rhb equity 360° - 22 october 2010 (telecom, mahb, fajarbaru; technical: b-corp)

8/8/2019 RHB Equity 360 - 22 October 2010 (Telecom, MAHB, Fajarbaru; Technical: B-Corp)

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Market Dateline PP 7767/09/2011(028730)RHB Research Institute

RHB Equity 360

22 October 2010 (Telecom, MAHB, Fajarbaru; Technical: B-Corp)

Top Story : Telecom Sizing up the pure mobile domestic players Maxis vs. DiGi NeutralSector Update

- In this report, we make a comparison between the only two purely domestic focused mobile operators in

Malaysia, i.e. Maxis and DiGi.- We find that Maxis is ahead in: (1) subscriber and revenue market share; (2) EBITDA margins; (3) postpaid

ARPU; (4) 3G network population coverage; and (5) non-voice contribution.- DiGi however commands higher prepaid ARPU due to its traditional focus.

- We prefer Maxis given that it is marginally cheaper by 4.5% at 16.9x FY12/10 PE compared to DiGis17.7x, while offering higher dividend yield of 6.6% in 2010 compared to DiGis 5.7%.

- Going forward, we believe Maxis is best positioned to capture the huge untapped potential that mobilebroadband has to offer due to its transformation into Malaysias first quad-play telco, cross-sellingopportunities within its higher quality postpaid subscriber base and wide 3G network population coverage.

- No change to our Neutral stance on the sector.- Maintain Outperform on Maxis (FV=RM5.75) and DiGi (FV=RM26.35) based on DCF valuation. TM (Market

Perform, FV=RM3.55) remains primarily a dividend play, while Axiata (FV=RM4.75) is still a Market

Perform given its strong YTD share price performance.

Corporate Highlights

MAHB : Sabiha Gokcen for long term prospects OutperformVisit Note

- In the near term, Sabiha Gokcen International Airport (SGIA) will not significantly contribute to MAHBsearnings as it expects a period of gestation within the next seven to eight years. Nonetheless, management

is optimistic in the long term terminal given its high growth potential.- While Ataturk International Airport (AIA) is considered to be the main airport of Istanbul, the terminal is

facing capacity constraints and is estimated to have exceeded capacity by 40%. In addition, we note that

constraints are exacerbated by the lack of space surrounding the terminal. Therefore, we believe thisprovides SGIA the opportunity to capture AIAs passenger spillovers.

- We now take the opportunity to incorporate the KLIA 2 and SGIA projects into our fair value. For the KLIA 2project, we have assumed a project internal rate of return (IRR) of 8.0%, which implies to equity IRR

17.9%, we estimate that MAHB will yield an enhancement of RM716.3m, translating to 65.1per share.- On the other hand, for the SGIA project, we have assumed a project IRR of 10.0%, translating to equity

IRR 24.4%, we estimate that the investment will yield an enhancement of RM213.7m given its 20% stake,translating to 19.4per share.

- Hence, we have raised our SOP fair value to RM6.81 (from RM5.96). Maintain Outperform.

Fajarbaru : Lands RM36.5m Pasir Mas Halal Park infrastructure job OutperformNews Update- Fajarbaru has been awarded by the ECER Development Council a RM36.5m contract for earth and

infrastructure works for Phase 1, Pasir Mas Halal Park in Kelantan.- This is the second key contract Fajarbaru has secured so far in FY06/11, boosting its YTD new contracts

secured to RM99m and outstanding construction orderbook by 8% from RM459m to RM496m- Assuming an EBIT margin of 10-12%, the latest contract will fetch RM3.7-4.4m EBIT over the 15-month

construction period commencing Nov 2010.

- Forecasts maintained as we have assumed Fajarbaru to secure RM250m new jobs p.a. in FY06/11-12.- Fair value is RM1.37. Maintain Outperform.

Technical Highlights

Daily Trading Strategy : Fresh opportunity to retest 1,500- Although the closing with a star-like candle indicates a slight weakness on the FBM KLCI in the

immediate term, we favour its ability to crossover the 10-day SMA of 1,489 yesterday.


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- A sustainable trading above the 10-day SMA means a return to positive trading sentiment in the short term.

- For now, the 10-day SMA becomes its immediate support level on the chart, followed by the tiny technicalgap near 1,472.32 - 1,476.05.

- In addition, the robust trading volume and healthy rotational plays are expected to cap profit-takingpressure in the near term, in our view.

- As such, we see a fresh opportunity to retest the 1,500 psychological level and the recent high of 1,503.82,

before gearing up to challenge the historical high at 1,524.69

Daily Technical Watch: Berjaya Corporation A renewed bullish sentiment on the stock likely- 10-day SMA: RM1.052

- 40-day SMA: RM1.05- Support: IS = RM1.06 S1 = RM0.88 S2 = RM0.75- Resistance: IR = RM1.20 R1 = RM1.33 R2 = RM1.55

Bulletin Board

Co/Sector News Impact Recom

Property The Housing and Local Government Minister

Datuk Wira Chor Chee Hung commented that

There is still a long way to reach property bubblein Malaysia. The appreciation in property prices

was started since 2008, due to land cost, building

materials and vibrancy of the economy. (BT)

Whether or not there is a property bubble is more

of a subjective view, we do believe there is some

bubble for properties in selective locations ofKlang Valley. Recently, there is an easing of

concern that the Government is unlikely to

implement any measures to target the

overheating property market after the positive

announcement in 2011 Budget. However, we

believe some regulatory risks still prevail.

According to some unconfirmed sources, instead

of implementing a cap on LTV, BNM will focus on

individual commercial banks to tighten their credit

policy. If this is true, impact on the property

market would be very minimal.

OW

Auto MAA expects prices of hybrid cars will be more

attractive next year to boost sales after the 2011

Budget announcement of full excise duty

exemptions on hybrid cars below 2,000cc until 31

Dec 2011. The removal of excise duties for

hybrid cars means that the price tags for vehicles

such as the Honda Civic Hybrid and Toyota Prius

could be slashed drastically. It is estimated that

the Honda Civic Hybrid and Toyota Prius, now

costing RM129,000 and RM175,000 respectively,

would have a new price tag of RM100,980 and

RM128,046 correspondingly following the excise

duty exemption.

Neutral. We already mentioned in our Budget

report that cars like the Prius and Civic Hybrid

would see 14-19% price cuts, based on the

Budget announcement. We also mentioned that

while the incentive is a big plus for interested

hybrid car buyers, it will have minimal impact on

the total TIV of the industry, given its immaterial

numbers thus far.

OP

KLK KLK has terminated a previous agreement(announced in Jul 09) to acquire a 95% stake in

a company with 2,336ha of land in Belitung,

Indonesia for RM2.3m, or RM1,033/ha. Instead, it

has entered into another agreement to acquire

95% in the company which now has a licence to

plant up two pieces of land (the original 2,336ha

and an additional 4,840ha) in the same area, for

RM8.83m, or RM1,295/ha. These lands are

adjacent to KLKs existing plantations in Belitung.

As KLK has engaged a high conservation value

Positive. KLK is replacing one of its previousS&P agreements to buy land in Indonesia with

another, effectively increasing its landbank by a

net 4,598ha for an additional RM6.5m. Although

the effective price of the landbank (based on

KLKs 95% stake) is slightly higher, at

RM1,295/ha, this is still not excessive, and in line

with the pricing of other greenfield land in

Indonesia, of between RM1,200-2,200/ha.

OP, FV =RM22.05


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study on the land and is carrying out a legal and

financial due diligence, the deal is likely to be

completed in 1Q2012. (Bursa)

KFC KFC expects to have 17 outlets in India by the

end of next year. This includes five outlets which

will be acquired from master franchise holder

Yum! Brands. Currently KFC has three outlets inIndia after opening one more yesterday. (Star)

Positive. The target is in line with our forecast of

16 stores owned by KFC in India by end-2011.

We are also positive on its plan to acquire 5

stores from Yum! as that eliminates the executionrisk of opening new stores. We understand that

in terms of opening new stores, KFC is having a

few hiccups due to red tape issues.

OP, FV =

RM3.61

KFC Kulim says it is not interested in taking KFC

private for now. According to Kulim MD, the

possibility of privatization is very remote but not

unlikely. This news follows a recent newspaper

report commenting on Kulims disposal of its

shares in QSR and picking up KFC shares.

Neutral. We understand that Kulims increased

stake in KFC is for the former to able to directly

own KFC and also directly receive dividends

without having to go through QSR first. As it

stands, Kulim owns approximately 50% of QSR

and QSR owns about 50% in KFC.

OP, FV =

RM3.61

QL QL announced that it is swapping its 40.51%

stake in Boilermech S/B with that of a 40.51%

stake in Boilermech Holdings. Boilermech

Holdings will in turn fully own Boilermech S/B.

Boilermech Holdings was incorporated to

facilitate its proposed listing on the ACE Market.

(Bursa)

We are positive on this news as the proposed

listing of Boilermech will provide much needed

capital for QLs venture into renewable energy

while also unlocking value for QL. We previously

highlighted in our 6 Oct report that there is

potential for Boilermech to be listed. The exact

timeline for the listing has yet to be confirmed.

OP, FV =

RM5.41

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements

Atrium REIT Third interim income distribution of 2.15 sen 4-Nov-10 30-Nov-10

CCK Consolidated Final single tier dividend of 3 sen 29-Dec-10 24-Jan-11

Going ex on 25 OctHong Leong Bank Final dividend of 15 sen less 25% tax 25-Oct-10 11-Nov-10

C.I. Holdings Final dividend of 7 sen less 25% tax 25-Oct-10 19-Nov-10

Puncak Niaga 4th mandatory partial redemption of 15-year RUJN 25-Oct-10 19-Nov-10

Puncak Niaga Semi-annual coupon payment for 15-year RUJN 25-Oct-10 19-Nov-10

...For more details, see individual reports attached

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 (previously known as RHB Sakura Merchant BankersBerhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and aresubject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using diff erent assumptions and criteria. This report is not to be construed asan offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shallgive rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in t he 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 objectives of persons who receive it. The securities discussed in thisreport may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The

appropriateness of a particular investment or strategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability forany loss or damage arising out of the use of all or any 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 investment banking and financial advisory services. In theordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts ofcustomers, in debt or equity securities or loans of any company that may be involved in 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. Investorsshould assume that the Connected Persons are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIsprevious reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas ofthe 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, investorclient 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 fi ve percentage points over the next 6-12 months.


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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are notstrong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock r eturn 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 m onths.

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be madeavailable 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 w hatsoever for the actions of third parties in this respect.

rhb equity 360° - 22 october 2010 (telecom, mahb, fajarbaru; technical: b-corp)

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