1.0 14.3% 3.82 5.2 3.0 N/A 0.75

2012F 620.6 158.8 25.6% 135.9 101.9 82.4 (22.1%) 9.2 82.4 3.8% 9.2 0.9 9.9% 4.75 6.9 2.2 N/A 1.01


Price chart

Corporate profile

8.8

25.00 8.3 7.8

20.00

7.3

15.00

6.8

10.00

6.3

5.00

5.8 5.3 Dec-09

0.00 May-10 Volume 100k (R.H.Scale)

Oct-10 Tasek Corporation Bhd

Tasek Corporation was incorporated in 1962 as Tasek Cement Limited and was listed on Bursa Malaysia in 1963. It commenced cement production in 1964 with an annual rated production capacity of 250,000 tonnes at its present plant in the Tasek Industrial Estate, Ipoh. Over the years, it undertook a series of expansion to keep pace with Malaysia’s economic and infrastructure development. Its continuous upgrade of its plants, equipment and technology has pushed its capacity to 2.3m mt of clinker per year. Tasek now ranks as the fourth largest cement player in the country.

Source: Bloomberg


[ 180 ]



2008 510 (387) 123 (45) 78 14 7 0 0 99 (24) 0 75 184 184

2009 527 (403) 124 (47) 77 9 1 0 0 87 (20) 0 67 185 185

2010F 576 (437) 139 (41) 98 12 0 52 0 161 (40) 0 121 124 124

2011F 611 (454) 157 (41) 116 15 0 44 0 175 (44) 0 131 124 124

2012F 621 (462) 159 (41) 118 18 0 0 0 136 (34) 0 102 124 124

2011F 369 1 5 375 475 134 84 0 693 84 3 0 87 0 15 15 967 0 7.81

2012F (FYE Dec) 368 Cement ASP - domestic (RM/tonne) 1 Utilisation rate (%) 5 374 590 136 85 0 811 85 3 0 88 0 14 14 1,083 0 8.75

2008 371 1 90 462 261 121 86 3 470 66 5 0 70 0 7 7 854 0 4.63

2009 361 1 6 368 356 113 70 77 615 54 4 0 58 0 16 16 908 0 4.91

2010F 370 1 5 376 374 126 79 0 579 79 3 0 82 0 15 15 858 0 6.93

2010F 9.3 11.9 28.0 21.0 N/A 25.0 10.2 47.2 75.7 42.3

2011F 6.1 13.0 28.6 21.4 N/A 25.0 11.3 48.6 77.7 48.6

2012F 1.5 1.1 21.9 16.4 N/A 25.0 15.8 49.6 79.4 49.6

2009 277 66.0%

2010F 300 70.0%

2011F 300 70.0%

2012F 300 70.0%



2009 3.3 1.3 16.5 12.7 N/A 23.0 82.6 53.9 80.8 41.6

KEY DRIVERS


2008 151.1 119.0 19.3 14.7 N/A 23.9 24.6 52.9 66.9 39.1


2008 99 45 (46) (13) (7) 78 (31) 0 0 (31) 5 0 0 0 5 52 47 257

2009 87 48 20 (11) (1) 142 (37) 4 0 (34) (1) 1 (14) 1 (13) 95 96 352

2010F 161 42 (2) (4) (74) 123 (50) 1 0 (50) (1) 0 (12) (42) (55) 18 19 371

2011F 175 41 8 (4) (1) 219 (40) 1 0 (40) 0 0 (15) (63) (78) 101 101 472

2012F 136 41 2 (3) (1) 175 (40) 1 0 (40) 0 0 (16) (5) (22) 114 114 587

18.0

16.0

14.0

12.0

10.0

8.0 Dec-07

Apr-08

Aug-08



[ 181 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Telekom Malaysia Bhd

TRADING BUY

Maintained

RM3.41

@07/12/10

Capital management potential

MALAYSIA

2011 OUTLOOK


Target: RM4.04 Telecommunications - Integrated

T MK / TLMM.KL

Kelvin Goh CFA +60(3) 2084 9699 – [email protected]

• Telekom Malaysia is a TRADING BUY because of potential capital management given its burgeoning cash. Its net debt/EBITDA is 0.9x and would be 0.6x if its Axiata shares were included. Operationally, we are concerned about the take-up of its Unifi HSBB, rising competition from wireless broadband operators and continued decline in voice revenues. We raise our SOP-based target price from RM3.80 to RM4.04 after including its Axiata shares which are worth RM0.25/TM share. Likely re-rating catalysts are the sale of its Axiata shares and special dividends or capital repayment. • Concerns over take-up of Unifi. We are concerned that the take-up of Unifi could be limited due to affordability issues and consumers’ lack of need for high speeds. An indication of this is the low take-up of 5% for TM’s upselling of Streamyx residential users since Nov 09 to higher-end plans. • Crowded broadband playing field. Broadband competition will intensify with the entry of YTL Communications, the re-emergence of U Mobile and SK Telecom’s investment in Packet One. Given YTLC’s strong financial backing, good execution, and plan to launch pay TV, we think it will be the biggest threat to TM. • Special dividends? We think there is a possibility of a special dividend at end2010 or 2011 given the rising cash bolstered by RM0.07/share by the sale of its Measat stake. Expectations of capital management will be raised further if it sells its shares in Axiata. However, TM may keep its balance sheet conservative given that it has US$260m (RM810m) debt due at end-2010 and RM2bn due in 2011. Financial summary

Stock Information Market cap: RM12,199m/US$3,889m 12-m price range: RM3.58 RM2.99 3-m avg daily vol: 6.2m No. of shrs (m): 3,577 Est. free float (%): 34.8 Conv. secs (m): None Major shareholders (%): - Khazanah Nasional 43.1 - Employees Provident Fund 16.2 - Amanah Saham Bumi 5.9


2008 8,674.9 2,738.4 31.6% 353.8 167.0 4.8 (83.9%) 70.8 20.4 28.7% 16.7 27.3 8.0% 1.2 1.7% 44.2% (65.9) 6.1

2009 8,608.0 2,936.8 34.1% 921.6 643.0 18.2 277.8% 18.8 17.3 (15.1%) 19.7 124.4 36.5% 1.7 7.5% 41.1% 2.8 5.2

2010F 8,715.9 2,806.5 32.2% 1,254.0 970.2 27.2 49.4% 12.5 16.3 (6.2%) 20.9 43.0 12.6% 1.7 13.7% 37.0% 106.3 5.4 0.85

2011F 8,910.4 2,453.1 27.5% 916.1 613.4 17.1 (37.0%) 19.9 7.3 (55.0%) 46.6 26.0 7.6% 1.9 9.2% 47.2% 11.2 6.3 0.45

2012F 9,075.8 2,553.1 28.1% 1,056.6 717.4 19.9 16.4% 17.1 10.0 37.1% 34.0 25.9 7.6% 2.0 11.6% 39.0% 8.4 5.9 0.56


Price chart


3.8

1.60 3.6

1.40 1.20

3.4

1.00 0.80

3.2

0.60 0.40

3.0

0.20 2.8 De c-09


Source: Bloomberg

Oct-10 Te le kom Ma la ys ia Bhd

Telekom Malaysia (TM) is Malaysia’s third largest telecom service provider in terms of revenue and the fourth largest by market capitalisation. It is the incumbent fixed line telecom service provider offering consumer and business voice, broadband and data services. It also has a 100% stake in VADS, a leading IT systems integrator, managed network service provider and contact centre service provider. In 2008, TM undertook a demerger exercise where its domestic mobile and overseas operations were carved out and listed separately as TM International, which was later renamed Axiata Group. The S.E.A. Navigator – Malaysia 2011

[ 182 ]



2008 8,675 (5,937) 2,738 (2,099) 640 (27) 0 (259) 0 354 (78) (109) 167 3,469 3,469

2009 8,608 (5,671) 2,937 (2,038) 899 (18) 1 41 0 922 (248) (30) 643 3,536 3,536

2010F 8,716 (5,909) 2,807 (1,933) 874 (107) 0 487 0 1,254 (253) (31) 970 3,570 3,570

2011F 8,910 (6,457) 2,453 (1,944) 510 (81) 0 487 0 916 (257) (46) 613 3,585 3,601

2012F 9,076 (6,523) 2,553 (1,906) 647 (78) 0 487 0 1,057 (285) (54) 717 3,601 3,601

2008 11,772 2 1,347 13,121 2,373 123 2,891 4,025 9,412 2,813 35 624 3,471 6,965 1,622 8,587 10,248 227 2.95

2009 12,330 2 1,431 13,763 3,785 111 2,284 0 6,179 2,935 917 590 4,441 5,797 2,575 8,372 6,988 143 1.98

2010F 12,597 2 1,179 13,778 3,068 107 2,193 0 5,369 2,914 0 590 3,504 5,769 2,575 8,344 7,127 173 2.00

2011F 12,504 2 1,179 13,684 2,703 110 2,120 0 4,933 3,184 0 590 3,774 5,769 2,575 8,344 6,281 219 1.75

2012F 11,797 2 1,179 12,978 3,280 112 2,159 0 5,551 3,217 0 590 3,806 5,769 2,575 8,344 6,107 273 1.70

2008 354 2,099 1,188 (78) (312) 3,251 (1,839) 1,000 (2,735) (3,574) 170 43 (2,631) 489 (1,928) (2,251) (2,421) (4,627)

2009 922 2,038 708 (248) (364) 3,056 (2,516) 8 38 (2,471) 3,739 216 (4,419) 4,670 4,206 4,791 1,052 (2,929)

2010F 1,254 1,933 74 (253) 107 3,114 (2,200) 0 252 (1,948) (945) 93 (924) (107) (1,883) (717) 228 (2,701)

2011F 916 1,944 341 (257) 81 3,025 (1,850) 0 0 (1,850) 0 41 (1,499) (81) (1,539) (365) (365) (3,065)

2012F 1,057 1,906 (9) (285) 78 2,746 (1,200) 0 0 (1,200) 0 43 (935) (78) (969) 577 577 (2,489)

2010F 1.3 (4.4) 14.4 11.1 2.4 20.2 158.0 93.7 4.6 122.5

2011F 2.2 (12.6) 10.3 6.9 1.6 28.0 152.1 88.3 4.5 124.9

2012F 1.9 4.1 11.6 7.9 2.0 27.0 130.1 86.1 4.5 128.7

(FYE Dec) Residential fixed line ARPU (RM) Business fixed line ARPU (RM) Residential fixed line subs (m) Business fixed line subs (m) Broadband ARPU (RM) No. of broadband subscribers (m)

2009 45.0 131.0 2.77 1.55 87.0 1.57

2010F 44.1 126.7 2.76 1.56 82.7 1.73

2011F 45.7 127.1 2.76 1.57 78.5 1.89

2012F 45.2 127.1 2.77 1.58 76.2 2.01



2009 (0.8) 7.2 10.7 7.5 2.5 26.9 647.8 109.7 5.0 121.8

KEY DRIVERS


2008 4.6 (11.1) 4.1 1.9 1.4 21.9 419.2 130.1 4.8 121.6


39.0

34.0

29.0

24.0

19.0

14.0 Dec-07

Apr-08

Aug-08



[ 183 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Tenaga Nasional Bhd

TRADING BUY

Maintained

RM8.44

@07/12/10

Sparks to fly soon?

MALAYSIA

2011 OUTLOOK


Target: RM10.55 Power

TNB MK / TENA.KL


• Key heavyweight laggard; reiterate TRADING BUY. Tenaga remains a TRADING BUY as we see potential re-rating catalysts for this heavyweight laggard in the form of i) newsflow on gas subsidy rollback and a corresponding tariff hike, ii) revival of foreign interest and iii) stronger-than-expected demand with the rollout of major construction projects. We retain our end-CY11 target price of RM10.55 (unchanged 1.5x forward P/BV) and continue to rate it our top pick in the power sector. • Expecting positive sector-wide reforms. We expect sector-wide reforms to be a key theme in the coming months. A focus on subsidies could pave the way for a gas-led tariff hike, which could also mean an upward revision of its coal reference price and base tariff. Attention on other themes like i) plant-up of new supply and ii) PPA renegotiations are also long-term positives for Tenaga. • Power demand to normalise. After an impressive 8.8% rise in FY10, demand growth is set to moderate to about 5% p.a. for FY11-12. We believe there is room for upside to demand growth, especially if the massive construction projects under the 10MP and ETP initiatives take off over the near term. • A heavyweight laggard. Having underperformed the FBM KLCI YTD, Tenaga is clearly a laggard play. Given its low foreign shareholdings of under 13%, it is also a prime beneficiary of a potential inflow of foreign funds into the Malaysian market. Financial summary

Stock Information Market cap: RM36,799m/US$11,731m 12-m price range: RM9.24 RM7.81 3-m avg daily vol: 7.6m No. of shrs (m): 4,360 Est. free float (%): 36.0 Conv. secs (m): None Major shareholders (%): - Khazanah Nasional 35.7 - Employees Provident Fund 12.5 - Skim ASB 9.6

FYE Aug Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 28,785.6 7,260.4 25.2% 1,543.1 917.9 21.2 (64.6%) 39.9 56.7 (4.0%) 14.9 17.8 2.1% 1.4 3.6% 63.1% 50.4 7.3

2010 30,320.1 8,208.4 27.1% 4,022.1 3,201.9 73.6 247.6% 11.5 63.5 11.9% 13.3 26.0 3.1% 1.3 11.7% 44.8% 15.9 6.0

2011F 31,812.0 7,956.7 25.0% 3,661.8 2,982.2 68.5 (6.9%) 12.3 63.0 (0.8%) 13.4 22.7 2.7% 1.2 10.0% 35.0% 60.1 5.9 0.95

2012F 33,337.3 8,360.0 25.1% 3,859.3 3,110.2 71.5 4.3% 11.8 69.4 10.2% 12.2 24.7 2.9% 1.1 9.8% 28.2% 69.9 5.5 0.95

2013F 34,299.6 8,794.1 25.6% 4,123.6 3,303.5 75.9 6.2% 11.1 75.9 9.4% 11.1 24.0 2.8% 1.0 9.7% 21.0% 89.0 5.0 0.95


Price chart


9.4

1.60 1.40

8.9

1.20 1.00

8.4

0.80 0.60

7.9

0.40 0.20

7.4 De c-09


Source: Bloomberg

Oct-10 Te na g a Na s iona l Bhd

Tenaga Nasional is Malaysia’s national utility company. It was privatised and listed on Bursa Malaysia in May 92. Tenaga has a monopoly of the power transmission and distribution (T&D) business in Peninsular Malaysia. Its share of the peninsula’s generating capacity currently stands at about 47%. Via its 80% stake in Sabah Electricity Sdn Bhd (SESB), Tenaga also controls power-related matters in Sabah. On the overseas front, it owns a 235MW power plant in Pakistan and an effective 6% stake in the Shoaiba water and power project in Saudi Arabia. The government, directly and indirectly, owns around 85% of Tenaga. Since Jan 10, Tenaga’s foreign shareholding has been creeping up mom to 12.7% as at end-Sep 10.


[ 184 ]


PROFIT & LOSS (RM m, FYE Aug) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 2010 2011F 28,786 30,320 31,812 (21,525) (22,112) (23,855) 7,260 8,208 7,957 (3,562) (3,950) (3,812) 3,699 4,258 4,145 (950) (861) (773) 33 45 49 0 (76) 0 (1,239) 656 241 1,543 4,022 3,662 (690) (825) (684) 5 5 65 3,202 2,982 918 4,337 4,353 4,353 4,337 4,353 4,353

2012F 2013F (FYE Aug) 33,337 34,300 Revenue growth (%) (24,977) (25,506) EBITDA growth (%) 8,360 8,794 Pretax margins (%) (3,917) (4,013) Net profit margins (%) 4,443 4,781 Interest cover (x) (728) (717) Effective tax rates (%) 54 59 Net dividend payout (%) 0 0 Debtors turnover (days) 91 0 Stock turnover (days) 3,859 4,124 Creditors turnover (days) (754) (825) 5 5 3,110 3,304 4,353 4,353 4,353 4,353

2009 58,227 0 1,177 59,404 6,172 1,956 2,468 1,344 11,939 4,150 1,158 1,955 7,263 21,458 16,596 38,054 26,006 40 6.00

2010 58,032 0 1,254 59,286 8,352 2,450 2,468 1,507 14,778 3,870 3,163 2,668 9,701 18,101 17,465 35,566 28,779 36 6.61

2011F 60,081 0 1,278 61,359 8,352 2,420 2,108 1,982 14,862 5,092 2,361 2,619 10,072 16,766 18,610 35,375 30,760 31 7.07

2012F 61,850 0 1,305 63,156 8,352 2,537 2,210 2,073 15,173 5,332 2,310 2,730 10,372 15,284 19,883 35,166 32,782 26 7.53

2013F 63,542 0 1,335 64,877 8,352 2,611 2,274 2,131 15,369 5,444 2,344 2,800 10,588 13,362 21,295 34,657 34,997 22 8.04

2009 2010 2011F 1,543 4,022 3,662 3,562 3,950 3,812 369 (609) 1,092 (250) (579) (692) 732 1,457 825 6,681 7,609 8,606 (4,128) (3,708) (4,530) 66 (74) 0 230 0 0 (3,833) (3,782) (4,530) (1,205) (703) (2,786) 23 106 106 (477) (621) (741) (1,490) 220 (1,305) (3,148) (998) (4,725) (300) 2,829 (649) 904 3,532 2,137 (16,444) (12,911) (10,775)

2012F 3,859 3,917 7 (574) 682 7,892 (5,200) 0 0 (5,200) (1,533) 106 (805) (461) (2,692) 0 1,533 (9,242)

2013F 4,124 4,013 (46) (632) 665 8,124 (5,200) 0 0 (5,200) (1,888) 106 (783) (359) (2,924) 0 1,888 (7,354)

2011F 4.9 (3.1) 11.5 9.4 4.2 18.7 24.8 26.2 27.9 51.4

2012F 4.8 5.1 11.6 9.3 4.7 19.5 25.9 23.6 27.1 57.1

2013F 2.9 5.2 12.0 9.6 5.2 20.0 23.7 23.9 27.4 57.3

(FYE Aug) Average selling price per kwh (sen) Capacity (MW) Demand growth (%) Exchange rate (RM to US$)

2010 31 21,794 12.5% 3.34

2011F 31 21,794 5.0% 3.16

2012F 31 21,794 5.0% 3.17

2013F 31 21,794 3.0% 3.15


CASH FLOW (RM m, FYE Aug) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 5.3 13.1 13.3 10.6 4.0 20.5 26.5 29.7 26.5 48.3

KEY DRIVERS

BALANCE SHEET (RM m, end Aug) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 16.3 (2.0) 5.4 3.2 3.3 44.7 62.2 28.9 26.5 51.7

17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 Dec-07

Apr-08

Aug-08



[ 185 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Tomypak Holdings

OUTPERFORM

Maintained

RM1.00

@07/12/10

A solid package

MALAYSIA

2011 OUTLOOK


Target: RM1.80 Packaging

TOMY MK / TOMY.KL


• Maintain OUTPERFORM. Tomypak, Malaysia’s 2nd largest flexible packaging producer, remains an OUTPERFORM for its exposure to the resilient F&B sector and its stable MNC customer base. We continue to value the stock at a 30% discount to Daibochi’s revised target P/E of 10.1x, which reduces our target price from RM2.00 to RM1.80, based on 7.1x CY12 P/E. Potential re-rating catalysts include i) a margin recovery from 1Q11 onwards, ii) stronger-than-expected revenue, and iii) attractive P/E valuations. • Indirect play on F&B sector. Tomypak derives 90% of its revenue from the resilient F&B sector, which should provide a stable revenue base in the long term, especially with major MNCs such as Nestle, Kraft and Unilever being its customers. MNCs currently contribute around 40-45% of the group’s revenue and Nestle is Tomypak’s largest MNC customer. MNC and domestic listed companies contribute around 70% of Tomypak’s revenue. • Quarterly price revisions. Tomypak and its MNC customers review selling prices every quarter for changes in raw materials and forex fluctuations. This enables the company to pass on rising raw material costs and allows management to focus on its operations. • Quarterly dividend paymaster. Tomypak pays dividends on a quarterly basis. Gross dividend yield is projected to be around 8% this year but could surprise on the upside as it works out to a net payout ratio of less than 30%. Given the company’s projected net cash position in 2011, the net dividend payout ratio could be much higher at around 40-50%. Financial summary


RM109m/US$35m RM1.52 RM0.65 3-m avg daily vol: 0.2m No. of shrs (m): 109 Est. free float (%): 40.0 Conv. secs (m): None Major shareholders (%): - Chow family 32.0 - Lim Hun Swee 13.6


2008 182.8 18.1 9.9% 7.9 7.6 7.6 406.7% 13.2 1.6 1.6% 1.7 12.9% 58.8% N/A 250.0 7.4

2009 159.1 31.6 19.9% 20.8 20.1 20.1 164.5% 5.0 6.5 6.5% 1.3 26.1% 11.5% N/A 3.6 3.4

2010F 182.9 27.1 14.8% 17.0 15.6 14.5 (27.6%) 6.9 7.4 7.4% 1.2 19.1% 8.1% N/A 13.6 4.2 0.86

2011F 194.6 36.9 19.0% 27.5 24.8 23.0 58.2% 4.3 8.5 8.5% 1.0 25.8% N/A 0.18 3.4 2.4 1.00

2012F 212.2 40.2 18.9% 30.5 27.1 25.3 9.7% 4.0 9.6 9.6% 0.9 23.7% N/A 0.30 5.1 1.9 1.01


Price chart


1.6

7.00 6.00

1.4

5.00 1.2

4.00 3.00

1.0

2.00 0.8 0.6 De c-09


Source: Bloomberg

Oct-10 Tomypa k Holding s

Tomypak, the country’s second largest plastic flexible packaging (PFP) materials producer, was listed on the Main Board in 1996. Its founder, the Chow family remains the group’s largest shareholder with around 32% equity stake. Management and direction of the group is driven by its MD Chow Yuen Liong who has been with Tomypak since 1980. Tomypak handles mainly the demands of MNCs in Malaysia. MNC customers include Nestle, Kraft and Unilever. Local customers include Apollo Food, Zhulian and Mamee-Double Decker. The group has been supplying to Nestle since 1980. The S.E.A. Navigator – Malaysia 2011

[ 186 ]



2008 183 (165) 18 (9) 9 (1) 0 0 0 8 0 0 8 100 100

2009 159 (128) 32 (10) 22 (1) 0 0 0 21 (1) 0 20 100 100

2010F 183 (156) 27 (10) 17 0 0 0 0 17 (1) 0 16 108 108

2011F 195 (158) 37 (10) 27 1 0 0 0 28 (3) 0 25 108 108

2012F 212 (172) 40 (10) 30 1 0 0 0 31 (3) 0 27 108 108

2008 52 0 3 55 9 27 35 0 70 16 35 1 52 8 7 15 59 0 0.59

2009 55 0 3 58 9 26 35 0 70 25 11 1 37 7 7 14 77 0 0.77

2010F 54 0 3 57 2 27 37 0 66 18 4 1 23 5 7 12 87 0 0.81

2011F 51 0 3 53 26 29 31 0 86 19 2 1 23 5 7 12 105 0 0.97

2012F (FYE Dec) 47 Capacity (tonnes p.a.) 0 Capacity utilisation (%) 3 50 39 38 34 0 111 21 2 1 25 5 7 12 124 0 1.15

2008 8 9 (2) 0 (6) 9 (7) 1 0 (6) (3) 0 0 0 (3) 0 3 (35)

2009 21 10 9 (1) 0 39 (11) 0 0 (11) 0 0 (5) 3 (2) 26 26 (9)

2010F 17 10 (10) (1) 0 16 (8) 0 0 (8) 0 0 (6) 0 (6) 2 2 (7)

2011F 28 10 5 (3) 0 40 (7) 0 0 (7) (2) 0 (7) 0 (8) 24 26 19

2012F 31 10 (9) (3) 0 28 (7) 0 0 (7) 0 0 (8) 0 (8) 13 13 32

2010F 14.9 (14.2) 9.3 8.6 57.7 8.0 38.4 71.1 53.7 43.1

2011F 6.4 36.2 14.1 12.7 N/A 10.0 27.8 63.5 53.1 35.4

2012F 9.0 8.9 14.4 12.8 N/A 11.0 28.5 56.0 57.5 35.0

2009 14,000 90.0%

2010F 15,200 88.0%

2011F 16,300 86.0%

2012F 17,500 87.0%



2009 (13.0) 74.6 13.1 12.6 17.0 3.4 23.9 79.6 60.6 57.1

KEY DRIVERS


2008 22.7 56.0 4.3 4.2 8.0 3.8 15.8 69.5 52.9 31.5


8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Dec-07

Apr-08

Aug-08



[ 187 ]

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Apr-09

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Dec-09

Apr-10

Aug-10

Dec-10


Top Glove Corporation

OUTPERFORM

Maintained

RM5.55

@07/12/10

It’s a whole new ball game

MALAYSIA

2011 OUTLOOK



TOPG MK / TPGC.KL


• Maintain OUTPERFORM. Top Glove remains an OUTPERFORM and the key proxy for the glove sector due to its size and liquidity. We retain our EPS forecasts. Although we continue to value the stock at our target market P/E, our target price rises from RM6.92 to RM7.27 as our target market P/E has been revised from 13.8x to 14.5x. Potential re-rating catalysts include 1) distributors’ restocking of inventories, which have been whittled down to as low as a month, 2) diversification of its product mix, and 3) commissioning of its two nitrile glove factories with a capacity of 1.5bn pieces of gloves each in FY11. • Potential upstream diversification. Top Glove has signed an MOU with a Cambodian party and is expected to formalise an agreement to acquire a brownfield rubber plantation in Cambodia over the next few months. Although the earnings impact is negligible given the 4-6 year gestation period for rubber, we take a positive view of this development as it will give Top Glove its own source of rubber latex over the longer term. This will smooth out earnings by reducing the company’s exposure to the volatile rubber latex market. • Catching up quickly. At 7% of its capacity, Top Glove has the least nitrile capacity in the sector. However, we expect this percentage to increase to 10-15% or 4bn6bn pieces over the next two years as the company will be commissioning its two nitrile plants and converting exiting lines to nitrile. Moreover, Top Glove has RM260m cash that could be used to acquire nitrile expertise, distribution networks and key customers. Financial summary

Stock Information Market cap: RM3,432m/US$1,094m 12-m price range: RM7.24 RM4.60 3-m avg daily vol: 1.9m No. of shrs (m): 618 Est. free float (%): 55.3 Conv. secs (m): None Major shareholders (%): - Tan Sri Dr. Lim Wee Chai 29.0 - Top Glove Holdings 5.2 - Matthews International 5.2

FYE Aug Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 1,529.1 286.2 18.7% 222.0 169.1 27.4 53.7% 20.3 10.9 2.0% 4.2 22.7% 0.27 62.1 11.5

2010 2,079.4 362.3 17.4% 306.0 245.3 39.7 45.0% 14.0 16.0 2.9% 3.1 25.6% 0.48 26.3 8.7

2011F 2,009.2 406.0 20.2% 352.4 276.0 44.6 12.5% 12.4 18.0 3.2% 2.6 23.0% 0.79 13.3 7.3 N/A 1.10

2012F 2,298.2 440.3 19.2% 386.8 302.9 49.0 9.8% 11.3 20.0 3.6% 2.2 21.3% 1.09 13.0 6.3 N/A 1.13

2013F 2,427.2 466.8 19.2% 413.9 324.1 52.4 7.0% 10.6 22.0 4.0% 1.9 19.5% 1.45 11.4 5.5 N/A 1.07


Price chart


7.3

1.00

6.8

0.80 6.3

0.60

5.8

0.40

5.3

0.20

4.8 4.3 Dec-09


Oct-10 Top Glove Corporation

Top Glove is the world’s largest rubber glove manufacturer with a global market share of 23% based on its existing capacity of 33.75bn pieces. Established in 1991, the group was listed on Bursa Malaysia in 2001. Currently, it has 379 production lines in 18 glove manufacturing factories located in Malaysia, Thailand and China. It also has two latex concentrate plants in Thailand with a combined capacity of 93,200 tonnes p.a. The company produces a diversified range of high-quality and value-added gloves for the medical, food & services, high technology and industrial markets.

Source: Bloomberg


[ 188 ]


PROFIT & LOSS (RM m, FYE Aug) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2009 1,529 (1,243) 286 (57) 229 (6) (1) 0 0 222 (54) 1 169 618 304

2010 2,079 (1,717) 362 (59) 303 4 (1) 0 0 306 (56) (5) 245 618 618

2011F 2,009 (1,603) 406 (59) 347 5 1 0 0 352 (78) 1 276 618 618

2012F 2,298 (1,858) 440 (61) 379 7 1 0 0 387 (85) 1 303 618 618

2013F 2,427 (1,960) 467 (63) 404 10 1 0 0 414 (91) 1 324 618 618

2012F 621 20 18 659 680 184 276 34 1,174 115 1 115 231 4 38 41 1,540 20 2.46

2013F 639 20 17 677 899 194 291 36 1,420 121 1 123 245 4 40 44 1,788 21 2.86

2009 564 20 36 621 186 119 198 8 511 92 12 140 244 9 33 42 825 21 1.30

2010 579 20 19 618 303 169 233 32 737 104 1 95 200 3 34 37 1,093 24 1.74

2011F 600 20 18 638 493 161 241 30 925 100 1 97 198 3 36 39 1,307 19 2.08

2011F 2012F 2013F (3.4) 14.4 5.6 12.1 8.4 6.0 17.5 16.8 17.1 13.7 13.2 13.4 1,126.4 1,119.8 1,083.9 22.0 22.0 22.0 30.2 30.6 31.5 43.1 41.0 42.6 29.9 27.4 28.4 18.6 17.1 17.8

(FYE Aug) Production capacity (m pcs p.a) Capacity utilisation (%) ASP (US$) per 1,000 pieces Exchange rate (RM to US$) Natural rubber price (RM /kilogram) Nitrile latex prices (US$/mt)

2010 33,000 80.0% 24.13 3.54 4.41 1,191

2011F 41,250 65.0% 27.00 3.08 8.13 1,327

2012F 42,750 75.0% 24.00 3.04 7.85 1,422

2013F 43,750 80.0% 23.00 3.05 7.53 1,574


CASH FLOW (RM m, FYE Aug) Pretax profit Depreciation & non–cash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)

2010 36.0 26.6 14.7 11.8 475.4 18.2 30.2 37.9 25.2 17.2

KEY DRIVERS

BALANCE SHEET (RM m, end Aug) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2009 11.0 47.2 14.5 11.1 26.9 24.3 29.8 49.2 33.0 24.5

(FYE Aug) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

2009 222 57 34 (39) 22 296 (67) 3 (10) (74) (166) 11 (32) 33 (155) 67 234 165

2010 306 59 (73) (74) 14 232 (85) 0 0 (85) (17) 113 (109) (17) (30) 117 134 299

2011F 352 59 (17) (56) (1) 338 (80) 0 0 (80) 0 0 (74) 5 (69) 190 189 489

2012F 387 61 (36) (78) 8 343 (80) 0 0 (80) 0 0 (83) 7 (76) 187 187 675

2013F 414 63 (16) (85) 6 382 (80) 0 0 (80) 0 0 (93) 10 (83) 219 218 894

17.0

15.0

13.0

11.0

9.0

7.0

5.0 Dec-07

Apr-08

Aug-08



[ 189 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Uchi Technologies Bhd

OUTPERFORM

Maintained

RM1.34

@07/12/10

An unknown brew for 2011

MALAYSIA

2011 OUTLOOK


Target: RM1.68 Technology - Others

UCHI MK / UCHI.KL


• Reiterate OUTPERFORM as we raise our target price. Uchi remains an OUTPERFORM in view of the potential re-rating catalysts of better-than-expected FY11 guidance, stronger-than-expected order flows and higher contribution from higher-margin products. Although we maintain our EPS forecasts and valuation basis of 20% discount to our target market P/E, our target price rises from RM1.60 to RM1.68, purely because of the upgrade of our target market P/E from 13.8x to 14.5x. • Guidance for 2011 unknown but signs are positive. Uchi is unable to provide any guidance for FY11 as it is only meeting its clients in early Dec. Nevertheless, there are some encouraging signs as it has received some orders for as late as Apr 11 and lead times from some of its customers have been increasing. Meanwhile, Uchi has already raised its guidance for FY10 from 25-30% topline growth in US$ terms to 33-34%. • Future sources of revenue growth. Uchi’s revenue growth will depend on increasing outsourcing, either by i) piggybacking on Jura’s ambition of growing the market or ii) convincing its existing customers to outsource more to it. It is also perpetually working on 20-30 new products each year to help drive revenue and broaden its product offerings. Financial summary


RM503m/US$160m RM1.46 RM1.17 3-m avg daily vol: 0.3m No. of shrs (m): 376 Est. free float (%): 26.4 Conv. secs (m): None Major shareholders (%): - Eastbow International 24.6 - Lembaga Tabung Haji 10.1 - EPF 5.6


2008 122.8 53.5 43.6% 60.7 58.7 15.8 (24.7%) 8.5 15.8 (24.7%) 8.5 16.7 12.5% 2.9 34.1% 0.37 7.9 6.8

2009 83.1 41.1 49.4% 27.7 27.0 7.3 (53.9%) 18.5 10.1 (36.1%) 13.3 8.0 6.0% 3.0 16.2% 0.34 15.3 9.1

2010F 100.4 46.6 46.4% 45.0 44.7 12.1 66.1% 11.1 12.1 19.9% 11.1 13.3 10.0% 2.9 26.8% 0.34 12.5 7.9 N/A 1.07

2011F 110.5 50.9 46.1% 49.0 48.9 13.2 9.2% 10.2 13.2 9.2% 10.2 14.1 10.5% 2.8 27.8% 0.36 11.1 7.1 N/A 1.01

2012F 121.5 55.7 45.9% 53.8 53.7 14.5 9.8% 9.3 14.5 9.8% 9.3 15.4 11.5% 2.6 28.8% 0.38 10.0 6.4 N/A 1.03


Price chart

Corporate profile

1.6

4.00

1.6

3.50

1.5

3.00

1.5 1.4

2.50

1.4

2.00

1.3

1.50

1.3

1.00

1.2

0.50

1.2 1.1 De c-09


Source: Bloomberg

Oct-10 Uchi Te chnolog ie s Bhd

Uchi was listed on the now-defunct Second Board in 2000. It is an original design manufacturer (ODM) of controller and power modules for fully automated coffee makers and scientific instruments. Uchi is the largest producer of fully automated coffee modules in the world. These products contribute around 80% of its revenue. Uchi supplies them to Eugster which supplies the completed coffee machines to Saeco (Italian), Jura (Swiss), Krups (German), AG (German), Bosch (German), Siemens (German) and Nestle (Swiss). The remaining 20% of Uchi’s revenue comes from the biotech division, namely weighing scales and lab products.


[ 190 ]



2008 123 (69) 54 (2) 52 9 0 0 0 61 (2) 0 59 373 372

2009 83 (42) 41 (2) 39 (1) 0 (11) 0 28 (1) 0 27 371 371

2010F 100 (54) 47 (3) 44 1 0 0 0 45 0 0 45 371 371

2011F 110 (60) 51 (3) 48 1 0 0 0 49 0 0 49 371 371

2012F 122 (66) 56 (3) 53 1 0 0 0 54 0 0 54 371 371

2011F 36 0 8 45 133 14 18 1 166 16 0 14 30 0 1 1 181 0 0.49

2012F (FYE Dec) 39 Average selling price (RM/unit) 0 Units of microcontrollers (m) 8 47 140 16 19 1 176 17 0 14 31 0 1 1 191 0 0.52

2008 28 0 13 41 136 16 14 1 167 13 0 25 38 0 1 1 169 0 0.45

2009 32 0 8 40 125 10 13 1 149 11 0 14 25 0 1 1 163 0 0.44

2010F 34 0 8 43 128 13 16 1 158 14 0 14 28 0 1 1 171 0 0.46

2010F 20.8 13.3 44.8 44.6 N/A 0.6 83.0 53.5 42.4 45.7

2011F 10.0 9.4 44.4 44.2 N/A 0.4 80.0 55.8 45.6 49.1

2012F 10.0 9.4 44.3 44.2 N/A 0.3 80.0 55.8 45.8 49.3

2009 130 0.6

2010F 140 0.7

2011F 150 0.9

2012F 160 0.9



2009 (32.3) (23.2) 33.3 32.4 N/A 2.7 70.0 59.8 56.9 52.6

KEY DRIVERS


2008 (21.7) (28.3) 49.4 47.8 N/A 3.2 78.4 50.7 56.7 43.3


2008 61 2 9 (1) (6) 65 (10) 8 5 3 0 0 (75) (5) (80) (11) (11) 136

2009 28 2 4 (1) (2) 31 (5) 4 3 3 0 0 (44) (1) (46) (12) (12) 125

2010F 45 3 (3) 0 (1) 44 (5) 0 0 (5) 0 0 (37) 1 (36) 3 3 127

2011F 49 3 (2) 0 (1) 49 (5) 0 0 (5) 0 0 (39) 1 (38) 6 6 133

2012F 54 3 (2) 0 (1) 54 (5) 0 0 (5) 0 0 (43) 1 (42) 7 7 140

17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 Dec-07

Apr-08

Aug-08



[ 191 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


UMW Holdings Bhd

OUTPERFORM

Maintained

RM6.91

@07/12/10

Vehicle for auto exposure

MALAYSIA

2011 OUTLOOK



UMWH MK / UMWS.KL


• Reiterate OUTPERFORM. With 46% share of the domestic market through Perodua and Toyota, UMW is a good proxy for the auto sector, which has done very well in terms of sales. But UMW’s share price hardly reflects this, having risen only 9% YTD against the KLCI’s 18% gain. We maintain our OUTPERFORM rating given the potential share price triggers of 1) rising contribution from the auto segment, 2) recovery of its O&G earnings, and 3) listing of its O&G division. No changes are made to our earnings projections or SOP-based target price of RM8.85, which continues to tag target P/Es of 13.8x to its auto division, 10x to manufacturing & equipment and 7.5x to O&G. • Auto division to remain the key earnings driver. Due to the liberalisation of the auto sector, we think that competition will remain intense as consumers have increasingly broader product choices. But we think that UMW Toyota and Perodua will continue to introduce new models to enhance their model line-up and sustain orders. In 2011, Perodua is slated to release the replacement for the Myvi, which we expect will be a key volume driver for the national carmaker. 2011 will also see the full-year impact from the recent launch of the Toyota Avanza. • Oil & gas division to recover in 2011? Sentiment on the stock could be weighed down by the losses at its O&G division. But we expect prospects for its O&G division to improve in 2011. Recall that Naga 2 started operations at end-Sep 10, which means that its maiden full-year contribution will be reflected in 2011. UMW has also taken delivery of Naga 3 and is in active negotiations with potential clients. However, UMW may incur pre-operating expenses in the period leading up to the successful deployment of the new premium jack-up rig. Financial summary

Stock Information Market cap: RM7,960m/US$2,538m 12-m price range: RM7.01 RM5.96 3-m avg daily vol: 2.3m No. of shrs (m): 1,152 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - Permodalan Nasional Bhd 61.0 - EPF 10.2 - Kumpulan Wang Persaraan 5.1


2008 12,769.6 1,268.2 9.9% 1,276.7 565.8 52.2 16.6% 13.2 37.3 5.4% 2.1 17.0% N/A 0.27 20.9 6.5

2009 10,699.0 1,013.5 9.5% 846.5 382.4 34.6 (33.8%) 20.0 27.0 3.9% 2.0 10.5% 8.4% N/A 8.9 9.1

2010F 12,361.3 1,505.5 12.2% 1,417.2 652.7 58.3 68.6% 11.8 39.0 5.6% 1.9 16.6% 1.2% N/A 13.0 6.1 1.04

2011F 12,917.6 1,553.2 12.0% 1,505.6 736.6 65.8 12.8% 10.5 44.0 6.4% 1.7 17.2% N/A 0.41 11.9 5.8 1.06

2012F 13,716.4 1,616.6 11.8% 1,573.2 771.3 68.9 4.7% 10.0 45.9 6.6% 1.6 16.6% N/A 0.89 11.0 5.4 0.97


Price chart

Corporate profile

7.4

0.80

7.2

0.70

7.0

0.60

6.8

0.50

6.6

0.40

6.4

0.30

6.2

0.20

6.0

0.10

5.8 5.6 De c-09


Oct-10 UMW Holdings Bhd

UMW Holdings, a 61%-owned subsidiary of Permodalan Nasional, is the exclusive assembler and distributor of the Toyota marque in Malaysia. Within the auto sector, it has the biggest exposure to the sector with a 46% market share through Toyota (15%) and Perodua (31%). Its other major divisions include the oil & gas (O&G), manufacturing and engineering (M&E) as well as the equipment divisions. The auto division remains UMW’s biggest earnings contributor, accounting for close to 80% of group revenue.

Source: Bloomberg


[ 192 ]



2008 12,770 (11,501) 1,268 (195) 1,074 3 200 0 0 1,277 (321) (390) 566 1,084 1,092

2009 2010F 10,699 12,361 (9,686) (10,856) 1,013 1,506 (236) (290) 778 1,216 (2) (12) 71 213 0 0 0 0 846 1,417 (199) (357) (265) (407) 382 653 1,106 1,119 1,119 1,119

2011F 2012F (FYE Dec) 12,918 13,716 Revenue growth (%) (11,364) (12,100) EBITDA growth (%) 1,553 1,617 Pretax margins (%) (294) (294) Net profit margins (%) 1,260 1,322 Interest cover (x) (45) (29) Effective tax rates (%) 291 280 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 1,506 1,573 Creditors turnover (days) (388) (401) (381) (401) 737 771 1,119 1,119 1,119 1,119

2008 1,792 133 1,973 3,898 1,538 1,454 683 255 3,930 990 528 925 2,443 720 60 780 3,522 1,083 3.10

2009 2,781 241 1,870 4,892 1,733 1,304 642 255 3,934 889 294 785 1,968 1,851 88 1,938 3,774 1,146 3.16

2010F 2,845 241 1,966 5,053 1,842 1,506 742 295 4,385 1,027 244 863 2,134 1,666 88 1,753 4,099 1,451 3.45

2011F 2,855 241 2,063 5,159 2,177 1,574 775 308 4,834 1,073 220 909 2,203 1,499 88 1,587 4,466 1,737 3.77

2012F 2,862 241 2,159 5,262 2,543 1,671 823 327 5,364 1,140 199 960 2,299 1,349 88 1,437 4,853 2,038 4.12

2008 1,277 195 (286) (177) (411) 597 (630) (174) 75 (728) 486 92 (479) 3 102 (29) (515) 290

2009 846 236 22 (321) (15) 768 (601) (5) (198) (803) 897 131 (492) (283) 253 218 (679) (411)

2010F 1,417 290 (112) (199) (156) 1,240 (300) (97) 0 (397) (235) 0 (262) (12) (509) 334 569 (67)

2011F 1,506 294 (37) (357) (123) 1,282 (300) (97) 0 (397) (190) 0 (361) (45) (596) 289 479 457

2012F 1,573 294 (54) (388) (128) 1,298 (300) (97) 0 (397) (171) 0 (364) (29) (564) 337 508 994

2010F 15.5 48.6 11.5 5.3 26.1 25.2 50.2 20.4 41.5 28.3

2011F 4.5 3.2 11.7 5.7 19.8 25.7 50.1 21.4 43.5 29.7

2012F 6.2 4.1 11.5 5.6 23.1 25.5 49.9 21.3 43.2 29.4

(FYE Dec) Unit sales Unit sales growth (%) Exchange rate (RM to US$)

2009 79,422 -15.2% 3.60

2010F 91,026 14.6% 3.30

2011F 2012F 94,576 100,568 3.9% 6.3% 3.25 3.25



2009 (16.2) (20.1) 7.9 3.6 22.4 23.5 58.6 22.6 47.0 32.1

KEY DRIVERS


2008 28.0 55.6 10.0 4.4 22.3 25.1 52.8 18.8 36.3 26.9

16.0 15.0 14.0

13.0 12.0

11.0 10.0 9.0 Dec-07

Apr-08

Aug-08



[ 193 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Unisem (M) Berhad

OUTPERFORM

Maintained

RM1.96

@07/12/10

All eyes on China

MALAYSIA

2011 OUTLOOK


Target: RM2.82 Semiconductor

UNI MK / UNSM.KL


• Reiterate OUTPERFORM. We maintain our OUTPERFORM rating on Unisem in view of the potential catalysts of earnings surprises, more tier 1 customer qualification and demand revival. Also intact are our EPS forecasts and target price of RM2.82 as we continue to value the stock at 1.6x P/BV, a 20% discount to its mid-cycle valuation. • Gunning for 20% revenue growth. Unisem aims to expand its topline by 20% for 2011 as it plans to increase its market share for advanced packages. It is also looking to raise its market share as a whole by growing its business from existing customers, bringing in new customers and qualifying one or two tier-1 customers. The guidance is slightly above our own forecast of a 15% growth as we are a bit more cautious about the uptick in demand and visibility is limited. • Pouring capex into China. Unisem’s China operations are still expected to be the main driver for the group. This unit will be raising its capacity by 30-40% and the revenue growth profile for 2011 is expected to be similar to its capacity expansion there. Capex for FY11 will be RM200m-250m, and will mostly be spent on China. • Test-only facility. Unisem is constructing its test-only facility in Ipoh which should be ready by 4Q11. It will give it more capacity, free up space in its existing facility and allow for a more streamlined and efficient operation. Financial summary

Stock Information Market cap: RM1,321m/US$421m 12-m price range: RM3.48 RM1.15 3-m avg daily vol: 2.5m No. of shrs (m): 674 Est. free float (%): 35.3 Conv. secs (m): 168.5 Major shareholders (%): - John Chia 32.0 - LTAT 5.4 - EPF 3.7


2008 1,233.4 235.7 19.1% 24.0 19.8 3.7 (85.5%) 53.7 10.0 (28.9%) 19.6 10.0 19.6 3.0 1.5% 1.4 2.4% 54.9% (210.7) 6.5

2009 1,036.3 245.4 23.7% 58.4 61.8 9.2 151.1% 21.4 10.2 1.8% 19.3 10.2 19.3 2.5 1.3% 1.4 6.9% 34.4% (17.7) 6.8

2010F 1,396.8 342.7 24.5% 197.9 178.7 26.5 189.1% 7.4 26.5 160.5% 7.4 22.5 8.7 8.0 4.1% 1.2 17.7% 29.4% 20.8 4.8 N/A 1.04

2011F 1,605.3 412.2 25.7% 230.3 204.0 30.3 14.2% 6.5 30.3 14.2% 6.5 25.4 7.7 13.3 6.8% 1.1 18.0% 25.2% 15.5 4.0 N/A 1.10

2012F 1,748.2 455.1 26.0% 267.5 231.9 34.4 13.7% 5.7 34.4 13.7% 5.7 28.7 6.8 13.3 6.8% 1.0 18.4% 14.7% 8.3 3.4 N/A 1.14


Price chart

Corporate profile

3.0 2.8

2.50

2.6

2.00

2.4 2.2

1.50

2.0 1.8

1.00

1.6 1.4

0.50

1.2 1.0 De c-09


Oct-10

Unisem is a leading semiconductor packaging and test services company in Malaysia. It has its main packaging and test facilities in Ipoh, Malaysia. It completed the acquisition of a competitor in Mauritius in July 2007, making it one of the global top 10 semiconductor and test services (SATS) players. Unisem offers an integrated suite of packaging and test services such as wafer bump, wafer probe, wafer grinding and a wide range of leadframe and substrate IC packaging, among others.

Unis e m (M) Be rha d

Source: Bloomberg


[ 194 ]



2008 1,233 (998) 236 (157) 79 (10) 0 (45) 0 24 (6) 2 20 542 613

2009 1,036 (791) 245 (164) 82 (17) 0 (7) 0 58 2 1 62 674 674

2010F 1,397 (1,054) 343 (154) 188 10 0 0 0 198 (18) (1) 179 674 674

2011F 1,605 (1,193) 412 (175) 238 (7) 0 0 0 230 (23) (3) 204 674 674

2012F 1,748 (1,293) 455 (180) 275 (8) 0 0 0 267 (32) (3) 232 674 674

2008 1,149 97 32 1,278 102 114 147 0 364 192 268 1 461 300 32 332 836 13 1.21

2009 1,118 93 30 1,241 66 127 186 0 380 230 270 1 501 127 31 157 950 12 1.27

2010F 1,214 93 22 1,329 76 169 251 0 497 307 270 1 578 127 33 160 1,075 13 1.46

2011F 1,289 93 37 1,419 72 191 289 0 552 348 250 1 598 127 41 167 1,190 16 1.63

2012F (FYE Dec) 1,309 Global semicon sales (US$bn) 93 EBITDA Margin (%) 57 1,460 141 207 315 0 663 377 250 1 627 90 54 144 1,332 20 1.84

2010F 34.8 39.7 14.2 12.8 N/A 9.0 22.5 57.2 38.7 70.2

2011F 14.9 20.3 14.3 12.7 N/A 10.0 32.9 61.4 41.0 74.4

2012F 8.9 10.4 15.3 13.3 N/A 12.0 29.0 63.0 41.6 75.6

2009 229 23.7%

2010F 302 24.5%

2011F 317 25.7%

2012F 333 26.0%



2009 (16.0) 4.1 5.6 6.0 N/A N/A 20.7 58.8 42.5 74.4

KEY DRIVERS


2008 26.8 3.7 1.9 1.6 N/A 23.8 59.9 51.4 37.7 74.2


2008 24 157 (94) (5) 96 177 (119) 0 (7) (126) (28) 0 (24) (28) (79) (29) (1) (466)

2009 58 164 (13) 2 25 236 (134) 0 3 (131) (155) 67 (12) (24) (124) (20) 136 (330)

2010F 198 154 (30) (18) 0 304 (250) 0 0 (250) 0 0 (54) 10 (44) 10 10 (320)

2011F 230 175 (19) (23) 0 363 (250) 0 0 (250) (20) 0 (89) (7) (117) (4) 16 (304)

2012F 267 180 (13) (32) 0 403 (200) 0 0 (200) (37) 0 (90) (8) (134) 69 105 (199)

12.0

10.0

8.0

6.0

4.0

2.0 Dec-07

Apr-08

Aug-08



[ 195 ]

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Apr-09

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Dec-09

Apr-10

Aug-10

Dec-10


Wah Seong Corp Bhd

NEUTRAL

Maintained

RM2.00

@07/12/10

In need of a stronger coating of growth

MALAYSIA

2011 OUTLOOK



WSC MK / WAHE.KL


• Maintain OUTPERFORM. We maintain our forecasts but raise our target price from RM2.24 to RM2.36, pegged to a revised target market P/E of 14.5x (13.8x previously). Wah Seong remains a NEUTRAL. Our top oil & gas pick is SapuraCrest. • Gorgon project interrupted. The 3-year, RM551m Chevron Australia’s Gorgon project, which involves the coating of 850km of pipes, commenced in Apr 10 but was halted for a few weeks beginning Jun. The project resumed in late Jul but at a slow pace. Putting the production hiccup behind, management stated that the project is already back on track and that the company’s 4Q performance should better reflect the execution of the project. Now in full production, the project takes up about 70% of the Kuantan facility’s capacity and will contribute for the first full year in FY11. Management has expressed its interest in other Australian pipe coating contracts that are yet to be awarded including two by Woodside and Inpex estimated to be worth some RM1.3bn. • Engineering unit shows progress. While the pipe coating and corrosion protection business awaits the award of new contracts, the engineering business has picked up new jobs worth US$60m, which have helped to boost the company’s order book value to RM1.3bn. Engineering jobs contribute 30% to the order book. Pipe coating and corrosion protection remains the company’s main business with a 43% order book contribution. Financial summary

Stock Information Market cap: RM1,448m/US$462m 12-m price range: RM2.75 RM1.97 3-m avg daily vol: 0.9m No. of shrs (m): 724 Est. free float (%): 57.9 Conv. secs (m): 30.7 Major shareholders (%): - Wah Seong (Malaya) 26.7 - Chan Cheu Leong 8.6 - EPF 6.8

FYE Dec Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2008 2,343.2 247.2 10.5% 152.9 115.6 17.7 13.6% 11.3 14.1 14.2 6.5 3.3% 3.2 31.2% 38.6% N/A 40.2 7.3

2009 1,950.3 452.1 23.2% 245.8 121.3 17.8 0.6% 11.2 14.3 14.0 7.4 3.7% 3.2 29.3% N/A 0.01 4.5 3.6

2010F 1,372.6 129.5 9.4% 67.3 51.9 7.6 (57.2%) 26.2 6.1 32.6 2.7 1.3% 3.7 13.0% N/A 0.39 4.5 10.8 0.83

2011F 1,639.3 221.3 13.5% 156.3 107.4 15.8 106.7% 12.7 12.7 15.8 5.5 2.8% 3.3 27.4% N/A 0.40 40.9 6.4 1.05

2012F 1,712.6 273.2 16.0% 205.0 137.7 20.2 28.2% 9.9 16.2 12.3 7.1 3.5% 3.1 32.4% N/A 0.74 5.0 4.5 1.18


Price chart


2.8

0.50 2.6

0.40 2.4

0.30

2.2

0.20

2.0 1.8 De c-09


Source: Bloomberg

Oct-10 Wa h S e ong Corp Bhd

Wah Seong is principally involved in the provision of highly specialised pipe coating services via its pipe coating and corrosion protection business, which has a major presence across Asia. The company’s client base of oil & gas majors and state-run oil & gas companies shows that it can compete internationally in an industry with high entry barriers. In recent years, Wah Seong has made inroads into the engineering business with the fabrication of gas compressors through GSI International. After completing works in Turkmenistan, the company is now eyeing more pipe coating jobs in Australia.


[ 196 ]



2008 2,343 (2,096) 247 (75) 172 (25) 6 0 0 153 (20) (17) 116 652 652

2009 1,950 (1,498) 452 (248) 204 40 1 0 0 246 (40) (85) 121 681 681

2010F 1,373 (1,243) 130 (28) 102 (39) 5 0 0 67 (11) (5) 52 724 724

2011F 1,639 (1,418) 221 (30) 191 (40) 6 0 0 156 (25) (24) 107 724 724

2012F 1,713 (1,439) 273 (33) 240 (41) 7 0 0 205 (33) (35) 138 724 724

2011F 753 63 35 851 722 126 81 109 1,038 237 330 258 825 118 202 319 413 332 0.51

2012F 619 65 37 721 967 258 166 111 1,502 486 343 259 1,088 118 205 322 437 376 0.55

2008 1,164 60 33 1,257 167 109 73 107 455 205 297 256 757 118 195 312 403 240 0.53

2009 975 61 33 1,069 433 114 76 107 730 215 307 256 778 118 196 313 426 283 0.54

2010F 681 62 34 777 702 120 78 108 1,008 226 318 257 800 118 199 316 371 298 0.45

2010F (29.6) (71.4) 4.9 3.8 2.3 16.0 25.9 20.5 31.2 58.6

2011F 19.4 70.9 9.5 6.5 4.2 16.0 25.9 17.8 27.4 51.5

2012F 4.5 23.4 12.0 8.0 5.0 16.0 25.9 26.4 41.0 77.0

(FYE Dec) Order book (RM m) Overseas rev contribution (%) Number of oil & gas plants O&G contribution to order book (%) Oil & gas plants' utilisation (%)

2009 1,500 74.0% 10 85.0% 94.0%

2010F 1,500 74.0% 10 85.0% 94.0%

2011F 1,500 70.0% 10 85.0% 94.0%

2012F 1,500 70.0% 10 85.0% 94.0%



2009 (16.8) 82.9 12.6 6.2 5.6 16.1 30.8 13.9 20.9 39.3

KEY DRIVERS


2008 19.8 51.8 6.5 4.9 5.7 13.0 27.3 45.4 16.6 31.1


2008 153 75 442 (22) (50) 598 (500) (93) (18) (611) 10 0 (17) 35 28 15 5 (248)

2009 246 248 2 (31) (40) 426 (60) (93) (18) (171) 10 0 (33) 35 12 267 257 9

2010F 67 28 2 (34) 410 473 (59) (91) (17) (167) 11 0 (36) (13) (38) 268 257 266

2011F 156 30 2 (11) 26 204 (58) (89) (16) (163) 12 0 (13) (20) (21) 20 8 274

2012F 205 33 32 (25) 192 437 (57) (87) (15) (159) 13 0 (27) (19) (33) 245 232 506

30.0

25.0

20.0

15.0

10.0

5.0 Dec-07

Apr-08

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[ 197 ]

Dec-08

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Apr-10

Aug-10

Dec-10


WCT Bhd

OUTPERFORM

Maintained

RM3.00

@07/12/10

Moving to higher ground in 2011

MALAYSIA

2011 OUTLOOK



WCT MK / WCTE.KL


• Top construction pick. WCT’s upbeat view on its outlook in 2011 ties in with our overall positive stance on the construction sector. Locally, it will be driven by the implementation of mega jobs and focus projects under the government’s Economic Transformation Programme (ETP). The group is also optimistic about its prospects in the Middle East (ex-Dubai) and long-term positive on its positioning in Vietnam. Order book replenishment potential remains good, with RM2bn targeted for 2011. We reiterate our OUTPERFORM rating while raising our RNAV-based target price from RM4.21 to RM4.34 as we apply our revised target market P/E of 14.5x (prev. 13.8x) to its construction net profit component. The main potential re-rating catalyst is contract awards. WCT is one of our top picks for the construction sector. • 2010 target for new jobs in the bag; RM2bn in 2011. In 2010, the group clinched four jobs worth slightly over RM2bn, meeting its target. The outstanding order book stands at RM3.9bn with a roughly equal split between local and overseas jobs. The RM1.4bn Qatar government building project which was secured recently is a significant milestone for the group as it represents the biggest open tender overseas job awarded to a local contractor. The recently clinched RM486m new LCCT was another milestone that will boost the group’s recurring income base. Financial summary

Stock Information Market cap: RM2,359m/US$750m 12-m price range: RM3.27 RM2.48 3-m avg daily vol: 3.0m No. of shrs (m): 786 Est. free float (%): 51.1 Conv. secs (m): 139.9 Major shareholders (%): - EPF 20.5 - WCT Capital 22.0 - KWAP 6.4


2008 3,711.5 292.9 7.9% 158.4 101.3 12.9 (39.7%) 23.2 21.9 1.9% 13.7 20.8 14.4 8.8 2.9% 2.6 12.1% 43.4% (29.1) 9.9

2009 4,666.6 359.6 7.7% 207.9 143.9 18.4 42.0% 16.3 18.4 (16.0%) 16.3 17.5 17.2 10.0 3.3% 2.3 15.0% 35.2% 22.9 7.9

2010F 3,087.0 425.2 13.8% 284.8 151.2 19.3 5.1% 15.6 19.3 5.1% 15.6 18.3 16.4 10.0 3.3% 2.1 14.2% 30.1% 35.3 6.8 N/A 1.08

2011F 3,597.4 476.7 13.3% 325.2 180.8 23.1 19.5% 13.0 23.1 19.5% 13.0 22.6 13.3 10.0 3.3% 1.8 15.0% 22.8% 21.5 6.0 N/A 1.02

2012F 3,619.1 494.8 13.7% 331.8 187.7 23.9 3.8% 12.5 23.9 3.8% 12.5 23.8 12.6 10.0 3.3% 1.6 13.8% 18.7% 32.2 5.8 N/A 0.95


Price chart

Corporate profile

3.5 1.40 3.3

1.20 1.00

3.1

0.80

2.9

0.60 2.7 0.40 2.5 2.3 De c-09


Oct-10 WCT Bhd

WCT made its debut on the Second Board on 16 Feb 95 and was elevated to the Main Board on 7 Jan 99. Today, it is a well-diversified group with businesses in civil engineering, building & infrastructure construction, property development, property investment and toll highway concession. The group is one of the highly regarded contractors in the Gulf region. Over the past 28 years, WCT has completed over 300 projects worth RM9.5bn. The construction business is the biggest earnings contributor, accounting more than 60% of earnings, followed by property at 30%.

Source: Bloomberg


[ 198 ]



2008 3,712 (3,419) 293 (110) 183 25 21 0 (70) 158 (13) (44) 101 784 784

2009 4,667 (4,307) 360 (128) 231 (41) 17 0 0 208 5 (69) 144 784 784

2010F 3,087 (2,662) 425 (141) 285 (35) 36 0 0 285 (71) (62) 151 784 784

2011F 3,597 (3,121) 477 (157) 320 (35) 40 0 0 325 (81) (63) 181 784 784

2012F 3,619 (3,124) 495 (173) 322 (34) 44 0 0 332 (83) (61) 188 784 784

2011F 125 0 1,697 1,822 1,033 1 1,608 842 3,483 1,103 448 1,109 2,660 962 29 991 1,276 380 1.63

2012F 38 0 1,936 1,974 1,086 1 1,618 890 3,595 1,109 426 1,117 2,652 1,010 31 1,042 1,435 441 1.83

2008 305 0 1,165 1,470 865 1 1,227 642 2,735 842 522 851 2,214 831 35 866 904 220 1.15

2009 258 0 1,271 1,529 924 1 1,396 714 3,035 957 496 949 2,402 873 25 898 1,009 255 1.29

2010F 198 0 1,479 1,677 954 1 1,380 749 3,083 946 471 953 2,370 916 30 946 1,128 317 1.44

2010F (33.8) 18.2 9.2 4.9 4.3 25.0 37.2 164.1 0.1 112.5

2011F 16.5 12.1 9.0 5.0 4.8 25.0 31.2 151.6 0.1 103.9

2012F 0.6 3.8 9.2 5.2 4.7 25.0 30.0 162.7 0.1 111.5

(FYE Dec) Construction margins (%) Orderbook replenishment (RM m) Outstanding orderbook (RM m)

2009 9.0% 500 2,200

2010F 10.0% 1,700 3,900

2011F 12.0% 1,000 4,900

2012F 12.5% 1,000 5,900



2009 25.7 22.8 4.5 3.1 4.6 25.0 39.1 102.6 0.1 70.4

KEY DRIVERS


2008 33.4 (6.3) 4.3 2.7 4.2 8.3 48.9 108.2 0.1 74.2


2008 158 110 (23) (47) (30) 169 (76) (724) 0 (800) 550 0 (33) 166 683 52 (497) (489)

2009 208 128 (36) (66) 47 281 (79) (106) 0 (184) 5 0 (33) (19) (47) 50 45 (444)

2010F 285 141 (58) (56) 23 334 (82) (208) 0 (290) 23 0 (33) (1) (11) 33 10 (434)

2011F 325 157 (39) (70) 18 391 (84) (218) 0 (302) 21 0 (33) 0 (12) 77 56 (378)

2012F 332 173 (66) (80) 13 372 (87) (239) 0 (326) 27 0 (33) 15 9 55 28 (350)

23.0 21.0 19.0 17.0 15.0 13.0 11.0 9.0 7.0 5.0 Dec-07

Apr-08

Aug-08



[ 199 ]

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Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Wellcall Holdings

NEUTRAL

Maintained

RM1.19

@07/12/10

Overstretched by rubber

MALAYSIA

2011 OUTLOOK


Target: RM1.28 Ind Goods & Services - Others

WELL MK / WELL.KL


• Maintain NEUTRAL. Despite its high dividend yields, Wellcall remains a NEUTRAL as there are no re-rating catalysts in sight. Although we continue to value the stock at a 40% discount to Top Glove’s target P/E, our target price rises from RM1.22 to RM1.28 as we are raising Top Glove’s CY12 target P/E from 13.8x to 14.5x, in line with the revision of our target market P/E. For exposure to small-cap stocks in the rubber sector, we prefer glove producers, Latexx and Adventa. • Raw material price at record high. Rubber prices are at all-time highs. The price of SMR20 climbed 30% in the past three months to reach above the RM13/kg in November, even higher than the 2008 peak of RM10.50/kg. As there is a 2-3 months lag before Wellcall is able to pass on the cost rise to its customers, more margin erosion can be expected for 1QFY9/11. The margin deterioration could continue if raw material costs continue to trend higher. Our current forecast for the average SMR20 price is RM10/kg for FY11-12 compared with an average of RM9.50/kg in FY10. • Strong demand. Demand remains strong, with an order backlog of 2-3 months for extrusion hoses and around two months for mandrel. The company is already operating on two shifts to meet demand. But Wellcall is concerned that if raw material prices stay high, orders may slow down as customers fear that they could be caught with high-priced inventory when prices come off eventually. • Balance sheet is healthy. With RM40m net cash as at end-Sep, the company is able to pay out most of its earnings as dividends. In FY10, the net dividend payout ratio was 99%. Wellcall is looking at a major expansion in the long term. Land, factory and machinery capex could be around RM20m. Funding of the capex is not a concern in view of its net cash. Financial summary


RM157m/US$50m RM1.46 RM1.13 3-m avg daily vol: 0.2m No. of shrs (m): 132 Est. free float (%): 30.0 Conv. secs (m): None Major shareholders (%): - Maximum Perspective S/B 11.3 - PTB Ventures Sdn. Bhd. 10.9 - Chew Chee Chek 9.6

FYE Sep Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 79.0 16.3 20.6% 14.3 13.2 10.3 (22.8%) 11.5 14.7 12.3% 1.9 17.1% 0.33 6.7 6.8

2010 96.6 18.6 19.3% 16.0 14.6 11.1 7.4% 10.7 14.7 12.3% 2.0 18.5% 0.30 10.1 6.3

2011F 117.6 25.3 21.5% 22.0 16.7 12.7 14.5% 9.4 15.2 12.8% 2.0 21.4% 0.19 (560.1) 5.2 1.00

2012F 130.5 28.5 21.8% 25.2 19.2 14.5 14.5% 8.2 17.4 14.6% 1.9 24.0% 0.18 10.1 4.7 1.04

2013F 144.9 29.7 20.5% 26.4 20.1 15.2 4.8% 7.8 18.3 15.4% 1.9 24.5% 0.16 9.6 4.6 1.01


Price chart

Corporate profile

1.6

1.80 1.60

1.5

1.40

1.4

1.20 1.00

1.3

0.80

1.2

0.60 0.40

1.1 1.0 De c-09


Source: Bloomberg

Oct-10 We llca ll Holdings Bhd

Wellcall Holdings is Malaysia’s largest industrial rubber hose exporter, producing two main products – mandrel and extrusion hoses. Its products are in a niche market segment as they are made to order. Exports to markets like Asia, the Middle East, Europe and the US make up more than 90% of its sales. Asia remains its largest export market, with the Middle East coming in second. Wellcall has more than 130 customers in over 50 countries. Its customers are mainly involved in the distribution of rubber hoses to OEM producers. Its dividend yields are among the highest in our stock coverage. The S.E.A. Navigator – Malaysia 2011

[ 200 ]



2009 79 (63) 16 (4) 13 2 0 0 0 14 (1) 0 13 128 128

2010 97 (78) 19 (3) 15 1 0 0 0 16 (1) 0 15 132 132

2011F 118 (92) 25 (3) 22 0 0 0 0 22 (5) 0 17 132 132

2012F 131 (102) 29 (3) 25 0 0 0 0 25 (6) 0 19 132 132

2013F 145 (115) 30 (3) 26 0 0 0 0 26 (6) 0 20 132 132

2009 29 0 2 31 42 10 2 1 55 2 0 3 5 0 1 1 80 0 0.63

2010 28 0 2 30 40 11 4 1 56 4 0 4 8 0 1 1 77 0 0.59

2011F 39 0 2 41 25 11 11 1 47 5 0 4 8 0 1 1 79 0 0.60

2012F 41 0 2 43 23 12 12 1 47 5 0 4 9 0 1 1 81 0 0.61

2013F (FYE Sep) 42 Capacity (tonnes p.a.) 0 Capacity utilisation (%) 2 45 21 13 13 1 48 6 0 4 9 0 1 1 83 0 0.63

2009 14 4 11 (1) (1) 26 (5) 0 0 (5) 0 1 (9) 2 (6) 15 15 42

2010 16 3 0 (2) (1) 17 (2) 0 0 (2) 0 (4) (14) 1 (17) (2) (2) 40

2011F 22 3 (6) (5) 1 15 (15) 0 0 (15) 0 0 (15) 0 (15) (15) (15) 25

2012F 25 3 (2) (6) 0 20 (5) 0 0 (5) 0 0 (17) 0 (17) (2) (2) 23

2013F 26 3 (3) (6) 0 21 (5) 0 0 (5) 0 0 (18) 0 (18) (2) (2) 21

2011F 21.7 36.0 18.7 14.2 N/A 24.0 89.7 22.2 34.0 13.7

2012F 11.0 12.6 19.3 14.7 N/A 24.0 89.8 31.2 31.2 13.9

2013F 11.0 4.2 18.2 13.8 N/A 24.0 90.0 31.2 31.2 13.9

2010 33,000 53.9%

2011F 33,000 60.0%

2012F 46,000 49.0%

2013F 46,000 53.0%



2010 22.3 14.1 16.6 15.1 N/A 8.8 99.3 11.1 40.4 12.1

KEY DRIVERS


2009 (33.7) (16.8) 18.1 16.7 N/A 7.7 106.8 15.9 73.2 19.4


14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 Dec-07

Apr-08

Aug-08



[ 201 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10


Xingquan International

OUTPERFORM

Maintained

RM1.53

@07/12/10

Full of sole

MALAYSIA

2011 OUTLOOK


Target: RM3.04 Retail

XISH MK / XING.KL


• Maintain OUTPERFORM. Xingquan remains an OUTPERFORM with an unchanged target price of RM3.04, based on 6x CY12 P/E. The stock offers one of the most attractive valuations in our regional footwear coverage as it is trading at huge discounts of 70-80% to its bigger peers. Potential re-rating catalysts for Xingquan include better-than-expected trade fair orders and sharp declines in raw material prices. • Indirect play on consumer spending in China’s second-tier cities. Xingquan is an indirect play on China’s consumer market. Its “Addnice” brand is strong in China’s second- and third-tier cities whose growth is expected to outpace first-tier cities. • First-mover advantage in outdoor wear. Xingquan has established itself as one of China’s top shoe brands in outdoor wear with its “Addnice” brand. Due to stiff competition in the sports shoe market in China, the company diversified into the casual outdoor wear a few years ago. This has given the company first-mover advantage as many sport shoe companies in China have only just started to diversify into other markets such as casual or outdoor wear. • New capacity by early-2011. Xingquan’s new shoe factory, once ready by early 2011, will boost its annual production capacity to 10m pairs of shoes and 28m pairs of shoe soles. Its existing capacity is 6m pairs of shoes and 14m pairs of soles. • TDR expected to be completed by end-FY. Xingquan has proposed a Taiwan Depositary Receipts (TDR) programme involving the issue of 46.1m new Xingquan shares amounting to 15% of its existing share capital. Assuming completion of the exercise by end-FY11, FY12 EPS dilution would be around 12%. Financial summary


RM470m/US$150m RM1.90 RM1.06 3-m avg daily vol: 0.3m No. of shrs (m): 307 Est. free float (%): 31.0 Conv. secs (m): None Major shareholders (%): - Tai Zhen Xiang Hldgs 58.4 - Koon Yew Yin 15.0

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net cash per share (RM) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 434.2 119.1 27.4% 110.8 92.2 42.9 38.3% 3.6 0.0 0.0% 2.7 84.0% 0.34 3.3 2.2

2010 609.3 136.5 22.4% 130.2 105.2 34.2 (20.1%) 4.5 5.0 3.3% 1.3 44.5% 0.81 7.1 1.6

2011F 762.5 186.8 24.5% 183.9 137.7 44.8 30.9% 3.4 6.7 4.4% 1.0 33.6% 0.65 (15.4) 1.5 0.51

2012F 880.0 201.8 22.9% 198.0 148.5 48.3 7.8% 3.2 7.2 4.7% 0.8 27.9% 0.88 5.0 1.0 0.47

2013F 1,002.9 218.5 21.8% 215.9 161.9 52.7 9.1% 2.9 7.9 5.2% 0.6 24.4% 1.16 4.3 0.5 0.47


Price chart

Corporate profile

2.0

5.00

1.9 1.8

4.00

1.7 1.6

3.00

1.5 1.4

2.00

1.3 1.2

1.00

1.1 1.0 De c-09


Source: Bloomberg

Oct-10 Xingqua n Inte rna tiona l

Listed in 2009, Xingquan International is the first foreign IPO in Bursa Malaysia. Its founder and executive chairman Wu Qingquan set up his shoe operations in Jinjiang, China in 1995. The company produces and distributes shoe soles and shoes under the “Addnice” brand and outsources the production of apparel and accessories. From producing just sports shoes, the company diversified into the outdoor market a few years ago and is now one of the top outdoor wear brands in China, competing with brands such as Timberland, North Face and Columbia. Currently, Xingquan has a distribution network of around 2,000. The S.E.A. Navigator – Malaysia 2011

[ 202 ]



2009 434 (315) 119 (6) 113 (2) 0 0 0 111 (19) 0 92 215 215

2010 609 (473) 137 (6) 131 0 0 0 0 130 (25) 0 105 307 307

2011F 763 (576) 187 (6) 181 3 0 0 0 184 (46) 0 138 307 307

2012F 880 (678) 202 (6) 196 2 0 0 0 198 (49) 0 148 307 307

2013F 1,003 (784) 218 (6) 213 3 0 0 0 216 (54) 0 162 307 307

2009 32 5 0 37 104 20 71 0 195 75 31 5 111 0 0 0 121 0 0.54

2010 79 7 0 86 281 19 57 0 356 55 30 5 90 0 0 0 352 0 1.12

2011F 219 7 0 226 230 42 71 0 343 23 30 46 100 0 0 0 469 0 1.50

2012F 262 7 0 269 302 51 82 0 435 29 30 49 109 0 0 0 595 0 1.91

2013F 306 7 0 313 386 61 93 0 540 36 30 54 120 0 0 0 733 0 2.36

2009 111 6 (3) (17) 2 99 (5) 0 0 (5) 8 0 (70) 24 (38) 56 48 73

2010 130 6 (5) (23) 0 109 (56) 0 (1) (57) 15 0 (7) 133 140 192 177 250

2011F 184 6 (69) (5) (3) 113 (146) 0 0 (146) 0 0 (21) 3 (18) (51) (51) 199

2012F 198 6 (14) (46) (2) 142 (49) 0 0 (49) 0 0 (22) 2 (20) 73 73 272

2013F 216 6 (14) (49) (3) 155 (49) 0 0 (49) 0 0 (24) 3 (21) 84 84 356

2010 40.3 14.7 21.4 17.3 108.3 19.2 14.6 38.3 11.6 39.0

2011F 25.2 36.9 24.1 18.1 103.1 25.1 15.0 30.5 14.7 18.7

2012F 15.4 8.0 22.5 16.9 111.7 25.0 15.0 31.6 19.4 10.9

2013F 14.0 8.3 21.5 16.1 121.2 25.0 15.0 31.8 20.5 11.9

(FYE Jun) Number of points of sales Footwear (Rmb/pair) Apparel (Rmb/piece) Footwear sales (m pairs) Apparel sales (m pieces)

2010 2,000 88 44 7.2 8.0

2011F 2,400 89 44 9.0 12.0

2012F 2,883 93 44 10.0 13.0

2013F 2,884 95 44 12.0 14.0



2009 32.5 44.7 25.5 21.2 50.7 16.8 0.0 64.7 14.6 56.1

KEY DRIVERS



6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jul-09

Nov-09



[ 203 ]

Mar-10

Jul-10

Nov-10


YTL Power International

OUTPERFORM

Maintained

RM2.44

@07/12/10

All eyes on Yes

MALAYSIA

2011 OUTLOOK


Target: RM2.97 IPP

YTLP MK / YTLP.KL


• Reiterate OUTPERFORM. YTL Power remains an OUTPERFORM as we like its i) multi-utility focus and ii) still-sizeable cash hoard in excess of RM7.8bn. We retain our SOP-based target price of RM2.97 and see potential share price triggers in i) good response for its WiMax service, Yes, ii) potential M&As and/or higher yields from its burgeoning cash pile and iii) positive earnings surprises from PowerSeraya. • Balancing core assets ... 2011 could finally see a win-win conclusion to the longdrawn PPA talks for its local power plants based on recently set deadlines. While there could be risk to Wessex Water’s translated earnings because of the weak £, this will be cushioned by PowerSeraya’s strong showing where margins are set to expand further with the commission of its new cogen plant in Oct 10. • ... with upside from Yes? Strong take-up and better awareness of Yes would be positive as we believe that the market does not fully appreciate the potential of YTL Power’s WiMAX venture given the limited details. We think that Yes’s product flexibility, bundling proposition and rebate for higher data usage could appeal. • RM7.8bn cash pile. YTL Power’s cash pile settled at RM7.8bn as at end-Sep 10. We expect this cash hoard to diminish as YTL Power channels cash to the enhancement of its WiMAX network and adds on hybrid TV for its eventual quad play offering. Having said that, we still believe that the group has sufficient funds to at least sustain dividend yields of 7-8% and/or snap up assets. Financial summary

Stock Information Market cap: RM17,729m/US$5,652m 12-m price range: RM2.60 RM2.14 3-m avg daily vol: 5.9m No. of shrs (m): 7,266 Est. free float (%): 20.0 Conv. secs (m): 1,202 Major shareholders (%): - YTL Corporation 52.0 - Employees Provident Fund 10.5

FYE Jun Revenue (RM m) EBITDA (RM m) EBITDA margins (%) Pretax profit (RM m) Net profit (RM m) EPS (sen) EPS growth (%) P/E (x) Core EPS (sen) Core EPS growth (%) Core P/E (x) FD core EPS (sen) FD core P/E (x) Gross DPS (sen) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x)

2009 6,093.4 2,482.7 40.7% 1,386.9 646.6 10.9 (45.3%) 22.3 18.4 (7.8%) 13.2 14.1 17.4 17.5 7.2% 2.4 10.4% 278.0% (5.2) 12.2

2010 13,442.9 2,875.5 21.4% 1,694.0 1,212.1 16.7 52.9% 14.6 16.7 (9.2%) 14.6 15.4 15.9 17.5 7.2% 2.4 18.1% 187.7% (9.7) 10.6

2011F 13,240.1 2,989.9 22.6% 1,749.2 1,251.5 17.3 3.2% 14.1 17.3 3.2% 14.1 15.8 15.4 17.5 7.2% 2.4 16.9% 186.7% (22.0) 10.3 1.04

2012F 13,430.8 3,015.3 22.5% 1,837.3 1,314.5 18.1 5.0% 13.5 18.1 5.0% 13.5 16.6 14.7 17.5 7.2% 2.3 17.3% 184.9% 320.2 10.2 1.02

2013F 13,576.6 3,115.9 23.0% 1,924.6 1,377.0 19.0 4.8% 12.8 19.0 4.8% 12.8 17.4 14.0 17.5 7.2% 2.2 17.6% 181.1% 87.5 9.9 1.04


Price chart

Corporate profile

2.8 2.7

3.00

2.6

2.50

2.5

2.00

2.4

1.50 2.3

1.00

2.2

0.50

2.1 2.0 De c-09


Source: Bloomberg

Oct-10 YTL P owe r Inte rna tiona l

Established in Oct 96, YTL Power is the global utilities arm of YTL Corp. Over the years, the group has evolved from just a local power play with two power generating assets into a global multi-utility group. YTL Power currently owns power plant assets in Malaysia, Indonesia and Singapore as well. It has exposure to water concession assets in the UK through Wessex Water and a 33.5% stake in Electranet, which owns and operates a power transmission network in Australia. The group recently launched its presence within the telco arena with the rollout of its WiMAX network, Yes. By end2011, it will emerge as a quad play with the offering of hybrid TV as well. The S.E.A. Navigator – Malaysia 2011

[ 204 ]


PROFIT & LOSS 2009 2010 2011F 6,093 13,443 13,240 (3,611) (10,567) (10,250) 2,483 2,875 2,990 (539) (682) (665) 1,944 2,193 2,325 (783) (726) (793) 225 227 217 0 0 0 0 0 0 1,387 1,694 1,749 (740) (482) (498) 0 0 0 1,212 1,251 647 5,910 7,247 7,247 5,910 7,247 7,247

(RM m, FYE Jun) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates’ contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m)

2012F 2013F (FYE Jun) 13,431 13,577 Revenue growth (%) (10,416) (10,461) EBITDA growth (%) 3,015 3,116 Pretax margins (%) (672) (678) Net profit margins (%) 2,344 2,438 Interest cover (x) (718) (729) Effective tax rates (%) 212 216 Net dividend payout (%) 0 0 Debtors turnover (days) 0 0 Stock turnover (days) 1,837 1,925 Creditors turnover (days) (523) (548) 0 0 1,314 1,377 7,247 7,247 7,247 7,247

2010 120.6 15.8 12.6 9.0 2.6 28.5 78.5 59.2 19.7 6.7

2011F (1.5) 4.0 13.2 9.5 2.6 28.5 76.0 56.7 16.7 10.0

2012F 1.4 0.8 13.7 9.8 2.7 28.5 72.4 57.6 16.9 9.8

2013F 1.1 3.3 14.2 10.1 2.8 28.5 69.1 76.2 16.9 9.9

2010 71.8% 4,739

2011F 71.8% 4,739

2012F 71.8% 4,739

2013F 71.8% 4,739

KEY DRIVERS

BALANCE SHEET 2009 17,283 6,332 1,875 25,491 6,012 859 2,353 0 9,224 126 2,527 2,349 5,002 20,388 3,244 23,632 6,081 0 (0.04)

(RM m, end Jun) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests NTA/share (RM)

2010 15,949 6,149 1,811 23,909 7,419 593 2,008 0 10,020 370 2,405 2,155 4,930 18,777 3,009 21,786 7,333 0 0.16

2011F 16,313 5,964 1,947 24,224 6,113 618 2,104 0 8,834 359 1,592 2,145 4,095 18,556 2,888 21,445 7,519 0 0.21

2012F 16,538 5,785 2,090 24,414 5,591 628 2,134 0 8,353 365 1,512 2,180 4,057 18,340 2,656 20,996 7,713 0 0.27

2013F (FYE Jun) 16,248 Average capacity utilisation (%) 5,612 Capacity (MW) 2,243 24,102 5,228 631 3,534 0 9,392 373 1,437 3,190 4,999 18,128 2,449 20,578 7,918 0 0.32 12M - FORWARD FD CORE P/E (X)


2009 43.6 4.1 22.8 10.6 2.2 53.4 120.0 100.8 30.3 5.6

2009 2010 2011F 2012F 2013F 1,387 1,694 1,749 1,837 1,925 539 682 665 672 678 2,031 (855) 132 34 0 (347) (740) (482) (498) (523) 89 198 313 (2,409) 941 1,200 1,722 2,153 2,243 2,393 (8,566) (1,387) (1,435) (1,478) (1,478) 3 4 4 4 4 0 0 0 0 0 (8,563) (1,383) (1,431) (1,474) (1,474) 5,355 (1,432) (734) 4 12 0 0 0 0 0 (776) (993) (993) (993) (993) (675) 3,793 (2) (2) (2) 3,905 1,368 (1,729) (991) (982) (3,458) 1,707 (1,007) (222) (64) (8,813) 3,140 (273) (226) (76) (16,902) (13,763) (14,036) (14,261) (14,336)

15.0

14.0

13.0

12.0

11.0

10.0

9.0 Dec-07

Apr-08

Aug-08


The S.E.A. Navigator – Malaysia (2011)

[ 205 ]

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

APPENDICES…

The S.E.A. Navigator – Malaysia (2011)

[ 206 ]

Malaysia Price as at 07-Dec-10

Earnings Summary No. of Stocks

Mkt Cap (RM m)

Mkt Cap (%w t)

Mkt Cap (%wt)

FD Core P/E (x) 2010 2011F 2012F

FD Core EPS growth (%) 2011F 2012F

Div yld (%) 2011F 2012F

P/BV (x) 2010E 2011F

Core ROE (%) 2011F 2012F

EV/EBITDA (x) 2012F

Automobiles and Parts

3

14,274

1.9%

1.9

11.5

9.8

8.7

17.1

14.1

SEA Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

The Navigator

Churhill's Navigator

Churhill's Navigator

Navigator Quistus

American Practical Navigator - Bowditch

Navigator Quistus

Bird-Brained Navigator

Bird-Brained Navigator

The American Practical Navigator

The Navigator of New York

The American Practical Navigator: Bowditch

Bird-Brained Navigator

NUMA 7 The Navigator

The Natural Navigator

Navigator (Time's Tapestry 3)

Handbook of the Navigator

The Navigator of New York

Sea

The great Russian navigator, A.I. Chirikov

Sea

Sea

SEA Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

Navigator

The Navigator

Churhill's Navigator

Churhill's Navigator

Navigator Quistus

American Practical Navigator - Bowditch

Navigator Quistus

Bird-Brained Navigator

Bird-Brained Navigator

The American Practical Navigator

The Navigator of New York

The American Practical Navigator: Bowditch

Bird-Brained Navigator

NUMA 7 The Navigator

The Natural Navigator

Navigator (Time's Tapestry 3)

Handbook of the Navigator

The Navigator of New York

Sea

The great Russian navigator, A.I. Chirikov

Sea

Sea

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