in for a bumpy ride - lim chee sing, 24 july 2010

8/9/2019 In for a Bumpy Ride - Lim Chee Sing, 24 July 2010

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2H 2010 Market Outlook:

Still A Bumpy Ride

RHB Research Institute24th July 2010

1

Uncertainty persists in the global economy

Investors are nervous about the speed at which countries in Europe withdrawfiscal support for their economies.

Past experience suggests that premature fiscal tightening is as big a danger asdelayed tightening.

Greece 13.6 8.1


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Japan battling with falling consumer prices for more than a decade, Spain andIreland are experiencing falling consumer prices while the US core inflation rateis at a 4-decade low of 0.9% yoy in June.

With a combination of spending cuts and tax increases and as credit becomesless available, demand will likely weaken further in Europe leading to adownward spiral of falling asset prices.

New focus on fiscal austerity in Europe has also revivedworries about consumer price deflation

Rising risk of deflation in certain developed countries

% yoy

Source: Bloomberg, RHBRI.

-8

-6

-4

-2

0

2

4

6

05 06 07 08 09 10

Japan US (core cpi)

Spain (core cpi) Ireland

3

Unwelcome capital inflows, causing volatility to currencies and surging asset prices.

Fear of unsustainable asset bubble in China.

Many emerging / developing economies are facing with adifferent set of issues

Surging asset prices in some countries led to fears of asset bubbles

% yoy

HongKong

China

(Property prices) (Property prices)

Australia

% yoy

-30

-20

-10

0

10

20

30

40

03 04 05 06 07 08 09 10

Singapore

-20

-10

0

10

20

30

40

06 07 08 09 10



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Normalisation of policies will continue in these countries, albeit at a slower pace.

Some emerging economies also face rising inflation

Rising inflation a concern in some countries

% yoy (CPI / WPI)

Vietnam

India

China


-5

0

5

10

15

20

25

30

06 07 08 09 10

5

US and Asia ex-Japan firmly on recovery path, Germany can export and provide thecushion to stabilise the European region.

Risk is a sharper-than-expected slowdown in 2H, nota double-dip

US labour conditions improving

(000) %

-1000

-800

-600

-400

-200

0

200

400

600

00 01 02 03 04 05 06 07 08 09 10

0

2

4

6

8

10

12

Employment in temporary help services (LHS)

Non-farm payrolls (LHS)

Unemployment rate (RHS)

Source: US Bureau of Labor Statistics, RHBRI.

Chinas economic growth has peaked,on moderating trend

% yoy Index

PMI(RHS)

Fixed-assetInvestment(LHS) Loan

growth(LHS)

Source: Bloomberg, RHBRI

10

15

20

25

30

35

40

06 07 08 09 10

0

10

20

30

40

50

60

70


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Risk is a sharper-than-expected slowdown in the 2H given debt problems in Europe and stimulusspending packages around the globe fizzling out.

Projections Are For The Global Economy To Trend Up,Though The Pace Of Recovery Is Likely To Be Uneven

e estimates

f forecasts

*Total OECD growth

Global Economy 3.0 -0.6 4.6 4.3 3.3 3.3 3.5 4.6 4.5

2.7* 2.8*

US 0.4 -2.4 3.3 2.9 3.3 2.9 3.0 3.2 3.2

Euroland 0.6 -4.1 1.0 1.3 0.7 1.3 1.8 1.2 1.8

UK 0.5 -4.9 1.2 2.1 0.5 2.0 n.a 1.3 2.5

Japan -1.2 -5.2 2.4 1.8 2.5 2.1 2.2 3.0 2.0

Canada 0.5 -2.5 3.6 2.8 1.5 2.5 n.a 3.6 3.2

China 9.6 9.1 10.5 9.6 9.5 8.5 8.2 11.1 9.7

India 6.4 5.7 9.4 8.4 8.2 8.7 8.2 8.3 8.5

Asia ex-Japan 7.7 6.9 9.2 8.5 6.6 7.8 n.a n.a n.a

Malaysia 4.7 -1.7 6.7 5.3 5.7 5.3 5.5 n.a n.a

Advance economies 0.5 -3.2 2.6 2.4 2.3 2.4 2.7 - -

Emerging & developing 6.1 2.5 6.8 6.4 6.2 6.0 6.0 - -

economies

IMF World Bank OECD

2008 2009 2010f 2011f 2010f 2011f 2012f 2010f 2011f

7

Speed bumps from Europe and China.

V-shape export recovery also set to normalise as low base effect fizzles out.

Msia: Slowing economic growth in the 2H

Exports and industrial production inMsia showing early signs of easing

% yoy

Exports

IPI

-40

-30

-20

-10

0

10

20

30

40

50

06 07 08 09 10

Source: Bloomberg, RHBRI

-60

-40

-20

0

20

40

60

80

100

120

140

160

06 07 08 09 10

% yoy

China

Europe

Msias exports to China & Europe willlikely slow down in 2H


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Overall, the Malaysian economic recovery is building momentum

f: RHBRIs forecasts

Agriculture 4.3 -4.4 0.4 -0.4 5.9 6.8 0.4 3.2 2.8

Manufacturing 1.3 -17.9 -14.5 -8.6 5.0 16.9 -9.4 10.7 8.0

Mining & quarrying -2.4 -5.2 -3.5 -3.6 -2.8 2.1 -3.8 1.8 2.0

Construction 4.2 1.2 4.5 7.9 9.3 8.7 5.8 4.8 2.8

Services 7.4 -0.2 1.7 3.4 5.2 8.5 2.6 6.4 4.6

GDP 4.7 -6.2 -3.9 -1.2 4.4 10.1 -1.7 6.8 5.0

ConsumptionPublic 10.7 1.6 1.5 9.4 0.7 6.3 3.1 -1.5 4.5Private 8.5 -0.6 0.3 1.3 1.6 5.1 0.7 5.0 6.0

Fixed capital formation 0.7 -11.2 -9.6 -7.9 8.2 5.4 -5.6 9.0 8.6

Public 0.5 n.a n.a n.a n.a n.a 8.0 10.8 4.9

Private 1.0 n.a n.a n.a n.a n.a -17.2 6.9 12.7

Agg. domestic demand 6.8 -3.1 -2.2 0.1 2.8 5.4 -0.5 4.9 6.4

Exports of goods an7non-factor services 1.6 -15.5 -17.9 -12.9 6.0 19.3 -10.4 11.5 7.8

Imports of goods andnon-factor services 2.2 -23.0 -19.4 -13.2 7.0 27.5 -12.3 18.0 10.5

GDP 4.7 -6.2 -3.9 -1.2 4.4 10.1 -1.7 6.8 5.0

2008 2009 2010 2009 2010f 2011f

Q1 Q2 Q3 Q4 Q1

% Growth in Real Terms

Q1 Q2 Q3 Q4 Q1

% Growth in Real Terms

2008 2009 2010 2009 2010f 2011f

Source: Dept of Statistics, RHBRI.

9

Corporate earnings growth likely to have peaked

Earnings ceased to surprise on the upside in the last results reporting season.

But the recovery momentum is sustained.

Strong corporate earnings recovery from a low base, growth might have peaked

%

-60

-40

-20

0

20

40

60

1QCY06

2QCY06

3QCY06

4QCY06

1QCY07

2QCY07

3QCY07

4QCY07

1QCY08

2QCY08

3QCY08

4QCY08

1QCY09

2QCY09

3QCY09

4QCY09

1QCY10

qoq yoy

+39.1

+4.2

+7.1+4.0

+11.7

+31.3

Note: NormalisedEPS for RHBRI covered stocks in FBMKLCI

Source: Bursa Malaysia, RHBRI.


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Regional comparisons Comparable valuations to Singapore and Indonesian markets But still a very under-owned market by foreign investors Just been listed as China QDII destination

Currently, some 41.8% (US$20bn) of the quota (US$47.8bn) remains to be invested Also supported by a relatively firm to appreciating ringgit.

* as at 22nd July 2010

FactSet Asian Consensus Trends report dated 30 June 2010

2009 Net EPS (%) 5.3 0.1 32.9 26.3 40.9 8.3 40.4 42.0

2010 Net EPS (%) 23.8 11.7 16.5 19.1 29.1 23.9 76.5 66.9

2011 Net EPS (%) 13.5 10.0 15.9 7.5 18.1 17.1 11.3 5.9

2009 PER (x) 18.2 16.3 11.8 13.0 16.0 16.1 22.5 14.2

2010 PER (x) 14.5 13.8 11.5 12.4 14.8 13.3 12.5 8.9

2011 PER (x) 12.8 12.6 9.9 11.6 12.5 11.4 11.1 8.4

IBES Consensus dated 15 July 2010

2009 Net EPS (%) -20.5 -15.5 28.2 20.3 9.2 17.3 79.5 -13.1

2010 Net EPS (%) 26.6 21.3 16.8 27.2 25.4 17.9 95.9 59.1

2011 Net EPS (%) 15.6 11.8 17.5 8.5 21.1 13.0 14.3 8.4

2009 PER (x) 18.8 17.1 13.8 16.2 18.9 16.0 25.9 25.2

2010 PER (x) 14.4 13.8 11.9 12.7 14.9 12.0 13.4 9.5

2011 PER (x) 12.4 12.4 10.1 11.7 12.3 10.6 11.6 8.7

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)* +5.0 +2.0 +13.4 +11.9 +18.8 -5.9 -6.4 +3.1

M'sia S'pore Thaid Ppines Indon H.Kong Taiwan Korea

11

2H market outlook

Lack of domestic leads suggests that external factors will dominate market

movements in the immediate term.

More negative than positive news flow suggests that global equities may move

into a phase of greater volatility over the next 2-3 months.

Longer-term outlook of the market, however, remains positive given our

expectation of the sustained economic and corporate earnings growth.

End-2010 FBM KLCI target remains unchanged at 1,400 or 14.5x 2011

earnings.


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A clearer picture on the strength of the global economic recovery.

Domestically, award of major infrastructure projects / privatisation ofgovernment land for redevelopment.

Sarawak state election could be another domestic investment theme.

Catalysts for the market to come back in the 4Q

Land Area GDV Potential Master (acres) (RMm) Developer(s)

Matrade Jalan Duta 65 15,000 Naza TTDI (Awarded)

Rubber Research Institute, Sungai Buloh 3,300 10,000 EPF, MRCB

Royal Malaysian Air Force, Sungai Besi 400 Multi-billion 1Malaysia Development Bhd(1MDB), Qatar InvestmentAuthority

Jalan Cochrane 150 Multi-billion To be auctioned

Dataran Perdana, Jalan Davis 85 Multi-billion 1MDB, Mubadala

Batu Cantonment army base, Jalan Ipoh, KL 245 - 1MDB, LTAT (Boustead)

KLCC, Jalan Ampang & U-Thant vicinity - - MRCB

Source: Various news reports

Federal land to be awarded

13

Market strategy Stock picking is key.

Trim stocks with relatively rich valuations and look for opportunities toaccumulate fundamentally-robust stocks on weakness.

Expect greater price stability in companies that have less or hedged exposure tooverseas markets.

Still optimistic on the earnings prospects of the semiconductor companies, butalso a risk of earnings disappointment should the recovery in external demandturn up to be weaker than expected.

Banking sector would be a safer bet on weakness.

Constructions and property sectors will likely outperform given expectations ofpositive news flow on the potential award of major infrastructure projects /privatisation of government land.

Opportunities to pick stocks in the power, telco, motor and rubber glove sectors.

We are now more neutral on oil & gas and plantation sectors.


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Top Picks

Maybank Jun 7.69 9.66 54,427 51.3 60.7 35.7 18.1 15.0 12.7 2.0 n.a. 3.8

CIMB Dec 7.20 8.40 50,857 47.8 56.3 20.2 17.9 15.1 12.8 2.3 n.a. 1.7

Maxis Dec 5.28 6.20 39,600 33.2 36.2 6.6 9.1 15.9 14.6 3.9 10.3 6.3

TNB Aug 8.58 10.20 37,181 68.0 78.7 36.6 15.8 12.6 10.9 1.3 4.9 3.2

PLUS Dec 3.65 4.23 18,250 24.1 36.8 1.5 53.1 15.2 9.9 3.0 9.2 4.9

Gamuda Jul 3.36 3.85 6,821 13.6 16.1 40.4 17.9 24.6 20.9 2.0 n.m 3.6

MRCB Dec 1.74 1.96 2,369 6.0 7.3 57.3 21.8 29.1 23.9 1.9 18.2 0.0

Media Prima Dec 2.08 2.80 1,966 16.3 18.0 136.4 10.1 12.8 11.6 2.1 6.4 4.8

KPJ Dec 3.79 4.25 2,000 24.0 26.6 14.6 10.7 15.8 14.2 2.6 15.1 3.7

Mah Sing Dec 1.70 2.09 1,335 13.1 18.3 15.8 39.3 12.9 9.3 1.5 9.2 4.1

Faber Dec 2.89 3.54 1,049 26.5 24.2 16.4 -8.8 10.9 11.9 2.2 6.8 2.4

HSL Dec 1.49 1.95 829 13.4 16.2 30.8 21.4 11.1 9.2 2.3 13.5 1.7

Stocks FYE Price Fair Mkt Cap EPS Eps Growth PER P/BV P/CF GDY(22/7/10) Value (sen) (%) (X) (x) (x) (%)(RM/s) (RM/s) RM mil 10f 11f 10f 11f 10f 11f 10f 10f 10f

15

Sector Weightings & Valuations

Covered Stocks MktCap Weight EPS Growth PER Recommendation(RMbn) (%) (%) (x)

Banks & Finance 191.5 25.7 -2.4 19.7 14.4 14.5 12.7 OverweightTelecommunications 104.6 14.0 -13.6 16.8 11.3 17.2 15.4 OverweightPower 59.1 7.9 -8.34 25.4 11.3 12.1 10.9 OverweightConstruction^ 20.2 2.7 -4.0 28.6 8.7 17.2 15.8 OverweightMotor 17.6 2.4 -10.5 61.4 10.4 9.7 8.8 OverweightProperty 15.9 2.1 -2.9 20.1 17.8 12.1 10.2 OverweightInsurance 3.8 0.5 44.3 18.8 9.8 10.7 9.7 OverweightPlantation 103.8 13.9 -27.1 0.3 24.5 18.8 15.1 NeutralTransportation* 55.7 7.5 -10.8 41.3 16.3 21.0 17.8 NeutralGaming 50.0 6.7 -16.7 19.3 5.5 13.7 12.9 NeutralOil & Gas 30.5 4.1 -3.3 8.0 10.5 15.8 14.3 NeutralConsumer 30.0 4.0 5.6 7.8 6.4 15.7 14.8 Neutral

Infrastructure 19.4 2.6 20.3 0.5 47.5 14.5 9.8 NeutralMedia 14.3 1.9 -6.3 39.6 7.0 12.7 11.8 NeutralBuilding Materials 11.2 1.5 -19.3 5.4 25.1 11.9 9.9 NeutralManufacturing 8.4 1.1 40.2 7.6 19.0 12.3 10.4 NeutralSemiconductors & IT 6.3 0.8 -18.0 64.4 22.2 9.9 8.6 NeutralTimber 3.4 0.5 -18.6 87.6 33.5 10.3 7.7 Neutral

745.4 100.0

^ Exclude MRCB in 09

* Exclude MAS earnings in 09-10

Note : RHBRI's Basket

FY09a FY10f FY11f FY10f FY11f


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High Dividend Yielding StocksHigh Dividend Yielding Stocks

^ FY10 & FY11 refer to FY11 & FY12 forecasts.

AXIS Reit 2.12 7.8 8.4 1.3 9.6 OutperformYTL Cement 4.00 7.5 7.5 1.2 15.2 OutperformMCIL^ 0.87 6.9 6.9 1.5 13.2 OutperformGlomac^ 1.32 6.8 6.8 0.7 16.8 OutperformDaibochi 3.40 6.6 7.4 3.6 20.5 OutperformBP Plastics 0.62 6.5 7.1 0.8 12.5 OutperformAmway 7.80 6.4 6.7 5.2 37.1 OutperformMaxis 5.28 6.3 6.8 n.m 26.1 OutperformLPI Capital 17.88 6.1 7.1 2.6 27.3 OutperformDigi 24.32 6.1 6.7 26.5 70.7 OutperformTA Ann 5.10 5.8 7.4 1.6 12.4 OutperformWellcall 1.28 10.1 11.7 2.0 19.2 Market PerformYTL Power 2.20 9.1 9.1 1.8 17.1 Market PerformCSC Steel 1.64 8.5 9.1 0.8 11.3 Market PerformQuil Capita 1.02 8.0 8.4 0.8 6.6 Market PerformTM 3.32 7.9 7.9 1.8 6.4 Market PerformHai-O-Ent^ 3.69 6.7 7.6 1.3 34.5 Market PerformSTAR 3.48 6.6 6.6 2.1 13.1 Market PerformP Gas^ 10.24 6.5 6.7 3.2 38.8 Market PerformB-Toto^ 4.18 6.2 6.5 n.m 82.6 Market Perform

Hunza Prop 1.25 6.0 6.0 0.6 12.5 Market PerformTanjong^ 17.84 5.7 5.8 1.8 15.6 Market PerformWTK 1.12 5.4 5.4 0.6 4.2 Market Perform

Share Price Gross Div. Yield (%) P/NTA (x) ROE (%) Recommendation(22/7/10)(RM/shr) FY10f FY11f FY10f FY10f

17

Bank & Finance

^ FY10 & FY11 refer to FY11 & FY12 forecasts# Not under our coverage, IBES estimates are used.

Maybank OP 7.69 9.66 51.3 60.7 35.7 18.1 15.0 12.7 2.0 3.8 2.5CIMB OP 7.20 8.40 47.8 56.3 20.2 17.9 15.1 12.8 2.3 1.7 2.3PBB-F OP 12.30 13.75 82.0 91.7 11.8 11.8 15.0 13.4 3.4 4.9 1.8PBB-L OP 12.14 13.75 82.0 91.7 11.8 11.8 14.8 13.2 3.3 4.9 0.8AMMB^ OP 5.09 6.60 39.9 45.7 14.8 14.6 12.8 11.1 1.4 3.7 2.2Affin OP 3.00 3.55 27.5 29.6 10.5 7.6 10.9 10.1 0.9 2.8 -3.8RCE^ OP 0.63 1.12 10.8 11.3 4.3 4.6 5.8 5.5 1.0 1.6 -6.7AFG OP 2.92 3.40 24.4 26.6 25.2 9.1 12.0 11.0 1.4 2.9 -6.4EON Cap MP 6.91 7.92 53.8 60.9 9.4 13.2 12.8 11.3 1.2 1.4 -3.1HL Bank MP 8.65 9.20 56.5 56.6 5.1 0.2 15.3 15.3 2.2 2.8 -0.7RHB Cap# NR 6.15 NR 59.0 67.0 21.9 13.6 10.4 9.2 1.2 3.5 0.8

Recom Price Fair EPS EPS Gwth PER P/BV GDY Price Chg(22/7/10) Value (sen) (%) (x) (x) (%) (%)

RM RM 10f 11f 10f 11f 10f 11f 10f 10f 3mths

We believe the sector would help take the lead in lifting the market to higher grounds, underpinned by factors such as: 1) earnings growth gainingmomentum; 2) decent valuations relative to the market and historical l evels; and 3) r elatively lower foreign shareholding levels.

We do not discount the possibility of earnings surprises ahead and believe the areas t hat could surprise on the upside include: 1) interest income (e.g.

stronger-than-expected loan growth); 2) non-interest income; and 3) impairment allowances.

Valuation-wise, the sector is currently trading at a discount to the market as well as some large-cap peers. The banks are also generally trading belowthe previous peak in 2007 and/or one standard deviation above the mean. This suggests there is still room f or valuations to expand.

Despite the recent five new banking licences issued, we believe earnings growth of the local banks remain intact. This is because: 1) the newcommercial banking licences are niche banks and unlikely to compete head-on with the domestic institutions; and 2) t he local banks are already verycompetitive given their increased share of overall assets as well as overseas ventures.

Regulatory adoption of FRS139 Adjusting 31 Dec 09 figures for the adoption of FRS139, end-Mar 10 absolute impaired loans level would haveimproved qoq. Basel II IRB approach banks indicated neutral to positive impact on earnings and capital ratios. Basel III still not clear.

We are maintaining our Overweight stance on the sector. Maybank, CIMB, Public Bank and AMMB are all rated Outperform for big cap andliquidity exposure while smaller market capitalised stocks like AFG, Affin and RCE are also rated as Outperform.


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Building Materials

YTL Cement OP 4.00 5.51 50.1 54.5 -2.2 8.8 8.0 7.3 3.9 1.2 7.5 -6.3CSC Steel OP 1.64 2.22 21.9 23.3 -8.5 6.4 7.5 7.0 1.4 0.8 8.5 -16.3

Perwaja Holdings OP 1.19 1.24 11.6 13.5 +>100 16.9 4.4 3.8 8.1 0.7 0.0 -17.4

LM Cement MP 6.62 6.83 42.5 48.8 -12.4 14.8 15.6 13.6 11.4 1.8 4.5 -0.9

Hiap Teck MP 1.27 1.38 12.8 15.1 +>100 17.7 9.9 8.4 10.1 0.7 1.6 -11.2

Ann Joo MP 2.58 2.74 30.5 37.4 +>100 22.8 8.5 6.9 7.1 1.2 9.3 -10.4

Kinsteel UP 0.85 0.83 7.6 8.6 +>100 14.4 11.2 9.8 5.2 0.9 1.2 -13.8

Sino Hua An UP 0.37 0.27 -0.7 3.0 64.1 n.a. n.m. 12.4 33.2 0.6 0.0 -20.7

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)

RM RM 10f 11f 10f 11f 10f 11f 10f 10f 10f 3 mths

NeutralNeutral

Cement: The implementation of large-scale infrastructure projects, coupled with a pick up in propertydevelopment activities will boost domestic cement consumption from 2H10 as well as cement producerspricing power. However, this will be partly offset by higher production costs (in particular, coal, diesel andelectricity).

Steel: Both prices and demand for steel products will likely stage a rebound in 4Q, as: 1) steel consumptionis seasonally stronger in 4Q; 2) concerns on overcapacity are likely to ease in the near term; and 3) spotprice of iron ore fines (the key steelmaking input for most large steel mills in the world) has bottomed.However, it is still too early to turn bullish, as: 1) this risk on a sharper-than-expected slowdown in globaleconomy remains; and 2) overcapacity (in particular, China) remains an issue.

19

Sunway Hldgs OP 1.54 2.35 22.8 25.2 68.0 10.2 6.7 6.1 5.5 1.2 1.8 0.7HSL OP 1.49 1.95 13.4 16.2 30.8 21.4 11.1 9.2 6.7 2.3 1.7 -2.6Fajarbaru OP 0.98 1.39 13.6 14.7 -10.1 7.7 7.2 6.6 0.0 1.4 5.6 -8.0Emas Kiara OP 0.58 1.52 13.1 15.2 15.0 16.7 4.4 3.8 3.6 0.6 2.6 5.5Gamuda TB 3.36 3.85 13.6 16.1 40.4 17.9 24.6 20.9 31.0 2.2 3.6 10.6MRCB TB 1.74 1.96 6.0 7.3 57.3 21.8 29.1 23.9 20.3 1.9 0.0 8.7IJM Corp^ MP 5.11 5.01 31.7 32.6 58.9 2.7 16.1 15.7 9.1 1.3 2.2 1.6WCT UP 2.78 2.30 18.2 16.9 -3.0 -7.0 15.3 16.4 13.2 1.6 2.2 -9.2

^FY10 & FY11 refer to FY11 & FY12 forecasts* To be revised

ConstructionRecom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg

(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)


Overweight . we foresee construction stocks to generally outperform the market in 2H2010, buoyed by news flow, particularly,from: (1) RM36bn KL MRT; (2) RM7bn Ampang and Kelana Jaya LRT line extension project; and (3) The awards of Federal land.

Gamudas share price, particularly, will be buoyed by: (1) Daily doses of news and commentaries on KL MRT; (2) Cabinetapproval; (3) Thumbs up for KL MRT from businesses and the public; and (4) The commencement of the actual physical works onKL MRT ahead of the formal award of the contract.

LRT extension appears to finally start: Pre-bid briefing (22 Jun 2010), site visit (27 Jun 2010), submission of tenders (mid-Aug2010), evaluation of tenders (mid-Aug to mid-Nov 2010), award of contract & commencement of work (mid-Nov 2010).

Market is expected to brave the negative elements and forge ahead with its move to position itself ahead of the curve,underpinned by the collective buy-first-on-newsmentality.

The negative elements include: (1) A 23% lower hard gross development expenditure of RM138bn under 10MP, compared withRM179bn under 9MP; (2) The still slow pace of the roll-out of public projects; (3) A highly competitive market and decliningdominance of established players in large-scale projects locally; and (4) The not-so-rosy outlook and increased operating risks inkey overseas markets.

Our top tactical pick is Gamuda and top value pick is Sunway.


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ConsumerConsumer

^ FY10 & FY11 refer t o FY11 & FY12 forecasts

KPJ Health OP 3.79 4.25 24.0 26.6 14.6 10.7 15.8 14.2 9.2 1.7 3.7 34.4

AEON OP 4.93 5.80 41.4 45.0 8.9 8.7 11.9 10.9 5.0 1.6 2.4 -1.8KFCH OP 11.12 11.20 77.1 89.5 17.2 16.2 14.4 12.4 7.3 2.6 2.3 39.3Amway OP 7.80 8.45 54.5 56.5 23.6 3.5 14.3 13.8 9.1 5.2 6.4 6.1Carlsberg OP 5.04 5.85 40.7 42.8 64.8 5.2 12.4 11.8 8.2 2.7 4.8 -2.7Parkson OP 5.50 6.40 29.2 36.3 15.0 24.3 18.8 15.2 4.9 2.9 1.3 -5.0QL R OP 4.22 4.90 30.7 34.7 14.0 13.0 13.7 12.2 5.3 2.9 2.4 12.8Faber OP 2.89 3.54 26.5 24.2 16.4 -8.8 10.9 11.9 4.4 2.4 2.4 25.1Daibochi OP 3.40 4.20 35.1 38.0 16.9 8.3 9.7 9.0 6.0 3.6 6.6 4.0Hai-O^ MP 3.69 4.06 37.3 42.3 6.7 13.2 9.9 8.7 6.3 1.3 6.7 -15.9BAT UP 43.98 40.25 247.3 236.8 -5.4 -4.3 17.8 18.6 12.6 n.m 5.0 2.8



Slower increase in consumer spending outlook. Slower increase in consumer spending expected, at +4.6% yoy in 2H2010 vs. +5.4% yoy in1H2010. Still risk to our consumer spending projections arising from uncertainty in government policies especially on the cut in consumer subsidy.Prefer more resilient healthcare and F&B sectors than retailers and MLM players.

Healthcare poised for growth and resilient earnings. Both public and private healthcare sector is poised for growth in 2010. For the public sector,the Government has allocated a sum of RM14.8bn to build and upgrade hospitals and clinics. Meanwhile, private healthcare business will grow on theback of growing uptake in medical insurance policies. News flow for both Faberand KPJ has been strong as well. For Faber, reports that UEM Groupis looking to dispose off its 34% stake in Faber could further provide trading opportunities for the stock. Meanwhile, with strong news flow on the M&A inprivate healthcare sector in the region, we believe that KPJ will be in investors spotlight and deserves to be trading at a higher valuation, furthernarrowing its discount to regional peers PER of 18x.

F&B driven by expansions to new markets and increasing consumer spending. For the F&B industry, main drivers in 2H10 will be expansionsinto new markets, either geographically or via introduction of new products, which will augur well for both KFC and QL Resources. Daibochi wouldindirectly benefit from the increase in F&B consumption as >90% of its customers are from the F&B sector.

Brewery to be more resilient vs. tobacco. Meanwhile, the brewers earnings are expected to be more resilient due to easing cost pressure and FIFAWorld Cup celebration, while tobacco players will be f acing continued regulatory pressures and competition from illicit market.

Retailers growth could slow down in 2H, following the slower increase in consumer spending outlook coupled with uncertainty on governmentssubsidy policies.

Top pick is KPJ. We like KPJ due to its resilient earnings, leading position and expansion plans in Malaysia coupled with strong news flow from thesector.

21

Gaming

^FY10 & FY11 refer to FY11 & FY12 forecasts * Normalised

Genting S'pore OP S$1.20 S$1.65 2.7 3.8 290.8 37.9 44.0 31.9 7.4 4.6 0.0 39.5Genting Bhd MP 7.58 8.50 53.4 56.4 68.8 5.7 14.2 13.4 5.2 2.4 1.3 13.6B-Toto^ MP 4.18 4.35 28.8 29.0 -0.3 0.5 14.5 14.4 9.9 n.m 6.2 -6.1Genting M'sia UP 2.64 2.65 21.0 22.4 -13.4 6.8 12.6 11.8 5.5 1.4 2.6 -7.4

Recom Price Fair EPS * EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)


Downgraded to Neutral. Things have changed for the gaming industry overnight, and we are downgrading the sector to NEUTRAL(from Overweight). We think that an additional risk has emerged for the gaming sector as a whole, as the recent move by theGovernment to increase pool betting duties by 2%-pts to 8% from 1 June 2010, as well as the recent abortion of the sports bettinglicence deal, could potentially signify a turnaround in policy with regards to the gaming sector and could mean a further crackdown onindustry players. This could also potentially spell an oncoming hike in casino gaming duties (now at 25%) and a non-approval ofTanjongs new lotto game application which is still pending. We estimate every 1%-pt hike in casino gaming tax would impact earningsby 2-3% p.a..

Besides regulatory risk, Genting Malaysias latest proposed related party acquisition of Gentings UK business from Genting Singaporeis non-EPS accretive for Genting Malaysia and is, in our view, expensive and is not putting its cash to good use. Although the negativeimpact of the acquisition is contained at 4-5% p.a., we believe this acquisition brings to the fore investor fears that GenM will alwayssuffer for its cash hoard and that related party transactions will continue to play a part of the groups M&A activities. We now have anUnderperform recommendation on GenM with fair value of RM2.65 and a Market Perform call on Genting with an RM8.50 fair value.

The only bright spark in the group now is Genting Singapore (Outperform, FV = S$1.65), who is the only party which will benefit fromthe recent proposal (albeit minimally at +1-2%), as it will now be able to concentrate fully on its RWS property. However, we are nowmore watchful of GenS planned use of the S$725m cash proceeds from the sale of Genting UK, as well as the S$1.6bn proceeds fromits recently completed rights issue. We continue to be positive on RWS prospects as we believe the strength of the whole package willdrive visitor numbers and casino patronage strongly at least for the first few years, especially in view of it being a family destinationand the novelty factor, while riding on Singapores anticipated tourism-led economic recovery. Note that we will only impute in theimpact of the acquisition/disposal into our forecasts for all the three stocks until the deal has been approved by minorities.

As for BToto, prospects look bleak now after the pool betting duty hike which would reduce its earnings by 12% p.a.. However, this doesnot take into account the potential decline in revenue if the NFOs decide to reduce the prize pools to offset the tax hike. We note thatevery 1%-pt decline in sales/draw volume growth would affect net earnings by an additional -1% and our fair value by -RM0.05/share,although we note that a cumulative annual decline in sales/draw volume would have a larger impact on earnings. We now have aMarket Perform recommendation on BToto, with a fair value of RM4.35.


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Infrastructure

PLUS OP 3.65 4.23 24.1 36.8 1.5 53.1 15.2 9.9 10.3 3.0 4.9 7.0

Puncak MP 2.75 2.92 31.8 36.3 -8.2 14.1 8.6 7.6 3.3 0.7 2.2 1.5



Neutral.

Puncak Niaga: While the recent news flow (which appears that both state and federal governments haveagreed to acquire water assets at higher prices) will boost trading sentiment of water-related stocks (inparticular, the water concessionaires) in the near term, we believe it would still take a while before the watersector restructuring could materialise, given that: 1) it i s unknown if the water concessionaires would be offereda much higher price to surrender their prized assets; and 2) the issue on O&M ownership remains unresolved.

PLUS: Past experience indicates that the potential hike in both fuel prices and toll rates are unlikely to hurtPLUSs traffic volume significantly. We project traffic volume at PLUSs core expressways to grow at 3% p.a. inFY12/10-11, as the impact on traffic impact arising from the potential hike in fuel prices and toll rates will be

partly offset by the travel incentive programme and the 20% rebate for frequent toll users. Higher dividend islikely, given (1) Its current low debt-to-equity ratio of 1.8x vis--vis the global toll road players debt-to-equityratio of 3.5x that allows it to raise borrowings in the near term; and (2) Its stable free cash flow of RM900m perannum. Hence, we continue to like PLUS for its defensive earnings and decent dividend yield of 5-6% perannum.

23

Insurance

Allianz* OP 4.05 5.32 71.9 86.2 -7.0 19.9 5.6 4.7 1.0 0.5 -8.0Kurnia Asia OP 0.50 0.63 6.6 7.0 73.7 5.3 7.5 7.1 1.9 0.0 -14.5LPI Capital OP 17.88 19.23 111.4 128.2 22.5 15.1 16.1 14.0 2.6 6.1 26.4MNRB^ UP 2.70 2.98 22.8 18.1 6.9 -20.8 11.8 14.9 0.6 3.7 -9.7

^FY10 & FY11 refer to FY11 & FY12forecasts* Price and fair value are ex-rights. EPS is not diluted until conversion of ICPS to shares.

Recom Price Fair EPS EPS Gwth PER P/NTA GDY Price Chg

(22/7/10) Value (sen) (%) (x) (x) (%) (%)

RM RM 10f 11f 10f 11f 10f 11f 10f 10f 3mths

No clear decision by BNM yet with regards to the new scheme for the TPBID policies. But we believe BNMwould not be able to delay the reforms for too long.

Life insurance growth will be backed by the low penetration rate relative to other countries in the region,

higher medical costs, additional disposable income, the tax relief announced in the 2010 Budget andincreased awareness on life products.

General insurance growth will be backed by increase in demand following increase in business activities fromthe economic recovery, and improving Motor TIV growth. Recent merger between HLAs general insurancearm and MSIG Insurance indicates a changing competitive landscape, as MSIG will be the second largestgeneral insurer in the country, with the biggest fire and marine cargo portfolio.

Maintain Overweight. Top Pick is Allianz.


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Adventa OP 3.13 4.92 27.4 37.8 24.4 38.1 11.4 8.3 9.1 2.2 3.8 -10.6

VS Industry OP 1.18 1.87 12.7 24.9 92.2 95.5 9.3 4.7 3.7 0.7 4.2 -7.1

Kossan OP 4.02* 6.70* 41.3 51.5 10.3 24.7 9.7 7.8 6.6 2.7 1.3 1.3

Top Glove OP 6.75 8.20 44.5 48.1 55.3 8.1 15.2 14.0 9.2 4.1 3.4 4.2

Hartalega^ OP 8.14 9.29 71.5 83.6 21.0 16.9 11.4 9.7 8.2 4.0 1.5 5.6

BP Plastics OP 0.62 0.88 10.0 10.9 15.7 8.9 6.1 5.6 1.9 0.8 6.5 -0.8

Wellcall MP 1.28 1.33 11.9 14.7 17.3 23.7 10.7 8.7 5.6 2.0 10.1 -5.2

Manufacturing

^FY10 & FY11refer to FY11 & FY12 forecasts* Ex-price

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg

(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)


Neutral.

We believe the economy will likely grow at a more moderate pace in 2HFY10 given the speed bumps fromGreece and China, and as the sharp V-shape export recovery normalised. This would mean that the demandfor the countrys export would eventually experience some slowdown in 2HFY10.

We remain positive on the glove manufacturers given that demand prospects for gloves would continue to be

strong as rubber gloves are considered to be the most basic and affordable form of protection against virusesin the healthcare industry. As for the rising latex prices and weakening US$ against RM, past trends suggestthat the glove manufacturers would be able to pass on the cost increase to customers. Any time lag in passingon the cost increase, however, would be mildly negative but not significant. We are reiterating ourOverweightstance on the glove sector.

25

Media

^ FY10 & FY11 refer to FY11 & FY12 forecasts

Media Prima OP 2.08 2.80 16.3 18.0 136.4 10.1 12.8 11.6 7.3 2.9 4.8 -7.6

Star MP 3.48 3.86 22.6 25.8 15.3 14.0 15.4 13.5 7.0 2.1 6.6 5.5

MCIL^ OP 0.87 1.16 9.0 8.7 12.7 -4.1 9.6 10.0 4.7 1.5 6.9 6.1



Neutral

While YTD (Jan-May) adex growth stood at 29.9% yoy, we expect the growth rate to slow down in 2H10 following thestrong start to the global economic recovery in 1HFY10 given that adex will now be coming from a higher base.Nevertheless, adex growth should continue to remain healthy, supported by sporting events such as the FIFA WorldCup and Commonwealth Games.

At the cost side, newsprint prices have eased recently as global economy will likely grow at a more moderate paceahead. Thus, demand and input cost for newsprint (main costs are energy and pulp) should stabilise.

We prefer companies that offer high leverage to ad spending and have a cost structure that is relatively fixed as thismeans that the bulk of the stronger revenue would flow straight down to bottomline. We expect Media Prima to be aprime beneficiary of the faster recovery in TV adex while its high fixed cost structure offers favourable operatingleverage effects. In addition, Media Prima now controls NSTP and will be able to fully consolidate NSTPs strong 2010earnings growth. Potentially, there could be merger synergies that the enlarged entity may be able to reap. In addition,another potential catalyst is that the enlarged entity may be able to command better valuations.

We also like MCIL its as valuations are currently trading at a cheaper discount to Stars despite both companies offeringroughly similar earnings growth.


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Motor

^FY10 & FY11 refer to FY11& FY12 forecasts

T Chong OP 4.49 6.16 39.0 45.3 72.0 16.2 11.5 9.9 8.5 1.8 2.5 -2.2UMW OP 6.29 7.50 55.3 59.2 64.4 7.2 11.4 10.6 5.2 1.8 3.7 -2.5MBM OP 3.00 5.31 45.8 48.2 62.3 5.3 6.5 6.2 15.8 0.8 4.0 4.5Proton^ OP 4.41 5.50 67.4 75.2 49.2 11.6 6.5 5.9 7.3 0.5 0.0 -8.1



We believe it is now the best time to invest in local motor stocks as the motor sector is currently in its second year of anew 3-year cycle that has started since 2009. A closer look at Malaysias TIV reveals that the local motor sector has beenmoving in 3-year cycles since 2000 and TIV growth is normally seen in the second and third years of the cycle.

We project Malaysias TIV to jump +9.5% (previously +8.9%) in FY10, followed by a decent +4.0% ( previously +2.8%) inFY11.

We believe our new TIV projection is achievable as TIV for the first 5 months in 2010 already made up 42% of our full-year forecast. In terms of yoy growth rate, it came in at +19.9% yoy for the first five months in 2010 largely due to the lowbase in 1 H2009. Given the higher base for the remaining months, our forecast of +9.5% implies TIV growth would needto average around 3.0% yoy between Jun and Dec to come in within our forecast.

We have rolled forward our valuation base year for motor stocks to FY11 (from FY10 previously). Indicative fair value forTan Chong has been raised to RM6.16/share (previously RM5.26), MBM was revised up to RM5.31/share (previously

RM5.04), Proton remains at RM5.50 based on stripped down book value, while UMW has been reduced slightly toRM7.50 (previously RM7.52).

Our top-pick remains with Tan Chong (FV= RM6.16) given: 1) sustained strong car sales; 2) impending launching of itsA and B segment cars; 3) earlier-than-expected earnings contribution from its regional expansion; and 4) potentialunlocking of values from the development of the 47-acre Segambut land.

27

Oil & Gas

^FY10 & FY11 refer to FY11 & FY12 forecasts

Dialog OP 1.08 1.30 6.1 8.8 14.9 44.8 17.8 12.3 15.6 4.3 3.1 -1.8EPIC OP 1.85 2.72 26.9 27.2 7.9 1.1 6.9 6.8 5.4 0.9 5.1 14.2Wah Seong MP 2.34 2.38 16.1 18.3 23.1 14.0 14.6 12.8 5.7 2.9 2.7 -6.4SapuraCrest ^ MP 2.21 2.46 16.9 18.9 26.5 12.0 13.1 11.7 4.2 2.2 3.2 -3.5P Gas^ MP 10.24 10.71 62.6 64.4 31.6 2.9 16.4 15.9 8.4 3.2 6.5 3.0KNM Group UP 0.51 0.36 2.8 3.6 -24.5 27.2 17.8 14.0 11.2 6.6 4.0 -14.4Kencana UP 1.53 1.27 8.0 9.8 11.3 22.5 19.2 15.7 11.4 3.2 0.4 -4.4Petra Perdana UP 1.38 1.15 6.8 12.2 -31.1 79.9 20.4 11.3 5.1 0.8 1.4 -7.4



We believe the oil & gas industry is still facing some uncertainty as the crude oil price direction remainsunconvincing. Sharper-than-expected global economic slowdown, especially in China and US, could have anegative impact on demand for petroleum products. On the positive side, Petronas commitment to maintaincapex levels, and more importantly to focus spending on the domestic business will likely be positive for the localsupport services players.

Nevertheless, this will likely only translate into contracts in the longer term. In the near term, the outlook remainstough, especially for companies with exposure to Europe where the debt crisis has dampened spending. BPs

accident in the Gulf of Mexico will likely result in oil companies reviewing safety specifications on oil & gasfacilities this could cause delays for the award of new projects especially in deepwater regions.

We expect short-term trading for the upstream offshore players such as SapuraCrest and Kencana, but webelieve there is risk of continued earnings disappointment in the next few quarters especially for the offshorevessel players. Instead, we see catalysts for EPCC players like Dialog and Kencana from Petronas onshoreprojects, including: 1) SOGT; 2) ammonia and urea plant in Kimanis, Sabah; 3) potential expansion of theMelaka refinery; and 4) LNG regassification terminal in Melaka.

Beyond this normalisation of economic growth, we remain bullish on the longer-term outlook, as global demandbegins to pick up again moreover, exploration & production will have to pick up pace in order to ensurereplenishment of reserves. Dialog (OP, FV = RM1.30) is our top pick given the potential for more EPCC projectsahead.


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IOI Corp OP 5.07 6.65 26.8 33.1 -16.3 23.3 18.9 15.3 19.4 3.7 2.4 -7.5KLK OP 16.74 20.70 87.6 124.4 23.7 42.1 19.1 13.5 16.0 3.1 2.7 -0.8CBIP OP 3.00 3.70 41.2 49.7 40.5 20.6 7.3 6.0 22.3 1.5 4.7 9.9First Resources OP S$1.12 S$1.35 7.9 9.5 +>100 19.9 10.2 8.5 19.1 1.8 2.2 1.1Genting Plant UP 7.01 6.50 40.2 45.0 29.3 11.9 17.4 15.6 11.4 1.9 1.6 1.3IJM Plantation^ UP 2.46 2.30 13.5 14.6 20.5 8.2 18.2 16.8 9.6 1.7 2.2 -3.1Sime Darby UP 7.59 8.15 39.7 48.0 5.9 20.9 19.1 15.8 11.1 2.1 2.9 -14.7

Plantations

^ FY10 & FY11 refer to FY11 & FY12 * Normalised

Recom Price Fair EPS * EPS Growth PER ROE P/NTA GDY PriceChg(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)


Adopting a more cautious outlook on sector, as we believe there are no positive catalysts which would move CPO prices up in the shortterm, and therefore expect plantation companies share prices to remain lacklustre until this scenario changes.

We downgraded our recommendation on the plantation sector to Neutral (from Overweight) due to: (1) the onset of the peak palm oilproduction season which will dampen CPO prices in the short term; (2) the reduced possibility of an El Nio impact, although talk of LaNia has now started; (3) the potential negative impact of exchange rate movements and reduction in crude oil price forecasts; and (4)valuations of plantation stocks which are no longer as attractive after rolling forward valuation targets to CY11.

Despite more cautious outlook, we maintain CPO price forecasts at RM2,500/tonne for CY2010 and RM2,700/tonne for CY2011, as webelieve the medium- to long- term prospects remain relatively stable, given the still positive stock/usage ratio trends for the global 17vegetable oils and fats and the still positive news flow which would support prices at above RM2,000/tonne in the longer term.

We rolled forward valuation targets to CY11 (from CY10) and lowered them by 2x PE, as we believe big premium valuations are no

longer justified, especially with Malaysian planters premiums over their Singaporean and Indonesian peers back to excessive levels of35-45%, versus the traditional 20-30% premium. For big-cap plantation stocks like Sime Darby, IOIC and KLK, we now assign a targetCY11 PE of 16x (from 18x CY10) for their plantation divisions, for mid-cap plantation stocks like Genting Plantations and IJMP, we nowassign a target PE of 14.5x CY11 (from 16.5x CY10) and for small-cap stocks like CBIP, we now assign a t arget PE of 12x CY11 (from14x CY10). We also reduce our target PE for First Resources to 10x CY11 (from 11.5x CY11), which is based on an unchanged 30%discount to our revised target PER for the Malaysian mid-cap plantation stocks. We maintain our Outperform recommendations onIOIC, KLK and CBIP, and Underperform recommendations on Genting Plantations, IJMP and Sime Darby.

29

Power

^ FY10 & FY11 refer t o FY11 & FY12 forecasts

Tenaga OP 8.58 10.20 68.0 78.7 36.6 15.8 12.6 10.9 7.4 1.3 3.2 2.4

Tanjong^ MP 17.84 18.30 161.2 167.2 -2.4 3.7 11.1 10.7 7.3 1.8 5.7 1.9

YTL Power MP 2.20 2.15 13.7 14.2 18.8 3.6 16.1 15.5 8.7 1.8 9.1 -0.5

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY PriceChg(22/7/10) Value (sen) (%) (x) (x) (x) (%) (%)


Overweight Fundamentally, we continue to view TNB as an excellent proxy to a recovering economy. Jun 10 electricity demand grew 11% yoy (vs.May 10 of +11.1% yoy) with all three sectors reporting stronger demand. YTD (Sep09-Jun 10), electricity demand was up 9.9% yoy. Our FY10 EPSgrowth of +36.6% yoy is underpinned by demand growth assumption of +10%.

Separately, Pemandu has proposed to remove gas subsidy to the power sector by 2015 but TNB would be allowed to raise electricity tariffsaccordingly to pass on the higher cost. We estimate that the impact should be neutral to TNB, depending on demand. TNB would also need an upwardadjustment in tariffs to cover higher coal cost (currently around US$97/tonne vs. benchmark US$85/tonne recoverable under the current tariffstructure). A base tariff review is also past due and, if approved, would be even more positive as this would flow straight down to TNBs bottomline.However, the probability that this may take place appears low at this juncture, in our view. In the meantime, potential mitigating factors include: 1)FY10s coal requirement has been locked-in at around US$90/tonne; 2) strengthening RM vs. US$; and 3) stronger demand (especially to help coverhigher capacity payments).

With the undersea cables project likely cancelled, there is now potential growth opportunity for the IPPs in Peninsular Malaysia with an estimated6,000MW of new capacity required to meet the shortfall.

The recent increase in pool betting duties would not impact Tanjongs earnings too significantly (~3.5% full-year impact) as this would be cushioned bythe groups diversified operations. In our view, a near-term share price catalyst is the addition of new power assets, although the impact to earningswould depend on whether these are greenfield or brownfield projects. Our SOP-derived fair value has yet to reflect such additions. Resolution of theoperating losses incurred by the RTO segment would be both earnings and value-accretive, but this m ay take time.

We think the market would be watchingYTLPs WiMAX rollout (expected 4QCY10) and strategy closely. A potential concern here is that YTLP coulddecide to start a price war in order to win subscribers, especially given that it would be coming into the market with a largely unutilised network. Fornow, managements reassurance regarding dividends means that a key investment thesis for the stock remains intact, i.e. attractive dividend yields.


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Property

^FY10 & FY11 refer to FY11 & FY12 forecasts* NAV per share

Recom Price Fair EPS EPS Growth PER ROE P/NTA RNAV GDY Price Chg(22/7/10) Value (sen) (%) (x) (%) (x) (%) (%)

Sunrise OP 1.91 2.76 32.9 36.2 17.6 10.1 5.8 5.3 15.5 0.8 3.94 2.6 -15.1Glomac^ OP 1.32 1.56 15.4 19.4 24.7 26.5 8.6 6.8 16.8 0.7 2.23 6.8 -4.3Sunway City OP 3.55 5.33 34.8 38.8 9.8 11.6 10.2 9.2 7.2 0.7 6.27 2.3 -9.0Axis REIT OP 2.12 2.55 16.4 17.9 3.0 8.7 12.9 11.9 9.6 1.3 1.60* 7.8 5.5IJM Land OP 2.22 3.11 18.3 27.3 +>100 49.4 12.2 8.1 11.5 1.3 3.11 0.9 -5.1Mah Sing OP 1.70 2.09 13.1 18.3 15.8 39.3 12.9 9.3 12.4 1.6 2.09 4.1 3.0SP Setia MP 4.16 4.66 18.6 21.7 16.4 16.7 22.4 19.2 8.9 1.9 4.66 2.2 1.0YNH Prop MP 1.65 1.86 16.1 18.0 15.8 11.6 10.2 9.2 8.7 0.9 3.11 3.9 -6.8Quill Capita MP 1.02 1.17 8.9 9.3 7.3 4.7 11.4 10.9 6.6 0.8 1.38* 8.0 -5.6KLCC Prop MP 3.09 3.80 26.3 27.3 4.4 3.8 11.7 11.3 12.9 0.5 4.47 3.6 -5.2Hunza Prop MP 1.25 1.43 24.2 24.7 27.4 2.1 5.2 5.1 12.5 0.6 2.85 6.0 0.8

RM RM 10f 11f 10f 11f 10f 11f 10f 10f RM 10f 3 mths

Overweight. In 2H2010, news flow is expected to take precedence over fundamentals in driving the shareprice performance of property developers.

Positive news flow: (1) The formal awards of Federal land parcels to master developers and the subsequentfarming out of the sub-divided smaller land parcels to various developers; and (2) The increased sentiment andinterest in land and properties in Iskandar Malaysia on expectation of rising investment on improving tiesbetween Malaysia and Singapore.

Negative news flow: IFRIC 15 (income to be recognised on a completion basis) will result in high earningsvolatility due to lumpy profit recognition. Project-driven developers such as Glomac, YNHP, Sunrise and Hunza

will take the full blunt.

Fundamentally, we expect key property developers to continue to report sales growth in 2H2010 as well as into2011, underpinned by: (1) Improving economic outlook; (2) The still relatively easy monetary conditions; (3)Rising inflationary expectation.

Cannot ignore REITs given their defensiveness in terms of share price performance and earnings.

31

Semiconductor & IT

Notion Vtec OP 2.76 4.68 34.7 46.8 35.3 35.1 8.0 5.9 5.0 2.1 2.4 -18.6JCY Intl OP 1.43 2.16 14.7 18.0 45.5 22.2 9.7 7.9 7.5 3.1 4.9 -26.7Unisem MP 3.08 3.26 27.1 29.6 134.8 9.3 11.4 10.4 5.4 1.5 1.6 -6.9MPI MP 6.29 6.80 45.1 60.8 735.6 34.7 13.9 10.3 4.0 1.3 3.2 -10.7



Neutral. Although SIA has raised its FY10-11 global chip sales growth forecast to 28.4% and 6.3% (from 10.2% and8.4%), we expect chip sales growth to normalise in line with the slowdown in global economic growth in the 2H.

We also see potential downside risk in demand if the Euro debt crisis is prolonged and Chinas economic growthbegins to slow.

We note that regional peers, especially in Taiwan, have already started to price in these concerns and the average

FY11 PER is currently at 11x.

Having lowered our earnings forecast and fair values for Unisem and MPI, we now see limited upside for these twosemiconductor stocks, and have consequently downgraded our recommendation for both stocks to Market Perform.

Hence, on the account of these developments, we have downgraded the sector to Neutral from overweight.

We remain positive on Notion Vtec (OP, FV=4.68) and JCY (OP, FV=2.16) as earnings visibility remains good; given:1) strong demand for data storage; and 2) riding on the PC replacement cycle.


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Telecommunications

Digi.Com OP 24.32 25.70 139.0 152.4 8.0 9.7 17.5 16.0 8.5 26.5 6.1 7.6Axiata OP 4.07 4.53 24.7 28.5 34.0 15.5 16.5 14.3 6.6 2.9 0.0 8.5Maxis OP 5.28 6.20 33.2 36.2 6.6 9.1 15.9 14.6 8.9 n.m 6.3 -0.8TM MP 3.32 3.55 12.5 13.5 -6.1 8.2 26.6 24.6 5.6 1.8 7.9 -3.2



Overweight. We see three key investment themes for the sector : 1) Data traffic the next wave of growth. While we expect voicerevenue to experience slower growth ahead, we are more optimistic with respect to broadband and data revenue; 2) Strong cashflows, healthy balance sheets and well articulated dividend policies lend visibility to attractive yields; and 3) Capital managementactivities still on the cards. Both Digi and Maxis remain committed to moving towards a more efficient balance sheet while we thinkTM has the capacity to pay out cash in excess of its minimum RM700m dividends.

We believe Digis key revenue growth drivers include: 1) further penetration into the underserved markets; 2) market share gains forexisting subscribers; and 3) continued focus on CRM activities to upsell to existing customers. Beyond 2010, non-voice revenueshould start to contribute more significantly. The recent announcement on Digis target capital structure (i.e. net debt:equity thatranges from 35:65 to 45:55), coupled with its 1Q dividend payout ratio of close to 100% indicate that it will likely continue to keepdividends attractive going forward.

For investors with higher risk appetite, Axiata offers investors strong earnings growth and exposure to a recovery in emergingmarkets, where mobile penetration remains relatively low. We believe a new economic cycle has begun and Axiata would be amajor beneficiary, in our view.

Maxis, in our view, is well poised to benefit from the rising popularity of mobile broadband and strong data revenue growthmentioned above due to, among others, its large, high-end customer base (which provides cross-selling opportunities) and strategicpartnerships with application and device providers. Furthermore, its strong cash flows and healthy balance sheet mean there couldbe scope for a more aggressive return of cash to shareholders.

TM launched its HSBB service in end-Mar 10. The offering of a bundled service together with improved network quality could helpTM in terms of customer retention and acquisition as well as provide a lift to ARPUs. That said, contribution from HSBB is notexpected to be significant in the near term. In the meantime, we believe investors will continue to viewTM as a dividend play.

33

Timber

^FY10& FY11 refer to FY11 & FY12 forecasts

Ta Ann OP 5.10 6.95 44.7 56.3 50.3 25.9 11.4 9.1 7.6 1.6 5.8 -10.8Evergreen OP 1.62 2.30 21.0 23.0 27.0 9.4 7.7 7.0 6.7 1.1 5.2 0.0Jaya Tiasa^ OP 3.42 4.95 27.7 48.1 +>100 74.0 12.4 7.1 9.2 0.9 0.0 -6.8WTKH MP 1.12 1.25 10.4 14.3 +>100 37.3 10.8 7.8 6.3 0.6 5.4 -20.0



Latest Apr 10 Japan housing starts saw a minor improvements (+0.6% yoy) -- the first in 17 months, which signifies thatJapans housing recovery may start gaining pace soon. Full-year 2010 housing starts is also expected to recover yoy, butwe do not expect it to cross the one million unit mark in 2010 and we expect this to potentially happen only in 2011.

Nevertheless, we understand from Japan Lumber reports and timber players that plywood prices have started to firm up

since Apr 10 after a 10-22% increase. Log prices have increased as well (+10% from YTD-low) following supply shortagesin Sarawak. We are maintaining Neutral call on the timber sectoras the recovery may still be gradual.

Our top picks are Evergreen and Ta Ann. For Evergreen, structural changes in the industry i.e. gradual increase in realdemand and supply shortages from the closure of plants will be major boosters to capacity utilisation and average sellingprices and thus, earnings for the group. For Ta Ann, earnings would be driven mainly by its plantation division while anyfurther upside to the plywood division would further boost its earnings.


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Transport / Logistics

^FY10 & FY11 refer to FY11& FY12 forecasts

ILB OP 0.90 1.48 10.0 11.4 211.5 13.2 9.0 7.9 5.2 0.5 3.3 -6.8Freight Mgmt OP 1.00 1.53 13.0 15.1 17.0 16.4 7.7 6.6 4.2 1.0 4.5 24.2AirAsia OP 1.40 1.88 15.5 19.7 -15.3 26.9 9.0 7.1 10.1 1.3 0.0 4.5MAHB OP 5.00 6.24 34.1 39.0 19.3 14.4 14.7 12.8 9.6 1.4 3.4 3.1MAS UP 2.08 2.01 11.4 14.4 128.3 25.8 18.2 14.5 10.7 1.9 0.0 -8.0MISC UP 8.74 8.02 33.0 36.7 81.2 11.2 26.5 23.8 13.7 1.7 4.1 -0.7



Neutral. The airline sector is poised for better prospects over the near term on improved yields and load factors, thanks torising demand for air travel on the back of the recovery in the global economy. This augurs well for airport operators suchas Malaysia Airports as well.

AirAsia has finally done the right things: (1) To adopt a more disciplined growth strategy to keep gearing level in check;(2) To gradually take back financial/non-financial support lent to Thai AirAsia, Indonesia AirAsia and AirAsia X; and (3) Todeliver the earnings.

We remain cautious on MAS: (1) Still saddled with fuel hedges at high prices; (2) Fleet renewal may be derailed by theuncertainty surrounding its order for the six A380 aircraft; and (3) Its quarterly operating results remain volatile with a lossin the latest quarter, i.e. 1QFY12/10.

The shipping sector will continue to be weighed down by weak freight rates on the back of just a mild

recovery in volumes while new capacity continues to flood the market.

MISCs shareholders may be in for a windfall if the listing of its unit MMHE entails an offer for sale (OFS) to MISCsshareholders at attractive valuations. On the other hand, there are concerns if MMHE will be hit by cost-overrun too.

One key speed bump to the recovery of the transportation and logistics sector as a whole is rising crude oil prices thatcould crimp margins.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previouslyknown as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and informationcontained herein are based on generally availabl e data believed to be reliable and are subject to change with out notice, and may differ or be contrary to opinions expressed by otherbusiness units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell thesecurities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give riseto any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objecti ves of persons whoreceive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments andstrategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investors indi vidualcircumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all orany part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investmentbanking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time holdpositions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involvedin this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers,employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or other services from the companies inwhich the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not be en reviewed by, and may not reflect inform ation known to,professionals in other business areas of the Connected Persons, including investment banking personnel .

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors,including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period ofthree months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation , over the next 6-12 months.

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional informat ion on recommended securities, subject to theduties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of thirdparties in this respect.


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THANK YOU

in for a bumpy ride - lim chee sing, 24 july 2010

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