Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

16 August 2010 (Maybank, First Resources, RCE, BP Plastics, Wellcall; Technical: MBM, Zelan)

Top Story : Maybank – On course for strong rebound in earnings Outperform

Results Preview
- For Maybank’s upcoming 4QFY06/10 results, we expect pre-tax profit could be down by around 35% qoq
but about 5% higher yoy (ex-4QFY09 impairment charges for MCB and BII).
- The lower earnings qoq is mainly on expectations of lower non-interest income, which received a boost in
3Q from lumpy items such as unrealised gains from the revaluation of derivatives. As for LLP, management
had previously guided that 4Q’s LLP should not be worse than 3Q nor does management expect any
further impairment provisions for its investments in MCB or BII.
- On the whole, FY10 net profit is expected to post a strong rebound of 67% yoy, resulting in full-year ROE of
14% and above management’s 13% target.
- We would not discount the possibility of a higher payout given the dividend reinvestment plan that Maybank
has in place. For instance, our expected final gross DPS translates to a reduction in shareholders’ equity of
RM955m. Assuming: 1) a final DPS of 30 sen, i.e. 60% payout ratio; and 2) half of the final dividend is
converted into shares (assuming issued at 10% discount to the last traded price), we estimate this would
reduce shareholders’ equity by RM796m while the number of outstanding shares could rise by 1.6%.
- No change to forecasts. Fair value of RM9.66 (15x CY11 EPS) and Outperform call maintained.

Corporate Highlights

First Resources : Let down by tree stress and plasma farmers Outperform
2QFY10 Results
- 1HQFY10 core net profit was below our and consensus estimates, making up 30-33% of FY10 projections,
due to lower-than-expected FFB production of -9.6% yoy (-8.3% yoy from nucleus plantations and -21.4%
yoy from plasma farmers) in 1H10 vs. our FY10 projections of +4.2% yoy. Management attributed the lower
nucleus production to tree stress, while the lower growth from its plasma farmers was due to the effects of
lower fertiliser application in 2007/2008, when fertiliser prices were very high.
- Going forward, management indicated for a recovery in production volume, although it does not expect the
peak crop period to begin until Oct, due to the impact of tree stress and the seasonally lower harvesting
activities during Ramadan. It lowered its FFB growth target to 5% (from 10%) for FY10. Although this is still
higher than our originally projected 4.2% growth, we also lower our FFB growth projection for FY10 to zero
growth, to be conservative. As for costs, management expects FY10 average cost to rise to US$220-
250/tonne (from US$200 in FY09). We have thus raised our production cost estimates to US$240/tonne
(from US$220) for FY10 to impute in the higher fertiliser application and higher labour costs.
- We have trimmed our FY10 forecast by 14.5% and our FY11-12 forecasts by 7-8% p.a.. We reiterate our
view that FY10 is an anomaly for FR and continue to project strong 3-yr earnings CAGR of 55.5% to FY12.
Post earnings revision, our fair value is reduced to S$1.30 (from S$1.35), based on unchanged target PER
of 10.5x CY11 earnings. Maintain Outperform, as we believe valuations remain attractive at current levels.

RCE Capital : Strong start to the year Outperform

1QFY11 Results
- RCE reported 1QFY03/11 net profit of RM23.6m (+27.5% yoy; +3.8% qoq), accounting for 28% of our and
26% of consensus full-year net profit forecasts respectively. However, we consider the results to be in line
with expectations given the low provision for doubtful debts made during the quarter (15.7% of full-year
estimates), which tends to be lumpy. As expected, RCE did not declare any dividend.
- Net loans contracted by 6.5% qoq (+6.4% yoy), mainly due to the adoption of FRS139. Assuming RCE had
adopted the standard earlier, net loans would have posted qoq growth of +2.6% instead.
- Nevertheless, we note that the pace of growth has continued to moderate further from the +3.1% qoq
recorded in 4QFY10 and +5.2% qoq recorded in 3QFY10. We think the slowing growth rate partly reflects
the higher base effect.
- No change to forecasts and fair value of RM1.12 (based on target CY11 PER of 10x).

BP Plastics : 2QFY12/10 earnings lower due to higher costs Outperform

2QFY10 Results
- 2Q net profit of RM3.1m (-11.6% qoq; -24.5% yoy) took 1H earnings to RM6.7m (-6% yoy). This accounted
for 37% of our full-year forecast. The key variance was due to higher-than-expected input costs i.e. resins.
- While 2Q revenue grew 10.2% qoq due to a pickup in demand for packaging products, net profit dropped
due to higher raw materials costs. 2Q EBIT margin fell 1.2%-pts qoq, but this was partly cushioned by a
lower effective tax rate of 22.8% vs. 23.6% in 1Q10. Hence, net profit fell 11.6% qoq.
- We have cut our FY10-12 EPS forecasts by 17%, 8.3% and 8.0% respectively, to reflect lower margins, but
we are still expecting a stronger 2H due to cost-management measures.
- Accordingly, we have trimmed our fair value to RM0.80 (from RM0.88) based on unchanged target
FY12/11 PER of 8x. Maintain Outperform.

Wellcall : Below expectations due to high effective tax rate Underperform (down from MP)
3QFY10 Results
- 3QFY09/10 net profit of RM3.5m came in below expectations with 9MFY10 net profit of RM11.1m
accounting for 71% and 66% of our and consensus full-year estimates respectively. The key variance was
a higher-than-expected 9M effective tax rate of 9.8% vs. our full-year effective tax rate assumption of 7.5%.
- Management mentioned that Wellcall’s pioneer status for its manufacturing operations had expired in Jun
and the company is seeking an extension but chances are remote as this would be the second extension.
We have now assumed in our earnings forecasts that the company would not secure the extension.
- We have revised our FY10 forecasts down by 7% to reflect the higher effective tax rate for 4QFY10. We
have raised our FY11-12 effective tax rate assumptions to 25% p.a. (vs. 7.5% p.a. previously).
- Our fair value has been cut to RM1.08 (from RM1.33) based on unchanged FY11 target PER of 9x. We
thus downgrade our call on the stock to Underperform.

Technical Highlights

Daily Trading Strategy : The FBM KLCI must remove the 10-day SMA convincingly…
- Last Friday’s strong rebound with a huge bullish candle has confirmed the previous “hammer-like” candle
on the chart. This suggests a further rebound in the immediate term.
- Also, the improved daily turnover and the upticks on the technical momentums have further strengthened
the potential recovery view.
- But in our opinion, for the FBM KLCI to launch a sustainable rebound, as well as to resume its bullishness,
it must remove the 10-day SMA of 1,360 convincingly in the near term.
- By then only it will see a brighter chance to rechallenge the recent high of 1,370.52. Beyond that, it will fully
restore the bullish sentiment and heads its way to the next upside target at 1,390.
- Optimistically however, given the robust buying interests on selective heavyweight like Genting due to
positive earnings outlook, and a possible largard play on the plantation stocks on strong crude palm oil
futures market rally of late, the local market sentiment is expected to turn more positive this week.
- On any pullback, the index should find a good support near the critical level at 1,350.

Daily Technical Watch: MBM Resources – An equal chance to breakout from RM3.19 in the near term …
- 10-day SMA: RM3.049
- 40-day SMA: RM2.989
- Support: IS = RM2.95 S1 = RM2.70
- Resistance: IR = RM3.19 R1 = RM3.61 R2 = RM3.83

Weekly Trading Idea : Zelan – Overall recovery trend remains intact … Bargain Buy
- Strategy: Bargain buy nearer to the 10-day SMA near RM0.71.
- Target: IR = RM0.82 R1 = RM0.92 R2 = RM1.03
- Support: IS = RM0.73 S1 = RM0.64 S2 = RM0.50
- Exit: Cut loss if the stock loses the recent low of RM0.68.

Commodities & Currencies – A dramatic rebound on the US$ likely to continue…

- Light Sweet Crude Oil futures (Crude): Expected to revisit the crucial UTL near US$73 soon.
- Crude Palm Oil futures (CPO): To retest the resistance of RM2,760 soon.
- Ringgit (RM)/US$: Ringgit could soften further against the US dollar, if the chart surpasses the 3.16 level.
 - Japanese Yen (JPY)/US$: We remain positive bias on the strength of the yen against the greenback.
- Euro Dollar (EUR)/US$: A follow-through buying pressure likely on the US$ this week.
- US Dollar Index (DXY): Likely to see follow-through buying momentum this week.

Bulletin Board

Co/Sector News Impact Recom

Plantations According to Fadhil Hasan, executive director of
the Indonesian Palm Oil Association (GAPKI),
CPO output from Indonesia may grow at a slower
pace of 4.5-5% this year (from 7.5% in 2009), as
prolonged rains have affected yields. Indonesia
had earlier aimed to produce 9.2% more CPO in
2010, from 20.6m tonnes in 2009. Indonesia's
meteorology agency (BMKG) in its latest forecast
this week said rains will continue until the end of
this year because of the La Nina weather
anomaly, including in the commodity growing
areas of Sumatra, Kalimantan and Sulawesi.
(Reuters)
IOIC According to sources, IOIC is firming its grip on
the US specialty oils and fats market by
expanding the bulking and storage facilities
operated by wholly-owned subsidiary Loders
Croklaan in New Orleans, New York and Los
Angeles. "IOI is expanding the storage tanks as
they are anticipating more palm oil imports by the
US as well as Canada and Europe due to the
harmful transfat issue which has tipped in palm
oil's favour," the source said. (Business Times)
Proton Three new Volkswagen models are expected to
roll out of the DRB-Hicom plant in Pekan thus
strengthening the district's position as a regional
automotive hub. (Business Times)
If this does come true, it will be positive for CPO Neutral
prices, as a lower-than-expected output from
Indonesia will cause global CPO stock-usage
ratios to remain low. However, we believe the La
Nina weather phenomenon is still unconfirmed as
yet, as the extreme weather will have to last
another 3-4 months before it is will have an
impact on production.
Positive, as this will help bring longer term cost OP, FV =
savings for IOIC, as IOIC would have to rent RM6.65
fewer external bulking or storage facilities for its
US operations in the future. Capex for this
expansion is likely to be negligible.
Negative. The roll out of the 3 new models could OP, FV =
increase competition for Proton cars, especially RM6.65
since they look to launch the replacement model
of the Waja in 4Q10 as well. We maintain our
earnings estimates at this juncture pending
further discussion.

Important Dates

Company Quarter Expected Results Date

AMMB 1QFY03/11 Week beginning 16-Aug
EON Capital 2QFY12/10 Week beginning 16-Aug
AFG 1QFY03/11 Week beginning 16-Aug
HL Bank 4QFY06/10 Week beginning 16-Aug
MAS 2QFY12/10 16-Aug
IOI Corp (tentative) 4QFY6/10 17-Aug
MAHB (tbc) 2QFY12/10 17-Aug
Star 2QFY10/12 17-Aug
AirAsia 2QFY12/10 18-Aug
Carlsberg 2Q FY12/10 18-Aug
KLK 3QFY09/10 18-Aug
Tan Chong 1QFY12/10 18-Aug

Company Entitlement details Ex-date Payment date

New entitlements
Al-Hadharah Boustead REIT Interim income distribution of 3.8 sen 25-Aug-10 9-Sep-10
 Century Logistics Single tier interim dividend of 3 sen 26-Aug-10 15-Sep-10
Wellcall Holdings Single tier interim tax exempt dividend of 2.5 sen 26-Aug-10 23-Sep-10
DXN Holdings First interim dividend of 1 sen less 25% tax + 1 sen tax exempt 15-Sep-10 30-Sep-10

Going “ex” on 18 Aug

Oriental Food Industries Final dividend of 2 sen tax exempt + 2 sen less 25% tax 18-Aug-10 17-Sep-10

...For more details, see individual reports attached

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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 of three 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.

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