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8/14/2019 RHBRIs Monthly Stock Watch : Special Focus :Market Volatility Amidst Gradual Normalisation Of Policies -03/03/2010
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RHBRI'S MONTHLY STOCK WATCH2
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download fromwww.rhbinvest.com
Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
AFG Outperform New Coverage 9 Feb 2010
AirAsia Market Perform Market Perform 1 Mar 2010
Allianz Outperform Outperform 1 Mar 2010
Malaysia
Allianz Outperform Outperform 2 Mar 2010
Malaysia
AMMB Outperform Outperform 9 Feb 2010
Amway Outperform Outperform 18 Feb 2010
Initiating coverage with OP call and
fair value of RM3.27 based on 15x(1x discount to sector benchmark)
CY10 EPS.
FY12/10-11 net profit forecasts raised
by 26% and 59%, having raised our
assumptions on yields that more
than offset a lower annual capacity
growth assumption of 12.5% vis--
vis 14% previously.
FY10-11 forecasts were raised by
7.2-7.5% to reflect higher-than-
expected gross premium growth and
profit transfers.
Our FY10-12 earnings were raised by
14-14.5%, as we have: 1) raised our
investment return assumption to
4.0% from 3.4% p.a., in line with its
FY09 return; and 2) cut our claims
ratio assumptions to 60% from 61%
p.a. previously
FY10-12 forecasts raised by 6-7% to
reflect higher loan growth as well as
net interest and non-interest income.
Fair value raised to RM6.13 based
on the sector benchmark of 16x CY10
EPS, from RM5.64.
Our earnings forecast is reduced by
0.9% for FY09 and increased by 1.5-
1.9% p.a. for FY10-11 after adjusting
for: 1) higher increase in CDF; 2)
lowering our capex for FY10-11; and
3) increasing our RM vs. US$
assumption to RM3.60/US$ in FY09from RM3.55/US$. Our DCF-derived
fair value is increased to RM8.50
(from RM8.25) following our earnings
adjustment, using an unchanged
WACC of 8.1%.
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RHBRI'S MONTHLY STOCK WATCH3
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Amway Outperform Outperform 25 Feb 2010
Axiata Outperform Outperform 25 Feb 2010
BAT Underperform Underperform 12 Feb 2010
BP Plastics Outperform Outperform 9 Feb 2010
We reduced our FY10-11 forecasts
by 2.9-3.3% after adjusting for FY09results. We have introduced our FY12
forecasts with the following
assumptions: 1) 2% growth in CDF
yoy; 2) 1.5% growth in turnover per
distributor given its more saturated
market position; and 3) exchange
rate assumption of RM3.30/US$. We
expect Amway to continue its net
dividend payout of 90-95%,
translating to a respectable net
dividend yield of c.7% for FY10-12.
Our DCF-derived fair value is reduced
to RM8.45 (from RM8.50) using an
unchanged WACC of 8.1%.
We have tweaked our FY10-11 net
profit projections upwards by 2.5%
p.a. post release of the full-year
results. SOP-derived fair value raised
to RM4.05 from RM3.85, which takes
into account an update in valuation
parameters and, especially, the year-
end cash and debt balances of the
holding company.
We increased our earnings forecasts
by 2.3-2.4% p.a. for FY10-11 after
updating for FY09s results. We have
also introduced our FY12 earnings
forecast with a TIV growth assumption
of 2% in view of recovery in
consumption ahead coming from
economic growth as well as recovery
from the initial knee-jerking impact
after the small packs ban. Our DCF-
derived fair value is revised up to
RM38.95 (from RM38.53) based onunchanged WACC of 7.9%.
Tax rate assumptions were cut to
20% p.a. from 25% previously
following the tax incentives given to
its subsidiary. This resulted in 4.0-
6.6% increase in our FY12/10-11
earnings forecasts. Fair value has
been increased to RM0.80 (based on
unchanged 8x FY12/10 EPS which is
in line with its 3-year average PE)
from RM0.77 previously, following the
earnings upgrades.
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RHBRI'S MONTHLY STOCK WATCH4
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Carlsberg Outperform Outperform 25 Feb 2010
CIMB Group Outperform Outperform 24 Feb 2010
CSC Steel Outperform Outperform 8 Feb 2010
Cuscapi Underperform Underperform 25 Feb 2010
Daibochi Outperform New Coverage 4 Feb 2010
Digi Outperform Outperform 4 Feb 2010
We introduced our FY12 earnings
forecast assuming flattish TIV growthin view of the saturated market in
Malaysia and a 4% growth in
Carlsberg Singapore. We maintain
our DCF-based fair value of RM5.90
using an unchanged WACC of 9.2%.
FY10-11 forecasts raised by 9-14%
to reflect more robust loan growth
projection and capital market
prospects as well as positive
adjustment to end-FY09 NPLs. Fair
value has been raised from RM14.70
to RM16.24 (following the upward
revision in our forecasts) based on
unchanged 17x CY10 EPS.
FY12/09-11 net profit forecasts raised
by 22.9-40.9% to reflect higher
selling prices. Correspondingly,
indicative fair value is raised by
23.1% from RM1.64 to RM2.02
based on 9x revised FY12/10 EPS of
22.4 sen.
We have raised our FY10-11
earnings projections by 57% and 25%
respectively after factoring in: 1)
overseas expansion to target
international growth; and 2) lower
operating expenses. Accordingly, we
have raised our fair value to RM0.09/
share (from RM0.06/share)
previously based on unchanged 9x
FY10 EPS.
We initiated coverage on Daibochi
with a target price of RM4.40 basedon target 12x FY12/10 EPS.
We have fine-tuned and made some
minor adjustments to our FY10-11
earnings projections post release of
Digis 4QFY09 results. The changes,
however, are not too significant. Our
DCF-derived fair value has been
lowered marginally to RM23.90 from
RM24 (WACC=8.3%).
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RHBRI'S MONTHLY STOCK WATCH5
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Dialog Outperform Outperform 1 Mar 2010
EON Cap Outperform Outperform 22 Feb 2010
EPIC Outperform Outperform 23 Feb 2010
Euro Underperform Underperform 1 Mar 2010
Evergreen Outperform Outperform 23 Feb 2010
Faber Outperform Outperform 1 Mar 2010
Post adjustment for bonus issue, our
SOP fair value has been lowered toRM1.29/share (from RM1.80/share
previously), which is based on
unchanged 16x FY11 PER, i.e. at a
premium to the sector target PER of
13x.
FY10-11 forecasts raised by 11-14%
from higher loan growth and lower
NPL assumptions as well as fine-
tuning NIM assumption. Fair value
raised from RM7.76 (at 16x FY10
EPS or sector benchmark) to RM8.07
(15x to remove the M&A premium).
We have raised our FY10-11 EPS
forecasts by 19.6% and 17.3%
respectively after factoring in lower
operating expenses, lower tax rate
as well as higher contribution for its
Kemaman Port. Accordingly, our fair
value was raised to RM2.69 (vs.
RM2.25 previously) based on
unchanged 10x FY10 PER.
We have tweaked our FY10 and FY11
earnings forecasts slightly to reflect
Euros year-end balance sheet. Our
fair value has been lowered slightly
to RM0.28 (from RM0.30), which is
based on unchanged target FY10 PER
of 8.5x.
We increased our earnings forecasts
for FY09-11 by 1.6%-11.0% p.a. after
adjusting for FY09 results as well as
an increase to our FY11 average
selling prices. We also introduced ourFY12 earnings forecasts with the
following assumptions: 1) 90%
utilisation capacity; 2) 8% increase
in average selling prices yoy; and 3)
exchange rate assumption of
RM3.30/US$. We value Evergreen at
RM2.35 (from RM2.30) based on
unchanged target PER of 11x FY12/
10 earnings (which is at a 3x PE
discount to the timber sector).
Our fair value has been raised slightly
to RM3.01 (from RM2.94) previously
after updating for Fabers net cash
position as at Dec09.
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RHBRI'S MONTHLY STOCK WATCH6
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Freight Outperform Outperform 1 Mar 2010
Management
Furniweb Market Perform Market Perform 23 Feb 2010
Furniweb Outperform Market Perform 3 Mar 2010
Genting Outperform Outperform 1 Mar 2010
Genting Market Perform Market Perform 1 Mar 2010
Malaysia
FY06/10-12 net profit forecasts raised
by 0.7-11.1%, largely to reflect lowereffective rate assumptions in FY06/
10-12. Correspondingly, indicative
fair value is raised by 10.2% from
RM1.27 to RM1.40 based on 10x
revised CY2010 EPS of 14.0 sen.
We have revised our FY10 and FY11
effective tax rate assumptions to
17.5% p.a. respectively (vs. 28.5%
p.a.). Consequently, our FY10 and
FY11 earnings forecasts have been
raised by 15.4% respectively. Our fair
value has been raised to RM0.66
(from RM0.57) based on unchanged
target FY12/10 PER of 8.5x.
Following the recent correction in
share price, valuations have become
attractive and we have thus,
upgraded our call on the stock to
Outperform. Fair value of RM0.66
(based on target CY10 PER of 8.5x)
remains unchanged.
Post-FY09 results, we revised our
forecasts down by 3.2-3.5% p.a. for
FY10-11 and introduced our FY12
forecasts. Post-earnings revision and
after updating our revised fair value
for Genting Malaysia (to RM2.90 from
RM3.00), the latest market value of
Landmarks, and the latest company
net debt level for Genting (ex-GM
and GS), our SOP-based fair value
for Genting is reduced to RM8.90
(from RM9.45).
Post-FY09 results, we revised our
forecasts downwards slightly by
between 3.6-5.3% for FY10-11 and
introduced our FY12 forecasts, based
on a 2% visitor growth assumption,
revenue per visitor growth of 2% and
hotel occupancy rate of 90%. Post-
earnings revision and after rolling
over our DCF period by one year,
adjusting for the latest market value
for Genting HK and updating for GMs
end-FY09 net cash balance, we
reduced our SOP-based fair value to
RM2.90 (from RM3.00).
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RHBRI'S MONTHLY STOCK WATCH7
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Genting Underperform Underperform 5 Feb 2010
Plantations
Genting Outperform Outperform 8 Feb 2010
Singapore
Genting Outperform Outperform 1 Mar 2010
Singapore
Post-company visit, we revised our
forecasts downwards by 3.4-6.9% for
FY09-11, after: (1) revising our CPO
price assumption for FY09 down to
RM2,240/tonne (from RM2,300/t);
(2) adjusting our FFB production
numbers for FY09 to be in line with
the actual numbers (i.e. -6% yoy
from -5% yoy) and to project growth
of 4-6% p.a. of FY10-11
(unchanged); (3) revising our
production cost estimates to reflect
a 0-1% decline in production costs
in FY10 (from 4-5% decline
previously), and a 3-4% increase in
FY11 (unchanged), translating to
production costs of between
RM1,300-1,400/tonne for FY10-11;
(4) raising total new planted areas
in FY09 to 11,000ha (from 8,500ha)
and for FY10-11 to 15,000ha (from
10,000ha previously); and (5)
increasing our projected loss from
the biotech division to RM15m p.a.
for FY10-11 (from -RM5m loss
previously). Post-earnings revision,
we have lowered our fair value to
RM5.85 (from RM6.05), based on an
unchanged 14.5x CY10 target PE
multiple.
We raised our forecasts by 16.6%
for FY10, but leave our FY11 and
beyond forecasts relatively
unchanged, after taking into account
the gaming monopoly RWS will have
in the first one-and-a-half months
of its operations, assuming Marina
Bay Sands opens beginning April
2010. No change to our fair value of
S$1.35.
We have tweaked our forecast
downwards slightly for FY10-11 by -
2.5-2.6% p.a., after taking into
account adjustments made after
FY09s full year financial results and
introduced our FY12 forecasts. No
change to our fair value of S$1.35.
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RHBRI'S MONTHLY STOCK WATCH8
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Hai-O Outperform Outperform 1 Mar 2010
H-Displays Underperform Underperform 1 Mar 2010
HL Bank Underperform Trading Buy 25 Feb 2010
Hock Seng Lee Outperform Outperform 24 Feb 2010
Hunza Market Perform Market Perform 3 Feb 2010Properties
We have increased our target PE of
Hai-O to 11.5x (from 9x), which is a20% discount (from 38% discount
previously) to the 14.5x target PE
for the consumer sector, due to
improved liquidity, as over the past
6 months, average daily volume has
increased to 150,000 from 100,000
previously. As such, our target price
is increased to RM12.70 (from
RM9.90).
We have reduced our FY10-11
earnings projections by 26% and 22%
after factoring in lower demand for
ESL. Accordingly, we have lowered our
fair value to RM0.06/share (from
RM0.08/share previously), which is
based on unchanged 6x FY10 PER.
FY10 forecast raised by 2.6% to
account for the low tax rate in 1H.
The takeover saga (of EON Cap) may
prevent any value enhancing
exercise. Thus, we changed our
valuation method from P/B to PER
and cut our fair value from RM9.07
(2.5x P/B) to RM8.48 (15x CY10 EPS)
and recommendation from Trading
Buy to Underperform as potential
upside is more than 5% below the
market.
FY12/09-11 net profit forecasts raised
by 10-11% largely to reflect stronger
profit recognition from the Kuching
Sewerage Project (Package 1).
Downgraded our FY10-12 EPSforecasts by 17.1-17.3% to factor in:
a) larger share capital after recent
rights issue; and b) better operating
margin assumption from 25%
previously to 27%. We had also
lowered our FD RNAV/share from
RM3.08 to RM2.85 after factoring in
the rights issue and free warrants as
well as change in land price
assumptions for its Penang land.
Following the downgrade in RNAV/
share estimate, we had lowered ourindicative fair value from RM1.54 to
RM1.43 (based on unchanged 50%
discount to RNAV/share).
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RHBRI'S MONTHLY STOCK WATCH9
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Hunza Market Perform Market Perform 8 Feb 2010
Properties
IJM Plantation Underperform Underperform 5 Feb 2010
IJM Plantation Underperform Underperform 1 Mar 2010
IOIC Outperform Outperform 11 Feb 2010
Downgraded our FY10-12 earnings
forecasts by 3.1-10.4% to factor inthe change in take-up rate
assumption for Gurney Paragon. Our
indicative fair value is maintained at
RM1.43, 50% discount to its RNAV/
share of RM2.85.
Post-company visit, we revised our
forecasts downwards by 1.6% for
FY03/10, but upwards by 9.3-10.3%
for FY03-11/12, after: (1) lowering
our CPO price projection for FY03/10
of RM2,200/tonne (from RM2,350/
t); (2) increasing our FFB production
forecasts to reflect a negligible
decline in production for FY03/10
(from a 3.7% yoy drop), and a 3-
4% yoy increase for FY03/11-12
(unchanged); (3) raising CPO
production costs to RM1,350-1,400/
tonne for FY03/10 (from RM1,250-
1,300/t), but lowering it to RM1,300-
1,350/tonne for FY03/11-12 (from
RM1,350-1400/t); (4) lowering new
planting areas to 4,000ha (from
5,000ha) for FY03/10, butmaintaining our assumptions of
4,000ha for FY03/11-12; and (5)
reducing our capex assumptions for
FY03/10 to RM150m (from RM160m
previously). Post-earnings revision,
we raised our fair value to RM1.95
(from RM1.80), based on unchanged
target PE of 14.5x CY10 earnings.
Post-3QFY03/10 results, we raised
our forecasts by 10.2% for FY10, and
by 3.7-4.2% for FY11-12, after: (1)
raising our OER estimates for FY10-
12 to 21.6-22% (from 21-21.8%);
(2) lowering our FY10 production cost
estimates slightly by 5%, and by 1-
2% for FY11-12; and (3) reduced
our effective tax rate for FY10 to
26.5% (from 27%). Post-earnings
revision, our fair value is raised to
RM2.05 (from RM1.95).
Post-1HFY06/10 results, we
maintained our forecasts. However,
we have adjusted our SOP-based
target price downwards slightly to
account for actual issued shares
post-rights issue to RM6.65 (from
RM6.70).
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RHBRI'S MONTHLY STOCK WATCH10
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
KFCH Market Perform Outperform 25 Feb 2010
Kinsteel Outperform Outperform 1 Mar 2010
KL Kepong Outperform Outperform 25 Feb 2010
KNM Market Perform Outperform 7 Jan 2010
Kossan Outperform Outperform 1 Mar 2010
Tweaked earnings forecasts post-
results, resulting in a cut of 0.3%p.a. for our FY10-11 forecasts. The
stock price has moved up and the
potential upside is now closer to
market return and as a result, we
have downgraded our call on the
stock.
FY12/10-11 net profit forecasts cut
by 4.6% and 2.9% respectively to
reflect lower earnings contributions
from Perwaja in FY12/10-11 and
higher interest cost assumptions.
Correspondingly, indicative fair value
is cut by 4.6% from RM1.28 to
RM1.22 based on 12x revised FY12/
10 fully-diluted EPS of 10.2 sen.
Post-1QFY09/10 results, we left our
forecasts unchanged, but raised our
SOP-based fair value for KLK to
RM19.50 (from RM19.25) after
updating our latest net debt balance.
We have cut our FY10-11 core EPS
forecasts by 17% and 16.3%
respectively after factoring in: 1)
higher operating costs; and 2) lower
contribution from China and Middle
East. However, with share price
performance likely to be capped by
the effective offer price of RM0.90/
share from the asset buyout, we
have downgraded our call on the
stock to Market Perform (from
outperform previously).
We have lowered our FY10 and FY11revenue forecasts by 10.2% and
7.2% respectively. At the same time,
we have raised our FY10 and FY11
EBITDA margin projections by 2.5%-
pts and 2.4%-pts respectively to
reflect the better-than-expected
EBITDA margin achieved by Kossan
thus far. As a result, our FY10 and
FY11 earnings projections have been
raised by 5.1% and 8.0%
respectively. Consequently, our fair
value has been raised to RM10.74
(from RM10.22), which is based on
unchanged target CY10 PER of 13x.
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RHBRI'S MONTHLY STOCK WATCH11
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
KPJ Outperform Outperform 1 Mar 2010
Kurnia Asia Market Perform Outperform 24 Feb 2010
Kurnia Asia Outperform Market Perform 1 Mar 2010
Lafarge Underperform Underperform 1 Mar 2010
Lion Forest Outperform Underperform 24 Feb 2010
We tweaked down our earnings
forecasts by 1.2-1.8% after FY09sresults. We introduced our earnings
forecast for FY12 with the following
assumptions: 1) opening of 2 new
hospitals; and 2) revenue per patient
increase of 2%. We maintain our fair
value of RM3.20 based on unchanged
14.5x FY12/10 EPS, in line with our
14.5x target PE for the consumer
sector.
Our FY12/10-11 forecasts have been
cut by 18.7-28.8%, after taking into
account: 1) post results adjustment;
2) higher claims ratio of 67% instead
of 64-64.5% in FY12/10-11; and 3)
lower gross premium base for FY12/
10-11. Fair value was cut to RM0.74
from RM1.04 (based on unchanged
11x FY12/10 EPS). Downgraded to
Market Perform.
Share price is now trading below its
fundamental value. Given the
potential upside of 20% vs. KLCI
benchmark of 9%, we upgraded our
call on the stock to Outperform.
FY12/10-11 net profit forecasts raised
by 8.9-11.4% to reflect a lower
effective tax rate of 10-12% vis--
vis 19% previously and lower finance
costs. Correspondingly, indicative fair
value is raised by 11.4% from
RM5.54 to RM6.18 based on 12x
revised FY12/10 EPS of 51.5 sen.
We have raised our FY06/10-12 netprofit forecasts by 43.4-51.5% on the
back of better-than-expected sales
volume at the tyre manufacturing
division. Consequently, indicative fair
value has been raised to RM1.80
(from RM1.23) based on 7x CY10
EPS. As a result, we have upgraded
our call to Outperform from
Underperform.
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RHBRI'S MONTHLY STOCK WATCH12
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
MAHB Outperform Outperform 25 Feb 2010
Mah Sing Outperform Outperform 9 Feb 2010
Mah Sing Outperform Outperform 23 Feb 2010
MAS Underperform Underperform 23 Feb 2010
Maxis Outperform Outperform 1 Mar 2010
FY12/10-11 net profit forecasts raised
by 7.0-7.6% to reflect: (1) Higherretail revenue per passenger; and
(2) Lower depreciation expenses.
Correspondingly, indicative fair value
is raised from RM5.17 to RM5.45
based on 16x revised FY12/10 EPS
of 34.1 sen.
Fine-tuned our FY10 earnings
forecast by -0.3% to factor in the
recent land purchase, but upgraded
our FY11 earnings forecast by 6.1%
to factor in earnings contribution
from iParc 2@ Shah Alam. As a result,
our RNAV per share was raised from
RM2.15 to RM2.18. We now value
Mah Sing at RM2.18 (from RM2.15),
based on RNAV valuation method.
We adjusted our FY10-11 earnings
forecasts by -2.8-+1.6% to factor in:
a) the new commercial project in
Cyberjaya; and b) changes on
balance sheet item and interest rate
assumptions post 2009 result. As a
result, our fair value, which is based
on estimated RNAV/ share, had been
raised from RM2.18 to RM2.45.
FY12/10-11 net profit forecasts raised
by 43-60%, largely to reflect
earnings accretion from the
acquisition of aircraft from parent
PMB. However, FY12/10-11 EPS
forecasts cut by 19-28%, having
reflected dilution from the 1-for-1
rights issue.
We have toned down our FY10-11
net profit projections by 3.6-3.8%
following the release of the full-year
results. Our FY10-11 net DPS
projections have also been lowered
to 24.9-27.1 sen from 25.8-28.2
sen, based on unchanged 75%
payout ratio. Following the earnings
revisions, our DCF-derived fair value
has been lowered to RM6.20 from
RM6.30.
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RHBRI'S MONTHLY STOCK WATCH13
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Maybank Outperform Market Perform 10 Feb 2010
Media Chinese Outperform Outperform 1 Mar 2010
Media Prima Outperform Outperform 25 Feb 2010
MISC Market Perform Market Perform 25 Feb 2010
MNRB Market Perform Market Perform 1 Mar 2010
FY10-12 forecasts upgraded by 17-
23% to account for higher loan growthand non-interest income as well as
more sanguine outlook in FY11-12.
Fair value has been raised from
RM7.04 to RM8.96 based on 16x
(benchmark) CY10 EPS.
Recommendation upgraded from
Market Perform to Outperform.
We have raised our FY10-12 EBIT
margins to reflect the better-than-
expected 9M EBIT margins achieved.
At the same time, we have lowered
our FY10-12 effective tax rate
assumptions to 27.3-27.9% (from
29.8-30.7%). As a result, our FY10-
12 earnings forecasts have been
revised upwards by 32.1-36.2%.
Consequently, our fair value has
been revised to RM0.92 (from
RM0.71).
We have raised our FY10-11 net
profit projections by 6-10% largely
after lowering our newsprint cost
assumptions for NSTP to US$580-
625/tonne (US$650/tonne flat
previously). Following the earnings
revision above, our indicative fair
value has been revised upwards to
RM2.23 from RM2.02, based on
unchanged target FY10 PER of 15x.
FY03/10 net profit forecast cut by
20% largely to reflect a larger full-
year loss of RM1bn at the container
liner division.
We have adjusted downward FY10-
12 reinsurance claims ratio to 67%
from 68% in view of better claims
experience, albeit higher than
normalised claims ratio of 65% and
reversed the claims reserving
provision of RM51.8m. As a result,
our earnings forecasts were raised
by 19.1-400.9% for FY10-12.
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Parkson Outperform Outperform 3 Feb 2010
Parkson Outperform Outperform 23 Feb 2010
Parkson Outperform Outperform 24 Feb 2010
Parkson Outperform Outperform 2 March 2010
Perwaja Outperform Outperform 1 Mar 2010
Our FY10-12 earnings forecasts are
increased by 1.0-1.7% p.a. after: 1)adjusting our minority interest
assumptions to take into account the
increase in stake; and 2) increasing
our capex by RM92.5m to take into
account the acquisition cost of
Qingdao No. 1 Parkson. Maintain our
SOP-derived fair value of RM6.07.
We reduced our earnings forecasts
for Parkson by 5-9% p.a. for FY06/
10-12 after adjusting for FY09s
results. We reduced our SOP-derived
fair value to RM5.75 (from RM6.07)
after adjusting for PRGs FY09
results.
We increased our earnings forecasts
by 3-5% p.a. for FY10-12 after
adjusting our tax assumptions to be
in line with 1H10 results. We
increased our SOP-based fair value
to RM6.00 (from RM5.75) after
updating our net cash position of
Parkson (ex-PRG).
We increased our SOP-based fair
value to RM6.40 (from RM6.00) after
increasing our target PER for PRG to
24x (from 22x) based on average
one year forward PER for China
department store operators for FY10.
FY12/10-11 net profit forecasts cut
by 3.1-9.0% to reflect higher raw
material cost assumptions, in
particular, scrap and iron ore pellets,
which more than offset our higherselling price assumptions.
Correspondingly, indicative fair value
is lowered by 7.3% from RM1.93 to
RM1.79 based on 12x revised FY12/
10 EPS of 14.9 sen.
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Petra Perdana Underperform Underperform 5 Feb 2010
Petra Perdana Underperform Underperform 1 March 2010
Petronas Gas Underperform Underperform 19 Feb 2010
PMB Tech Outperform Outperform 1 Mar 2010
Puncak Niaga Market Perform Underperform 1 Mar 2010
We have cut our FY10-11 core EPS
forecasts by 51% and 23%respectively after adjusting for: 1)
New FY10-11 average utilisation rate
assumptions of 75% and 79%
respectively (vs. 80-85% previously);
and 2) lower contribution from Petra
Energy. Accordingly, our fair value
was cut to RM1.02/share (from
RM1.34/share previously), which is
based on unchanged 13x FY10 PER.
We have cut our FY10-11 core EPS
forecasts by 3.6% and 3.3%
respectively after adjusting factoring
in lower contribution from brownfield
services. Accordingly, our fair value
was lowered to RM1.00/share (from
RM1.02/share previously), which is
based on unchanged 13x average
FY10 PER.
We have raised our FY10-12
earnings forecasts by 5.4%, 4.7%
and 4.4% after factoring in lower
operating expenses as well as higher
contribution from associates.
Accordingly, our fair value was raised
to RM10.08/share (vs. RM9.81/share
previously).
We have raised our EBIT margin
assumptions for: 1) construction and
fabrication division to 4% from 3.5%
for FY10; and 2) 4.7-5.1% for FY10-
11 from 4-4.9% previously, for
manufacturing and trading division.
Consequently, our FY10-11 earnings
forecasts were raised by 2.3-10.6%p.a..
FY12/10-11 net profit forecasts cut
by 13.6% and 11.8% respectively to
reflect a higher depreciation
expense. Indicative fair value
remains unchanged at RM2.95, as
the adjustments made are non-cash
in nature. Upgraded from
underperform to Market Perform as
valuations have become attractive
following the recent share price
correction.
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
RCE Cap Outperform Outperform 11 Feb 2010
Seacera Underperform Underperform 1 Mar 2010
Sime Darby Outperform Outperform 24 Feb 2010
Sime Darby Outperform Outperform 1 Mar 2010
FY10-12 forecasts have been raised
by 6-7% to reflect the better marginin 3QFY03/10. Fair value has been
raised from RM1.08 to RM1.15 (11x
CY10 EPS or 5x discount to our
market and banking sector
benchmark to reflect its small market
capitalisation).
Our earnings forecast for FY10-11
were cut by 39.5-44.3%, due to lower
revenue base in FY09, even though
we have assumed higher revenue
growth of 5% (vs. 3% previously) for
FY11.
Post-company visit, we reduced our
core net profit forecasts for Sime by
6-8.8% p.a. for FY10-12, after: (1)
revising our EBIT projections for the
heavy equipment division downwards
by 25-30% for FY10-12; (2) revising
our EBIT forecasts for the property
division down by 15-20% p.a. for
FY10-12; (3) raising our energy &
utilities division EBIT projections by
40-50% p.a.; and (4) raising our
EBIT forecasts for the motor division
by 14-16% p.a. for FY10-12. Post-
earnings revision, we reduced our
SOP-based fair value for Sime to
RM10.00 (from RM10.60). We have
also raised our target PE valuation
for the energy and utilities division
to 15x CY10 (from 12.5x), to be in
line with the oil and gas and power
sector target PEs.
Post-1HFY06/10 results, wemaintained our forecasts, but reduce
our SOP-based fair value for Sime
to RM9.85 (from RM10.00), after
imputing Simes end-2QFY10 net
debt of RM2.1bn (from RM1.38bn at
end-1QFY10).
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Star Market Perform Underperform 12 Feb 2010
Suncity Outperform Outperform 1 March 2010
Sunway Outperform Outperform 10 Feb 2010
Ta Ann Outperform Market Perform 19 Feb 2010
Following the better-than-expected
revenue contribution from Cityneon,we have revised upwards our FY10
and FY11 revenue by 11.7% and
11.8% respectively. We have also
revised our FY10 and FY11 EBITDA
margin assumptions to 28.6% and
30.0% (from 26.1% and 30.1%) as
we cut our FY10 and FY11 newsprint
price to US$650 from US$675
previously. As a result, our FY10 and
FY11 earnings projections have been
revised upwards by 17.6% and 15.7%
respectively. Our indicative fair value
have been raised to RM3.60 (from
RM3.07) based on unchanged target
FY10 PER of 16x. As a result, we
have upgraded our call on the stock
to Market Perform from
Underperform previously.
No change to our earnings forecasts.
However, we had raised our RNAV
per share from RM5.07 to RM6.27
to factor in the asset revaluation
exercises (excluding hotel assets
which are under the property, plantand equipment category). Our
indicative fair value has been raised
from RM4.31 to RM5.33, based on
15% discount to its RNAV.
FY12/10-11 net profit forecasts raised
by 3-4% largely to reflect the change
in our FY12/10 new construction
orderbook target to RM1.5bn from
RM1bn previously.
We increased our FY09-11 forecastsby 0.5-32.3% p.a. after adjusting for
expected better contributions from
the plantation division. Our SOP-
based fair value is increased to
RM6.00 (from RM5.18) based on
unchanged 14x FY10 timber division
earnings and 12x FY10 plantation
division earnings. Following the
increase in target price, we upgraded
our recommendation for the stock
to an Outperform (from Market
Perform).
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Ta Ann Outperform Outperform 24 Feb 2010
TM Market Perform Outperform 23 Feb 2010
Toyo Ink Underperform Underperform 19 Feb 2010
Our earnings forecasts for FY12/10-
11 have been tweaked by -0.8% to+0.1% p.a. after updating our
assumptions following FY09 results.
We introduced our FY12 earnings
forecast with the following
assumptions: 1) plywood utilisation
capacity of 85%; 2) 5% increase in
plywood prices yoy; 3) CPO and log
prices of US$2,500/t and US$180/
mt respectively. Our SOP-based fair
value is tweaked down to RM5.95
(from RM6.00) based on unchanged
14x FY10 timber division earnings
and 12x FY10 plantation division
earnings.
We have trimmed our FY10-11 net
profit forecasts by 4.4-5.8% after
updating our numbers for the full-
year results as well as an upward
revision in our effective tax rate
assumptions to 26% p.a. (25%
previously). While our indicative fair
value of RM3.55 is unchanged, the
stocks strong share price
performance relative to the FBM KLCI
means that TM now offers a total
potential return that is broadly in line
with our expected returns from the
market. Hence, we downgraded our
recommendation to Market Perform
from Outperform.
FY10-12 assumptions for revenue
growth forecasts were revised
downwards to 2-10% from 8-13%
previously. However, operating
margin assumptions were increasedfor FY10-12 to 7.2-10.5% from 4.5-
7% previously. Consequently,
earnings forecasts were revised
upwards by 27.8-47.7% for FY10-12.
New fair value is RM1.25 (based on
11x CY10 EPS, a 50% discount to its
5-year historical PE average) from
RM0.65 (based on 9.5x previously),
following rising investors risk appetite
for small to mid cap stocks coming
from a recovering economy.
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
Unisem Outperform Outperform 23 Feb 2010
Wah Seong Outperform Outperform 12 Feb 2010
WTK Market Perform Market Perform 1 Mar 2010
We have raised FY11-12 EBITDA
margin assumptions to 29% and28.5% (from 28% and 27.5%
previously) after factoring: 1) higher
contribution from Unisem Chengdu;
and 2) stronger demand for its
higher-margin QFN and module
packages; and 3) lower operating
expenses due to cost-cutting
measures As such, we have revised
up our FY11-12 earnings by 7.4%
and 6.7% respectively. Accordingly,
our fair value was raised to RM3.07/
share (from RM2.86/share
previously).
We have cut our FY09-11 earnings
projections by 8.2%, 8.0% and 4.4%
respectively to reflect lower earnings
contribution from GSI. Accordingly,
our fair value was cut to RM3.09/
share (from RM3.35/share
previously).
We tweaked our earnings forecasts
by +0.3% and -0.2% for FY10 and
FY11 after adjusting for FY09 results.
We have also increased our gross
dividend payment for FY10-11 to 6
sen p.a. (from none) in view of WTKs
operating cash flow of RM50m-
RM100m and low gearing position of
0.1x. This translates to a net payout
of >100 and net yield of 3%. We
introduced FY12 earnings forecasts
with the following assumptions: 1)
85% plywood utilisation rate; and 2)
5% increase in average plywood
prices yoy. No changes to ourindicative fair value for WTK of
RM1.18 based on 14x CY10 EPS.
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Changes In Recommendation And Forecast From
Last Stock Watch For February 2010
Recommendation Adjustment Reasons For Changes In
Company Current Previous Date Recommendation And Forecast
YNH Prop Market Perform Outperform 24 Feb 2010
YTLP Market Perform Market Perform 1 Mar 2010
Downgraded our FY10-11 earnings
forecasts by 15.8-27.1% to factor in:a) delay in commencement of
construction works for Kiara 163,
Pantai Hospital and Menara YNH-
retail portion; b) change in margin
assumptions; and c) changes on
balance sheet item assumptions post
FY09 results. We had also reduced
our FY10-11 dividend forecast from
8 sen previously to 6.4 sen. As a
result, our estimated RNAV had been
reduced from RM3.13 to RM3.11. We
had lowered our indicative fair value
to RM1.86, based on 40% discount
on our estimated RNAV (from
RM2.19, 30% discount to RNAV).
Higher discount is justified to reflect
its slower speed in crystalising its
land values as compared with peers.
Downgraded our rating to Market
Perform.
We have raised our SOP-derived fair
value marginally to RM2.12 from
RM2.10 after an update for the latest
cash and debt balances as well as
share base.
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Market Volatility Amidst Gradual Normalisation
Of Policies
Sustained Momentum In 4Q CY09 Earnings
The earnings reporting season that has just ended showed that the bulk of the
corporate results that we covered (84.5%) came in either within or above
our expectations. The recovery in earnings that started from 2Q 2009 was
sustained into the 4Q, with earnings upgrades continued to exceed downgrades.
The upgrade to downgrade ratio remained strong at 1.8, similar to the situation in
the previous quarter, although the magnitudes of upgrade in earnings are smaller
now. More companies are reporting better margins from improving demand, better
product mix and lower operating expenses on the back of the implementation of
cost-cutting measures. Of the 103 companies that we covered, more than half of
it, i.e. 55 of the results (53.4% of the total) were within our expectations. In addition,
32 companies (31.1% of the total) reported earnings that exceeded our projections
and only 16 results that we covered (15.5% of the total) came in below forecasts
(see Table 1). A fairly similar picture was reflected in the consensus numbers, where
75.7% of the reported earnings were either in line or above expectations (46.6%
within consensus numbers and 29.1% above projections) and 24.3% of the results
disappointed (see Table 2). This suggests that there is still room for earnings upside
surprises in the quarters ahead as the economic recovery gains momentum, even
though it may not be as significant relative to what we have seen during the previous
three quarters.
Sequentially, net EPS for the FBM KLCI stocks under our coverage has eased to
+4.2% qoq in the 4Q, after having surged to +39.1% in the 3Q (see Chart 1).
However, on a yoy comparison, net EPS for the FBM KLCI stocks under our
coverage continued to trend up and registered a double-digit growth of 11.7% in
the 4Q, from +4.0% in the previous quarter. This suggests that the recovery
in corporate earnings is still gaining momentum. This view is reinforced by
our company visits and corporate briefings attended by analysts where corporates
are generally more confident on their business prospects and many of them are
guiding for improving outlook in the quarters ahead. Overall, the stronger earningsmomentum in the recently concluded reporting seasons was consistent with the
recovery in the economy, where real GDP registered a stronger-than-expected
growth of 4.5% yoy in the 4Q, from -1.2% in the 3Q.
Chart 1Net EPS Changes On A Sequential And Yoy Comparisons
%
+4.2
+11.7
+4.0
-39.4
Net EPS Changes For RHBRI Covered Stocks In FBM KLCI
Exclude Astro
+39.1
-10.2
-6 0
-4 0
-2 0
0
2 0
4 0
6 0
1QCY06
2QCY06
3QCY06
4QCY06
1QCY07
2QCY07
3QCY07
4QCY07
1QCY08
2QCY08
3QCY08
4QCY08
1QCY09
2QCY09
3QCY09
4QCY09
%
q o q y o y
Continued to have more
upside than downside
earnigns surprises,
resulting in slight further
upgrade in earnings
Recovery in corporate
earnings is still gaining
momentum, in tandem
with the economic
recovery
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Table 1Comparison Of Actual Earnings Reported For 4QCY09 Against RHBRIs Forecast
Covered Stocks Covered In Line Above Below Total reported % reported
Building Material 1 1 3 2 4 9 8 2
Semiconductor/ IT 4 1 2 1 4 100
Oil & Gas 8 3 2 1 6 7 5
Timber 4 1 2 3 7 5Consumer 1 2 8 2 1 1 1 9 2
Gaming 4 2 1 3 7 5
Media 4 1 2 3 7 5
Motor 4 3 1 4 100
Construction 8 7 7 8 8
Infrastructure 2 1 1 2 100
Transportation 6 4 2 6 100
Telecommunication 4 3 1 4 100
Power 3 2 2 6 7
Banks & Finance 9 5 4 9 100
Insurance 4 3 1 4 100
Property 1 1 7 1 1 9 8 2
Plantation 6 5 1 6 100
Manufacturing 1 3 3 6 2 1 1 8 5
Total 117 55 32 16 103 88
% of total reported 53.4 31.1 15.5 100
Table 2Comparison Of Actual Earnings Reported For 4QCY09 Against Market Consensus
Covered Stocks Covered In Line Above Below Total reported % reported
Building Material 1 1 1 4 4 9 8 2
Semiconductor/ IT 4 1 2 1 4 100
Oil & Gas 8 4 2 6 7 5
Timber 4 1 2 3 7 5Consumer 1 2 8 3 1 1 9 2
Gaming 4 2 1 3 7 5
Media 4 1 2 3 7 5
Motor 4 3 1 4 100
Construction 8 4 1 2 7 8 8
Infrastructure 2 1 1 2 100
Transportation 6 1 2 3 6 100
Telecommunication 4 3 1 4 100
Power 3 2 2 6 7
Banks & Finance 9 7 2 9 100
Insurance 4 3 1 4 100
Property 1 1 6 2 1 9 8 2
Plantation 6 3 1 2 6 100
Manufacturing 1 3 3 5 3 1 1 8 5
Total 117 48 30 25 103 88
% of total reported 46.6 29.1 24.3 100.0
Amongst the bigger cap companies, earnings of Malayan Banking, Petronas
Gas and Genting Malaysia were above expectations, while that of MISC and
TM were below our forecasts. The stronger-than-expected earnings of Malayan
Banking came from better-than-expected non-interest income and lower loan loss
provisioning arising from an improvement in its asset quality. The key variance
of Petronas Gas earnings against our forecast came largely from lower operating
expenses stemming from cost-cutting measures and stronger-than-expectedassociate contribution from Gas Malaysia. The main deviation of Genting Malaysias
earnings vis--vis our forecast, we believe, came from higher-than-expected
investment income from gain on sale of investments.
Amongst big cap
companies, earnings of
Maybank, Petronas Gas
and Genting Malaysia were
above expectations ...
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MISCs earnings, in contrast, continued to be dragged down by the larger-than-
expected losses at the container liner division on the back of falling volumes and
freight rates, amidst rising operating cost. The key variance of TMs results
against our forecast came largely from higher-than-expected effective tax rate,
although both its FY09 revenue and EBITDA were in line with our estimates.
Earnings Of Banks, Manufacturing, Insurance, Transportation And
Media Above Expectations
The banking and finance sector continued to report better-than-expected
earnings in the 4Q despite the significant upward revision in earnings after the
previous two results reporting seasons. This indicates that analysts are still
conservative on their forecasts and there could be room for further upward revision
in earnings in the quarters ahead. Indeed, the banking systems loans have picked
up over the last two consecutive months with improving asset quality. At the same
time, fee-based activities and hence, income has picked up substantially to boost
earnings of the banking institutions. Consequently, three out of the eight banks we
covered (Malayan Banking, AMMB and Hong Leong Bank) reported earnings that
were above our expectations and results of the other five banks were within
expectations. In addition, RCE Capital also reported earnings that were aboveforecast on account of better margins. Apart from better-than-expected non-interest
income, AMMB also benefitted from stronger-than-expected loan growth and Hong
Leong Banks better-than-expected results came largely from lower effective tax
rate.
Apart from the banks, the manufacturing, insurance, transportation and Media
sectors also continued to report earnings that were generally above our
forecasts. Within the manufacturing sector, six out of the 11 results that we covered
were above expectations (i.e. Kossan Rubber, Hartalega, Lion Forest, Furniweb, Toyo
Ink and Axis Inc.), three in line (Wellcall Holdings, Euro Holdings and BP Plastics) and
two below forecast (VS Industry and Texchem resources). In general, earnings of
the glove manufacturers and other manufacturing companies were booster by bettermargins on the back of improving demand and higher capacity utilisation rates.
In the insurance space, three out of the four results that we covered came in above
our expectations (i.e. Allianz, MNRB and LPI Capital) while Kurnia Asias earnings
were below forecast on account of higher-than-expected tax rate. Allianzs net profit
was boosted by higher-than-expected life and general insurance gross premium
growth and higher profit transfer from the general and life insurance businesses,
while that of MNRB from higher-than-expected general reinsurance transfer due to
lower claims and the reversal of claims reserving made in 1HFY10. Similarly, LPI
Capital also benefited from higher surplus transfer from its insurance subsidiaries
and lower effective tax rate.
The transportation sector also reported better-than-expected earnings as four out of
the six reported earnings (MAS, AirAsia, MAHB and Freight Management) were above
our expectations and the other two results were below forecasts (MISC and ILB).
We believe the variance of MAS results against our forecast came largely from
slightly better load factors and yields, while that of AirAsia from stronger topline
growth and lower fuel cost. The main deviation of Malaysia Airports results came
from higher-than-expected airport services revenue and lower-than-expected
depreciation charges. Earnings of Freight Management, on the other hand, were
boosted by lower-than-expected effective tax rate.
For the media sector, two out of the three reported earnings (Star Publications and
Chinese Media International) were above expectations and one (Media Prima) in line
with forecast. The earnings of both Star Publications and Chinese Media International
were boosted by better-than-expected margings from better cost control and lower-
than-expected effective tax rate.
Banking earnings
continued to exceed
expectations on account
of higher fee-based
income, stronger loan
growth and improved
asset quality
... while that of MISC and
TM were below froecasts
Manufacturing companies
continued to benefit from
improved margins on the
back of improving demand
and higher capacity
utilisation rates
Higher surplus transfer
boosted earnings of
insurance companies
The transportation sector
experienced stronger-
than-expected topline
growth
Earnings of media
companies were boosted
by better margins and
lower tax rate
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Overall, only the building material sector and in particular the steel products
sub-sector reported earnings that were generally below expectations. Four
out of the nine earnings were below forecasts (Ann Joo Resources, Kinsteel, Perwaja
Holdings and Sino Hua An), three in line (Lafarge Malayan Cement, YTL Cement and
CSC Steel) and the other two were above expectations (PMB Tech and Seacera
Tiles). Earnings of the steel products sub-sector were generally weighed down by
a combination of lower-than-expected average product selling prices, lower-than-
expected sales volume, higher-than-expected input cost or higher-than-expecteddepreciation charges.
The other sectors reported earnings that were generally within our expectations.
Further Upward revision In Earnings
Reflecting largely the better-than-expected earnings, net EPS for the FBM KLCI
stocks under our coverage has been revised up slightly to -14.2% and +15.7%
for 2009 and 2010, respectively (see Table 3), from the corresponding rates of
-15.7% and +15.0% two months ago (as reflected in our 2010 Market Outlook &
Strategy report dated 17 December 2009). Given the improving earnings growth
prospects, 2010s normalised net EPS growth for the banking sector was revised upsignificantly from +11.2% previously to +19.5% after the results reporting season.
Similarly, 2010s earnings projections for the motor, transportation, media, oil & gas,
manufacturing and building material sectors were also revised upwards after the
results reporting season (see Table 4). These upward revisions in earnings were,
however, offset partially by downward revision in earnings for the plantation,
telecommunications, gaming, property, insurance, semiconductor & IT, consumer,
and construction sectors.
FBM KLCI RHBRIs Basket
COMPOSITE INDEX @ 1,283.40
2008a 2009a 2010f 2011f 2008a 2009a 2010f 2011f
1 March 2010
Table 3Earnings Outlook And Valuations
EBITDA Growth (%) 3.4 -5.6 19.8 11.9 4.6 -1.4 18.3 11.6
Pre-Tax Earnings Growth (%) -7.9 -9.2 31.3 15.2 -6.2 -3.7 28.5 15.2
Normalised Earnings Growth (%)* 1.0 -9.4 20.2 14.9 -0.4 -6.3 22.0 15.0
Normalised EPS Growth (%)* -1.6 -14.2 15.7 14.9 -3.4 -9.9 17.5 15.0
Prospective PER (x)* 16.3 17.9 15.6 13.6 16.1 17.5 14.7 12.8
Price/EBITDA (x) 8.7 9.3 7.8 6.9 8.6 8.6 7.3 6.5
Price/Bk (x) 2.4 2.3 2.1 2.0 2.3 2.0 2.0 1.7
Price/NTA (x) 2.8 2.8 2.5 2.3 2.7 2.3 1.2 1.1
Net Interest Cover (x) 6.5 5.9 6.0 7.6 6.2 6.8 7.0 7.8
Net Gearing (%) 71.3 61.3 48.2 42.0 64.9 47.0 45.7 40.4
EV/EBITDA (x) 6.8 7.6 6.5 5.7 7.0 7.4 6.5 5.7
ROE (%) 15.3 12.7 14.2 15.0 13.7 11.8 13.3 14.1
* For FBM KLCI, earnings are adjusted to exclude Astro from 2009-10
2010s net EPS revised up
slightly to +15.7%, from
+15.0% previously
Earnings of the steel
products sub-sector, in
contrast, were generally
weighed down by lower-
than-expected average
product selling prices
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Based on the latest FactSet Asian and IBES consensus numbers, the local market is
now trading at comparable valuations vis-a-vis the Singapore and Indonesian markets
(see Table 5). It is, however, still a very under-owned market by foreign
investors and non-strategic foreign equity ownership of the Malaysian market is
estimated at below 21% currently, a sharp drop from a recent high of 27.5% at end-April 2007.
Table 4Sector Weightings & Valuations
EPS Growth EPS Growth PER
(%) (%) (x)
Covered Stocks Mkt Cap Weight Before After Before After Recom
RMbn % FY10 FY10 FY11 FY11 FY10 FY11
Banks & Finance 178.2 25.1 11.2 19.5 11.1 14.5 13.5 11.8 Overweight
Plantation 111.5 15.7 11.6 5.1 22.4 22.0 19.4 15.9 Overweight
Telecommunications 102.8 14.4 19.4 15.9 10.1 10.5 17.0 15.4 Overweight
Power 56.4 7.9 24.4 24.4 9.0 9.0 11.6 10.7 Overweight
Gaming 45.5 6.4 19.6 8.6 11.0 14.2 13.3 11.6 Overweight
Oil & Gas 29.5 4.1 19.5 21.3 11.3 11.3 15.5 13.9 Overweight
Property 16.0 2.2 19.2 17.9 25.0 24.9 12.1 9.7 Overweight
Motor 15.9 2.2 35.0 44.1 7.0 7.0 10.1 9.4 Overweight
Semiconductors & IT 2.5 0.4 113.4 81.7 69.2 77.5 10.7 3.8 Overweight
Insurance 2.5 0.4 23.5 1.0 11.0 11.5 7.6 6.8 Overweight
Transportation* 51.9 7.3 2.1 22.3 6.6 -3.5 20.3 15.2 Neutral
Consumer 28.2 4.0 13.5 8.9 9.9 7.9 14.4 13.4 Neutral
Infrastructure 18.4 2.6 -0.9 -1.4 46.5 47.6 14.0 9.5 Neutral
Media# 12.0 1.7 37.5 38.4 8.0 5.9 11.8 11.1 Neutral
Building Materials 11.5 1.6 41.9 58.0 9.5 7.4 9.4 8.8 NeutralManufacturing 8.3 1.2 34.9 35.8 16.9 17.3 11.1 9.5 Neutral
Timber 3.2 0.4 71.5 69.7 37.3 40.7 10.4 7.4 Neutral
Construction^ 17.4 2.4 29.7 22.6 9.4 9.7 15.5 14.1 Underweight
711.9 100.0
# Exclude Astro * Exclude MAS earnings in 2010
Note : RHBRIs basket
Table 5
Regional Comparisons
Malaysia Singapore Thailand Philippines Indonesia Hong Kong Taiwan Korea
FactSet Asian Consensus Trends report dated 29 January 2010
Net EPS (%)
2008 Net -16.2 -18.1 -28.0 -9.5 -25.7 -23.1 -61.4 -38.0
2009 Net -0.8 -7.5 32.4 26.0 54.2 11.4 43.5 47.4
2010 Net 27.4 14.1 12.7 4.4 13.6 21.8 53.2 44.1
PER (X)
2008 11.4 7.8 8.8 10.1 7.3 9.6 14.7 11.8
2009 18.2 16.3 11.8 13.0 16.0 16.1 22.5 14.2
2010 14.3 14.3 10.5 12.5 14.1 13.2 14.7 9.8
IBES Consensus dated 18 February 2010
Net EPS (%)
2008 -20.6 -11.9 26.6 17.8 8.6 15.5 86.5 56.0
2009 27.4 19.7 15.1 16.1 21.6 14.4 81.6 48.4
2010 14.6 12.7 16.5 10.5 20.5 16.0 21.4 13.0
PER (X)
2008 17.8 16.4 11.9 14.3 16.3 15.8 26.7 14.5
2009 13.6 13.5 10.3 12.1 13.4 13.8 14.7 9.6
2010 11.9 12.1 8.9 11.0 11.3 12.0 12.3 8.5
Performance (%)
2008 (YOY) -39.3 -49.2 -47.6 -48.3 -50.6 -48.3 -46.0 -40.7
2009 (YOY) 45.2 64.5 63.2 63.0 87.0 52.0 78.3 49.7
2010 (YTD)* 0.8 -4.3 -1.8 0.9 0.8 -3.7 -7.5 -5.2
* as at 1 March 2010 closings
It is still a very under-
owned market by foreign
investors
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Recovery Gaining Strength, But Policy Normalisation Points To Market
Volatility
In tandem with the sustained recovery in corporate earnings, the Malaysian economy
has turned around to register a stronger-than-expected growth of 4.5% yoy in 4Q
2009, from -1.2% in the 3Q. Apart from the Governments stimulus expenditure,
consumer spending continued to strengthen on the back of improving employment
outlook and rising confidence. The overall growth was, however, lifted by therecovery in external demand for the countrys exports, which have turned around
to record a positive growth of 7.3% in 4Q 2009, from -13.4% in the 3Q (see Chart
2). We project the economy to bounce back and expand by 4.5% in 2010 ,
from -1.7% in 2009.
Chart 2Economy Turning Up Strongly In 4Q2009
In our view, the prospects of a sustainable global economic recovery
have improved significantly in recent months despite the emergence of
sovereign debt worries of late, particularly in some of the European countries,
such as Portugal, Ireland, Greece and Spain (PIGS). This is primarily on account
of a combination of aggressive policy stimulus around the globe where policymakers
are in no hurry to implement exit strategies, significant improvement in financial
markets and risk appetite of investors and more importantly, asset prices have
reached a favourable inflection point. Unlike during the crisis, investors are no
longer fearful of catching a falling knife and more substantial weakness in asset
prices will be taken as investment opportunities and this suggests that a double
dip in the global economic recovery will unlikely occur. The global economic
recovery, however, will remain gradual and uneven, in our view. As the EuropeanUnion (EU) governments are putting together a possible rescue package for Greece,
we believe any further fallout of other European Union member countries would
likely be addressed by the EU governments as well. Consequently, the European
debt problems will unlikely snowball into a much bigger issue that could jeopardise
the global economic recovery, in our view.
Meanwhile, a number of countries, such as China, India, Taiwan, Hong Kong,
South Korea and Singapore, have experienced further asset-price reflation, fuelled
by excess liquidity and an extremely low interest rates. The policymakers in
these countries have taken measures to tighten credit conditions to prevent asset
bubbles from building up. At the same time, the US Federal Reserve has
started to normalise monetary conditions by raising its discount rate,
the rate it charges banks for emergency loans, by 25 basis points to 0.75% with
effect from 19 February. In a prepared testimony for the House Financial Services
Committee, the Fed chief said that it may use the interest rate paid to banks on
excess reserves held at central bank to replace the Federal funds rate as the main
Economic recovery gaining
momentum
Meanwhile, external
events are likely to cause
the market to be voilatile
and these include gradual
normalisation of policies
by more and more
countries around the
globe
Good prospects of
sustainable global
economic recovery despite
a number of global issues
and concerns
-2 0
-1 5
-1 0
-5
0
5
1 0
1 5
2 0
0 5 0 6 0 7 0 8 0 9
G D P
E x po rts
P r ivate Co ns um pt ion
Fix ed c api ta l in ves tm ent
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operating target for policy. Raising the rate would give banks an incentive to park
more funds at the Federal Reserve instead of lending them out to companies or
households. As part of the Feds plans to wind down its emergency liquidity
measures, Mr. Bernake is also looking at using reverse repurchase agreements
(repos) to siphon of excess liquidity from the system. In this way, the Fed seeks
to gradually normalise the extremely loose monetary conditions to engineer for
a more balanced and suatainable recovery moving forward.
Domestically, the Central Bank has also indicated that it is ready to
begin normalising monetary conditions to prevent the building up of financial
imbalances. Given the stronger-than-expected recovery of the economy in the
4Q, we believe Bank Negara Malaysia will begin normalising interest rates by
raising its overnight policy rate by 25 basis points to 2.25% on its next Monetary
Policy meeting on 4 March 2010 and will likely raise it by another 25 basis points
to 2.5% on 8 July.
Whilst these are normalisation measures from an extremely loose monetary
conditions and low interest rate levels, and are not deemed to be tightening per
se, financial markets around the globe will still likely react negatively given that
policymakers could before long begin to tighten policies more significantly toengineer for a more sustainable economic recovery. As valuations of the equity
market are no longer cheap and are back to normal levels, we expect greater
volatilities in stock prices in the coming months. Our year-end FBM
KLCI target, however, remains unchanged at 1,400 or 15x 2011 earnings.
We expect the market to come back and trade up to our target level in the latter
part of the year when there is more certainty on the strength of the global
economic recovery. This implies a potential upside of about 10% from end-2009
level, which is consistent with the historical performance where returns are always
lower in the second year of a recovery.
Market Strategy : Accumulate On Weakness And Ride The Volatility
In our view, the current correction/market volatility is an opportunity to accumulate
quality stocks for longer-term performance given that the concerns are not new, i.e.,
re-regulation of the banks in the US, credit tightening in China, debt problems in
Europe and normalisation of policies from an extremely loose conditions. Nevertheless,
investors would have to factor in the anticipated global policy changes in
the months ahead, rebalance their portfolios and prepare for greater market
volatility for the greater part of the year. We believe global trends and uncertainties
created by policy tightening/normalisation across Asia ex-Japan will continue to weigh
on financial markets in the months ahead.
In our view, stock picking is key. The challenge is to look for stocks that could
generate capital upside from earnings growth as well as have attractive divided yieldto outperform the market. The focus would include recovery leadersandquality
cyclicals for an early reflation trade. The key is to avoid companies with poor
fundamentals and high valuations. Overall, we continue to be positive on the
banking sector as an economic recovery play given the strong earnings recovery.
The semiconductor industry would also be exciting given the strong pent-up demand
with new applications, and hence strong earnings recovery. In addition, we believe
commodity/asset reflation theme could gradually emerge as a catalyst for greater
market performance, while the telecommunications sector also appears to be
interesting, given stronger-than-expected earnings growth emerging from the data
services sub-sector as well as stronger cash flow and attractive divided yields. A
list of our top picks is reflected in Table 6.
Stock picking is key and
we like recovery leaders
and quality cyclicals
Need to factor in the
anticipated global policy
changes in the months
ahead
Our year-end FBM KLCI
target remains unchanged
at 1,400 despite
expectations of greater
market volatility ahead
Domestically, Bank
Negara will also begin to
normalise interest rates
from an extremely low
level soon
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Short-Term/Long-Term Drivers
Consistency in earnings over the last five
quarters with improvements in underlying
trends (loan growth, NIM and asset quality).
Below industry asset quality but the gap has
narrowed significantly since 3Q08 (in a
space of 12 months). Recent 4Q results
showed the asset quality has improved,
more than reversing the deterioration in 3Q.
Surprise special dividend in 3Q. Given its
strong capital ratios, there is potential of
higher dividend. Valuations are the lowest in
our banking universe (single-digit PER and
20% discount to book).
Value proposition from ANZ is expected to
improve competitiveness, augment ROE and
raise cross-border opportunities over the
longer run. Will benefit from the revival of
the capital markets. Will be the worst hit
when interest rate rises. However, it has
gradually changed its loan portfolio to
position for any eventual interest rate hike.
Earnings sensitivity to rising NPLs is the
highest among mid-cap banks and high
percentage of HP loans means higher
delinquency risk. However, recent results
have shown that its much improved risk
management was able to contain NPLs,
mitigating earlier concerns about asset
quality. Potential more active capital
management in FY03/10. Likely to
announce new dividend policy in terms of
percentage payout rather than in terms of
sen.
Post transformation of CIMB Niaga and
CIMB Thai, it is now ready to further scale
up its regional platforms for the next phase
of earnings growth. Lower earnings
volatility from smaller trading book,
consumer bank gaining traction (and has
room to improve further) and fast growing
contribution from CIMB Niaga. Among
domestic banks, it is best placed regionally
to benefit from western banks retreating
resources in the region. Excellent asset-
liabilities management and best proxy to
non-interest income growth under economicrecovery scenario. More aggressive capital
management temporary on hold pending
Basel III but it does not need additional
equity capital.
Earnings Comment/Fair Value
Fair value of RM3.03 is based on 11x CY10
EPS or 5x discount to sector benchmark of
16x to account for lower ROE as well as low
liquidity and market capitalisation.
Guiding for higher dividend of at least 10
sen in FY03/10 vs. 8 sen in FY03/09.
Fair value of RM6.13 is based on sector
benchmark of 16x CY10 EPS.
Fair value of RM16.24 is based on 17x CY10
EPS or 1x premium to sector benchmark of
16x to reflect its status as a growing
regional universal bank.
There are multiple positive factors to take valuations to higher levels. These are earnings
growth gaining momentum (continue loan growth, stable NIM, booming non-interest income
and stable NPLs), M&A excitement, potentially more active capital management (barring
Basel III), low foreign shareholding, largest sector weighting in FBM KLCI and valuations
that are still below recent peaks. It is the best proxy to the economic recovery.
Banking Overweight
Sector Rating :
Company
Affin
Market Perform
RM2.75
AMMB
Outperform
RM4.96
CIMB
Outperform
RM13.46
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31 December *
2009(a) 1274.2 371.8 24.9 27.0 11.1 n.a. 0.9 8.5 3.1 3.1
2010(f) 1354.3 411.0 27.5 10.5 10.0 n.a. 0.8 8.5 3.1 11.1
2011(f) 1418.7 442.1 29.6 7.6 9.3 n.a. 0.8 8.5 3.1 108.4
2012(f) 1491.3 473.6 31.7 7.1 8.7 n.a. 0.8 8.5 3.1
Issued capital of 1,494.4m ordinary shares of RM1.00 each
Average daily volume (000) : 1,573.9 shares
Market capitalisation (RMm) : 4,110
31 March (Fully Diluted)
2009(a) 3184.4 860.8 31.1 +28.7 16.0 n.a. 1.7 8.0 1.6 +2.1
2010(f) 3772.2 1010.0 33.5 +7.8 14.8 n.a. 1.7 10.0 2.0 +1.2
2011(f) 4092.9 1202.1 39.9 +19.0 12.4 n.a. 1.6 10.0 2.0 +100.0
2012(f) 4388.3 1377.3 45.7 +14.6 10.9 n.a. 1.4 10.0 2.0fully diluted EPS (sen)
Issued capital of 3,014.2m ordinary shares of RM1.00 each
Average daily volume (000) : 6,409.3 shares
Market capitalisation (RMm) : 14,950
31 December
2009(a) 10592.7 2806.8 79.5 +37.4 16.9 n.a. 2.3 18.5 1.4 +6.3
2010(f) 11865.8 3373.2 95.5 +20.2 14.1 n.a. 2.2 18.5 1.4 +4.5
2011(f) 12951.7 3976.6 112.6 +17.9 12.0 n.a. 2.0 18.5 1.4 +95.1
2012(f) 14164.6 4619.1 130.8 +16.2 10.3 n.a. 1.8 19.5 1.4
Issued capital of 3,531.8m ordinary shares of RM1.00 each
Average daily volume (000) : 6,563.3 shares
Market capitalisation (RMm) : 47,538
FYE TURNOVER NET NET % NET EV/ P/ GROSS DIV % CHANGE
(RMm) PROFIT EPS GROWTH PER EBITDA BV DIV YIELD IN PRICE
(RMm) (SEN) (x) (x) (x) (SEN) (%) 1 MTH
3 MTHS
12 MTHS
Note : Stock prices @ 1 March 2010
* Stock Prices @ 3 March 2010
Sector Average
2009 (3.1) 16.3 2.0 2.3
2010 +19.5 13.5 2.0 3.22011 +14.5 11.8 1.7 3.6
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Short-Term/Long-Term Drivers Earnings Comment/Fair Value
Fair value of RM8.07 is based on 15x CY10
EPS or 1x discount to sector benchmark to
reflect smaller market capitalisation andliquidity.
The ongoing takeover saga may cap share
price performance but we reiterate that HL
Banks offer price of 1.4x book is too low.
Fair value of RM8.48 is based on 15x CY10
EPS or 1x discount to sector benchmark to
account for lower liquidity and smaller
market capitalisation.
Fair value of RM8.96 is based on sector
benchmark of 16x CY10 EPS.
Banking (Cont'd)
Company
EON Cap
Outperform
RM7.00
HL Bank
Underperform
RM8.40
Maybank
Outperform
RM7.03
Transformation under new shareholder
gradually showing results with net profit now
sustainable at above RM300m and shouldexceed previous peak of RM328m in FY03.
Loan growth has also accelerated. Kitchen
sinking in 2QFY08 took its LLC and NPL ratios
closer to industry average. Improved risk
management managed to contain NPLs.
Potential internal restructuring - if successful,
potential of reporting at least two years of tax-
free profits and ability to pay higher dividend.
Coupled with maiden issuance of Hybrid capital,
more professional management and new
collateral management system, we see
potential of more active capital management
(i.e. higher dividend) to enhance ROE and
reward shareholders. It has already declaredhigher dividend for FY09.
Although it has the second strongest asset
quality in our universe, its ROE is weighed
down by the highest capital ratios in our
universe. Desire to use excess capital for
regional expansion may hit a snag given rising
asset prices and conservative stance whereby
it is unlikely to pay a high price for any
acquisition. Merger saga with EON Cap is likely
to drag on and prevent any value enhancing
corporate exercise. Due to conservative stance
during the economic downturn, its loan growthis now lagging behind peers and industry.
Given that it may have lost traction in the
market, it would also take time to regain
market share. Treasury operations under
pressure as forex profits have declined
significantly while there was also sizeable swing
in MTM position (into the red) in 2QFY06/10.
Earnings have significantly surprised RHBRI
and consensus on the upside for two
consecutive quarters on the back of strong
increase operating income (both interest and
non-interest) and lower LLP. We now expect its
ROE to jump back to the 15% level (matchingFY08 ROE), albeit just a tad lower than the 16-
17% achieved during FY04-07. With strong
organic growth from domestic operations,
Singapore and especially BII, the negative
impact from the expensive acquisitions (of BII
and MCB) would be more than nullified as FY11
EPS is expected to exceed pre-acquisition
levels. Thus, its PER and P/B no longer
deserve to be the only stock trading near one
standard deviation below their post Asian
financial crisis means. We expect some heavy
catch up in share price performance and now
prefer Maybank as our top pick in the sector.
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31 December
2009(a) 1423.3 305.5 49.2 +>100.0 14.2 n.a. 1.4 7.7 1.1 +0.9
2010(f) 1577.4 373.1 53.8 +9.4 13.0 n.a. 1.3 10.0 1.4 +20.72011(f) 1678.6 422.4 60.9 +13.2 11.5 n.a. 1.1 10.0 1.4 +138.1
2012(f) 1780.4 468.8 67.6 +11.0 10.4 n.a. 1.0 10.0 1.4
Issued capital of 693.2m ordinary shares of RM1.00 each
Average daily volume (000) : 569.0 shares
Market capitalisation (RMm) : 4,852
30 June
2009(a) 2066.0 849.2 53.7 +14.5 15.6 n.a. 2.3 24.0 2.9 +3.1
2010(f) 2125.6 892.7 56.5 +5.1 14.9 n.a. 2.1 24.0 2.9 +5.7
2011(f) 2227.3 894.2 56.6 +0.2 14.8 n.a. 1.9 24.0 2.9 +60.0
2012(f) 2326.9 945.9 59.9 +5.8 14.0 n.a. 1.7 24.0 2.9
Issued capital of 1,580.1m ordinary shares of RM1.00 each
Average daily volume (000) : 1,090.48 shares
Market capitalisation (RMm) : 13,273
30 June
2009(a) 10321.5 2180.6 37.8 (39.7) 18.6 n.a. 1.6 8.0 1.1 +3.5
2010(f) 12608.2 3634.4 51.3 +35.7 13.7 n.a. 1.8 29.0 4.1 +2.2
2011(f) 13425.1 4292.7 60.7 +18.1 11.6 n.a. 1.7 35.0 5.0 +53.5
2012(f) 14442.6 4823.4 68.2 +12.4 10.3 n.a. 1.5 39.0 5.5
Issued capital of 7,078.0m ordinary shares of RM1.00 each
Average daily volume (000) : 5,672.1 shares
Market capitalisation (RMm) : 49,758
FYE TURNOVER NET NET % NET EV/ P/ GROSS DIV % CHANGE
(RMm) PROFIT EPS GROWTH PER EBITDA BV DIV YIELD IN PRICE
(RMm) (SEN) (x) (x) (x) (SEN) (%) 1 MTH
3 MTHS
Note : Stock prices @ 1 March 2010
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Fair value of RM13.12 is based on sector
benchmark of 16x CY10 EPS.
Fair value of RM1.15 is based on 11x CY10 EPS or
5x discount to sector benchmark of 16x to reflect
its non-deposit taking status and small market
capitalisation.
Earnings Comment/Fair Value
Banking (Cont'd)
Company
Public Bank
Outperform
RM11.02 (F)
RM11.04 (L)
RCE
Outperform
RM0.67
Superiority in all areas (loan growth,
asset quality, profitability as measured
by ROE and dividend payout ratio orgenerous capital management policy)
means that it deserves premium
valuations vis--vis peers.
Will be one of the main beneficiaries of
the eventual hike in interest rate.
Well placed to penetrate the China
market for longer-term earnings driver
through its Hong Kong arm.
Should benefit from regulatory adoption
of FRS139 and Basel II IRB
approach.Despite uncertainties about
Basel III on capital ratios and lowerdividend guidance, dividend yield is still
attractive at above 5% and it is the best
p
top related