PP 7767/09/2010(025354)

22 September 2010

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

M ar k et Up dat e
22 September 2010
MARKET DATELINE

Government Measures
Transforming The Economy

♦ Talking the talk. The heavy turnout at yesterday’s Economic

Table 1. Potential Beneficiaries
Transformation Programme (ETP) Open Day was to be expected given the
Price FV Rec
implications on Malaysia’s development over the next 10 years. We were
(RM) (RM)
impressed by Datuk Seri Idris Jala’s energy, and would like to share his
O&G
optimism. However, after five economic corridors and three years with
Dialog 1.14 1.30 OP
nothing much to show, we believe the ETP implementation will be an
Kencana 1.66 1.56 MP*
equally hard trek.
SapuraCrest 2.40 2.41 MP*
♦ Seeing is believing. The 133 initial entry point projects (EPPs) identified Plantation
for the 12 National Key Economic Areas (NKEAs) are a mix bag of large IOI 5.72 6.40 OP
projects and smaller initiatives. Other projects are expected to follow. We KLK 17.16 20.70 OP
note that some projects are more certain – the MRT (under the Greater Sime Darby 8.34 8.90 MP
KL NKEA) and regional oil storage hub (under oil, gas & energy) are Retail
awaiting final Government approval – while some are already underway AEON 5.74 5.28 MP*
e.g. broadband connectivity (under communications), enhancing palm oil Parkson 5.87 7.72 OP
yields (under palm oil) and manufacturing off-patent drugs for export Tourism
(under healthcare). However, others remain under study or at very early AirAsia 2.16 2.35 OP
stages of formulation, e.g. the Klang river clean-up and creating a MAS 2.20 1.94 UP
regional oilfield services hub. Indeed, nuclear power is not within the 10- MAHB 5.55 5.96 OP
year scope of the ETP (targeted for 2021) but construction has to start Healthcare
immediately. KPJ 3.43 4.51 OP
Faber 3.24 3.82 OP
♦ NKEAs and EPPs. The NKEAs and EPPs are in some parts interlinked. For Agriculture
example, education initiatives are being drawn up hand-in-hand with the QL Resources 4.54 4.90 OP
electrical & electronics, palm oil, and oil & gas industries, in order to Greater KL
reduce the dependence on foreign labour, and to move these industries Gamuda 3.75 3.85 TB
up the value chain. Broadly therefore, the success of the ETP could MRCB 2.00 2.09 TB
depend on the effective implementation of certain NKEAs. Mah Sing 1.80 2.06 OP

♦ Greater KL. In our view, the Greater KL NKEA holds great potential as an
IJM Land 2.37 3.00 OP
Suncity 3.88 5.45 OP
enabler for the construction and housing sector, but it is also cross-linked
Sunrise 2.15 2.88 OP
to other NKEAs such as financial services, tourism, and education.
SP Setia 4.48 4.66 MP
Conceptually the plan is sound, and is ready to go in our view, but as we
Glomac 1.46 1.72 OP
highlight below, the execution risk from political and social perspectives is
* Under review
relatively high.
# As at 21 Sep
♦ Execution risk. We remain wary that the execution of the NKEA projects Source: Bloomberg, RHBRI
may be affected by political interference with the Sarawak state elections
due to be held by May 2011. Again, we highlight that the petrol price hike
recommendations of the Subsidy Rationalisation Lab were in fact watered
down by the time the price hikes were announced in Jul.

♦ Securing the buy-in from the private sector. We want to believe in

the ETP and to be confident about its end-results. However, history has
taught us otherwise, and we believe our view is not an isolated one.
PEMANDU has its work cut out to implement as well as secure the buy-in
from the private sector (excluding the GLCs) which will provide 53% of
the funding. Nevertheless, investors are starved for good news and Yap Huey Chiang
(603) 92802171
therefore, the ETP will likely continue to provide news flow for the market
yap.huey.chiang@rhb.com.my
and certain key stocks (see Table 1).

Please read important disclosures at the end of this report.

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 22 September 2010

PEMANDU – Economic Transformation Programme Open Day

♦ Talking the talk. The Government’s Performance Management & Delivery Unit (PEMANDU) yesterday held an
open day on the Economic Transformation Programme (ETP) and National Key Economic Activities or Areas
(NKEA) with 12 discussion sessions on 11 economic sectors (ranging from energy to education) plus Greater KL.
This was PEMANDU’s second Open Day, following the Subsidy Rationalisation Lab Open Day on 27 May and the
NKEA workshops on 12 May.

♦ Hard time convincing. The heavy turnout at the Open Day was to be expected given the implications on
Malaysia’s development over the next 10 years. We were impressed by Datuk Seri Idris Jala’s energy, and would
like to share his optimism. However, after five economic corridors and three years with nothing much to show,
we believe the ETP implementation will be an equally hard trek.

♦ Seeing is believing. The 133 initial entry point projects (EPPs) identified for the 12 National Key Economic
Areas (NKEAs) are a mix bag of large projects and smaller initiatives. Other projects are expected to follow. We
note that some projects are more certain – the MRT (under the Greater KL NKEA) and regional oil storage hub
(under oil, gas & energy) are awaiting final Government approval – while some are already underway e.g
broadband connectivity (under communications), enhancing palm oil yields (under palm oil) and manufacturing
off-patent drugs for export (under healthcare). However, others remain under study or at very early stages of
formulation, e.g. the Klang river clean-up and creating a regional oilfield services hub. Indeed, nuclear power is
not within the 10-year scope of the ETP (targeted for 2021) but construction has to start immediately.

♦ 10-year programme. Although PEMANDU’s goal is to target priority areas which represent a combination of
short-term priorities to address urgent demands and equally important long-term issues, we note that the ETP
appears to be a detailed roadmap for the period 2010 to 2020, with some results only expected in 2021 (e.g.
nuclear power). Yesterday’s Open Day was only the first of three under the ETP, to be followed by one each in
Sarawak and Sabah, while the detailed blueprint is expected to be published on 26 Oct. While this implies that
the kick-off for the programme will only start then, Datuk Seri Idris Jala was keen to point out that the Prime
Minister has already given his assurance that the ETP recommendations including the Entry Point Projects (EPPs)
and Business Opportunities will be incorporated into the 2011 Budget on 15 Oct.

National Key Economic Areas

Oil, Gas and Energy

♦ Areas of focus. The oil, gas and energy (OGE) initiatives are segregated into three areas of focus: Sustain,
Grow and Diversify, with 12 EPPs and four Business Opportunities that will be taken on within the next ten years
(by 2020).

♦ Significant funding needed, but contribution to GNI large as well. The measures above are expected to
cost around RM271bn, primarily sourced from the private sector (around 51.7%), while the efforts are expected
to lead to an incremental Gross National Income (GNI) of RM131.5bn mainly from the EPPs and BOs undertaken
(RM76.2bn). The rest will come from Oil Price Adjustment (RM32.1bn) and the GNI multiplier (RM23.1bn).

1) Oil and Gas

♦ Four main thrusts for the 12 EPPs. 1) Continuation of domestic oil and gas production via Enhanced Oil
Recovery (EOR) efforts, developing small fields and increasing exploration activities; 2) Enhancement of the
nation’s liquefied natural gas facilities to accommodate natural gas importation by 2013; 3) Creation of a
regional oil storage and trading hub by 2017; and 4) Making Malaysia a preferred Asian hub for oil field services
by 2015.

♦ Direct beneficiaries. We see two clear beneficiaries for the projects that were announced: Petronas Gas for the
LNG regassification terminal; and Dialog as we understand the company will be part of a consortium (with Vopak
and the Johor state government) that will develop the Pengerang deepwater terminal. Players like Dayang will
be beneficiaries of the brownfield services that will come about from the rejuvenation of existing domestic oil
fields. We also note that MMHE, Kencana and Sapuracrest will likely be key players in the transformation of
Malaysia to the Asian hub for oil field services, either as consolidation agents for the smaller players, or in joint
ventures with major international oilfield service providers such as Technip.

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 22 September 2010

♦ Implementation is a risk, but outlook becoming increasingly positive. The key risk would of course be
the timeliness of implementation, as many of these projects have been mentioned before. More details are
expected to be published on 26 Oct. However we are currently reviewing our stance on the oil & gas sector with
a positive bias as the exercise will lead to specific timelines which investors and oil and gas players can track.

2) Energy

♦ Focusing on energy efficiency and security. In our view, the key areas of focus for the power sector are: 1)
energy efficiency; and 2) energy security, i.e. diversifying the country’s generation mix. By 2014, the ETP
targets to lower the energy bill by 5% via energy efficiency best practices. In terms of energy security, the ETP
envisages that by 2020, the country would have: 1) up to 1,250MW of solar power; 2) 5,000MW of hydro
power; and 3) progressive construction of a 2,000MW nuclear power plant to be ready by 2021;

♦ Measures proposed to improve energy efficiency include: 1) encouraging the use of high efficiency
appliances; 2) encouraging the adoption of energy efficient practices; 3) usage of energy efficient vehicles (e.g.
hybrid engines); and 4) incentivising industrial users and utilities to adopt co-generation for optimised energy
use. The Government would need to lead by example (e.g. energy efficient practices across ministries) and the
reduction of energy subsidies as well as regulatory changes could further help promote a more widespread
adoption of energy efficient practices among consumers.

♦ Plans to diversify fuel mix not new. As for the plan to diversify the country’s electricity generation mix,
generally, the projects mentioned are not new. As reported in the press earlier this year, plans are afoot for the
first nuclear power plant to be ready by 2021. However, to meet this timeline, work needs to start today given
the estimated 10-11 years time frame for the construction of a nuclear power plant. Similarly, the Government
had previously expressed its commitment towards promoting the use of renewable energy with plans to increase
the availability of renewable energy in Malaysia to 2,000MW by 2020, from the current 55MW. Key to this would
be the enactment of the Renewable Energy Act (expected to be tabled in parliament next month) and the use of
the Feed-in Tariff mechanism to promote the usage of RE. As for hydro power, these projects would be located
in Sarawak given the huge hydro potential there and include: 1) Bakun (2,400MW); 2) Murum (944MW); 3)
Baram (1,212MW); 4) Limbang (245MW); and 5) Lawas (100MW). Again, these projects are not new and had
previously been identified by Sarawak Energy.

♦ Implications. In our view, the push towards energy efficiency would go hand-in-hand with PEMANDU’s earlier
proposal for the gradual removal of natural gas subsidies (proposed to reach market price by 2015) while the
need for “renewable” energy should be a long-term positive in terms of, among others, energy security, as this
would reduce the country’s reliance on natural gas (54% of generation mix based on TNB’s 9MFY10) and coal
(39%) as the main fuel mix for the generation of electricity. That said, much would depend on the Government’s
will power especially in tackling issues such as site location for the nuclear power plant as well as the need for
electricity tariffs to be raised for the RE fund, in our opinion.

Palm oil

♦ More focused than previous targets? We believe the key ideas presented for the palm oil industry were not
new, but we note that these targets may be more focused than previously-set government targets. We note two
key themes emerging from the palm oil NKEA: 1) Improve the yield of the upstream business, which currently
generates 81.5% of the export value for the industry; and 2) Diversify and develop the downstream industry
including high-value oleo-derivatives.

♦ Problem is in the smallholders. However, one interesting point brought up during the Q&A session was that
while it is well and good to have these targets set and for the private plantation companies to strive to achieve
these targets, a large proportion of the plantation land in Malaysia is owned by smallholders, who generally pull
down the industry’s average productivity, with below-average FFB yields, fruit quality and laid-back plantation
management styles. Replanting old trees with high quality seedlings and proper fertilisation to produce good
quality fruits are not a priority for these 161,000 independent smallholders in Malaysia, and this is a problem
which is difficult to manage, given the diversity of ownership. As such, while we believe that the medium and
large plantation companies will not have a problem sticking to these targets and are already even surpassing
them, implementation of these goals will be much more difficult for the independent smallholders, unless the
Government comes up with more concrete plans to incentivise them. PEMANDU was however keen to point out
that their discussions with Felda and Felcra have included productivity targets for their smallholders.

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Table 2. Palm Oil – Eight Main Thrusts

1. To accelerate replanting to clear the backlog of old, low-yielding palms. The existing rate of replanting will take 14 years to clear
all trees above 25 years of age. There is currently a backlog of 365,414ha of land planted with trees aged over 25 years.
Accelerated replanting would clear the backlog in three years.
2. To increase FFB yield from 21t/ha to 26.2t/ha by 2020.
3. To improve productivity through introduction of scale and new technology, and reduction of foreign labour. The targeted increase
in worker productivity is about 85% by 2020.
4. To increase the oil extraction rate (OER) from 20.49% to 23% by 2020. Currently there is an inconsistent quality of FFB
delivered to palm oil mills, with high oil losses of 1.8% due to inefficient and old plants.
5. To build biogas facilities and methane-capturing facilities, for utilisation in palm oil mills and/or to supply electricity to the
National Grid.
6. To expand downstream capability and sustainability – shifting the focus to high-value oleo-derivatives from the current 1%
share to 40% by 2020. This would be achieved through R&D and giving more tax incentives for foreign acquisitions. The basic
oleochemical market is saturating and stagnating – 5-year volume CAGR between 2002 and 2007 was 5.1%, and this is
expected to slow to 4.6% for the 2009-2014 period. Moreover the basic oleochemical market currently suffers from low margins
due to the focus on lower-end products.
7. To emphasise early commercialisation of second generation biofuel – leverage on biomass generation.
8. To expedite growth in food and health based downstream segments.
Source: PEMANDU

Greater KL

♦ 10 key areas. The Greater KL (GKL) will comprise ten key areas, including 1) Kuala Lumpur; 2) Klang; 3)
Kajang; 4) Subang Jaya; 5) Petaling Jaya; 6) Selayang; 7) Shah Alam; 8) Ampang Jaya; 9) Putrajaya; and 10)
Majlis Daerah Sepang.

♦ Most livable city. The target is to transform GKL into one of the top 20 most livable cities (currently Kuala
Lumpur ranks 79 out of 130 cities in the world under a survey). Among the key initiatives are to improve the
connectivity within GKL with a RM36bn MRT system as well as the beautification of the Klang River.

♦ Growth. A new agency called “Invest KL” will be set up to market GKL to the top 100 MNCs in the world,
encouraging them to relocate their regional offices to GKL. Population in GKL is targeted to grow to 10m by
2020 from 6.4m at present, which will spur demand for additional 1m residential units in GKL over the next 10
years.

♦ Cleaning up the river. On the beautification of the Klang River, the target is to improve the cleanliness of the
Klang River from Class III (unsafe for body contact) to Class IIB (recreational use with body contact). Among
the investments/steps to be taken are: 1) Sewerage and sullage management RM3.06bn); 2) Squatter
relocation; 3) Drainage and flow management (RM533m); and 4) Promotion, enforcement and management of
river cleanliness. The beautification of the Klang River will help to unleash the real estate potential of ten nodes
along some 10.5km stretches along the downstream (see Table 3).

Table 3: Ten Nodes Indentified To Be Redeveloped Along Klang River

1. Brickfields government quarters
2. Little India
3. Klang Bus Stand – Central Market
4. Merdeka Square – Dayabumi
5. Masjid Jamek – Jalan Melayu
6. Kampung Hujung Pasir – Jalan Ampang
7. Kampung Bahru
8. Tiong Nam
9. City Hall
10. Putra World Trade Centre
Source: PEMANDU

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♦ Construction potential. The MRT and Klang River beautification projects will generate tremendous construction
jobs for the construction sector. For the MRT, Gamuda-MMC JV said before that it only intends to keep the
tunneling works that make up about 30% of total project value with the remaining 70% to be awarded out to
other players on a competitive basis. YTL was previously associated with a multi-billion proposal to beautify the
Klang River. It is unclear which parties will be in the driver seat for this “revived” Klang River beautification
project.

♦ More demand for housing. In general, developers which have property projects in Klang Valley are expected
to benefit from the expected increase in population in GKL. In addition, if the higher inflow of expats, as a result
of more MNCs coming into GKL, materialises, this will encourage the take-up of the high-rise residences in KL
city centre as well as Mont’ Kiara area.

♦ Minimal near-term impact, big long-term impact. In the near term, the direct impact on the property sector
is minimal. However, over the longer-run, the key beneficiaries will be the developers which have landbank or
property development along the proposed MRT lines (Red line: Kota Damansara-Golden Triangle-Serdang;
Green line: Sg Buloh-Kepong-Kg Baru-KLCC-Cheras-Kajang). A number of areas have also been identified as
MRT stations in future (such as Pusat Bandar Damansara, Dataran Sunway, 1 Utama/The Curve, Subang Bestari,
Balakong, Serdang, Sungai Besi Financial Centre, Matrade, Sg Buloh RRI etc), and hence values of the
properties located in the selected area are expected to appreciate. Property companies which are likely to benefit
include: SP Setia (KL EcoCity, Shah Alam), IJM Land (Shah Alam), Suncity (Sunway Damansara), Mah Sing
(Icon Residence and Star Avenue), Glomac (Damansara and PJ projects), Sunrise (Kajang land).

Financial Services

♦ Ten financial services EPPs identified, which are: 1) revitalise equity markets; 2) deepen and broaden bond
markets; 3) transformation of development financial institutions; 4) creating an integrated payment eco-system;
5) insuring the population; 6) development of a private pension industry; 7) spurring growth of wealth
management; 8) further development of the asset management industry; 9) creating regional champions; and
10) to become a global Islamic finance hub.

♦ Impact to banking sector. We think some of the key thrusts identified above for the banking sector could
provide further opportunities for banks to grow non-interest income and broaden their income base further, e.g.
brokerage fee income, wealth management and unit trust management fees. As for regional expansion, some of
the larger banks have already expanded overseas while even smaller banks such as Affin is looking at expanding
abroad, i.e. Indonesia.

♦ Impact to insurance sector. We believe that the proposal to have a separate tax incentive for EPF and
insurance is welcome for the sector as it gives more benefit for owners of insurance policies. The development of
a private pension industry would give new business opportunities for life insurance players such as Allianz.
However, one proposal aims to provide term-life insurance for the poor at low premiums of potentially
RM10/year. This might potentially burden the insurance companies as it could be another Third Party Bodily
Injury and Death (TPBID) policy equivalent.

Wholesale and retail

♦ 13 EPPs, and three themes, Modernise, Globalise and Revolutionise. Under the Modernise theme,
PEMANDU proposes to improve (modernise) the existing business channels for better efficiency. The proposed
five EPPs include: 1) TUKAR (Transformasi Kedai Runcit); 2) PAKAR (Pasar Tani, Pasar Komunity dan Pasar
Karavan; 3) Modernisation of automotive service and repair sector; 4) Makan Bazaar; and 5) Large format
growth. The Globalise theme emphasises on international presence with EPPs: 1) 1Malaysia Mall in regional cities
(Ho Chi Minh City, Hyderabad etc.); 2) Virtual (Online) Malls; and 3) acquisition of foreign brands. The
Revolutionise theme focuses on innovative new concepts to attract higher consumer spending: 1) Duty Free
Malaysia; 2) Unified Malaysia Sale; 3) Big Box Boulevard; and 4) KLIA Retail Hub.

♦ Positive from a broad perspective. In our view, the ETP is broadly positive for the consumer sectors, i.e.
retail and F&B as the 13 EPPs aim to provide approximately 365k jobs, and increase urban and rural monthly
household spending by 82% to RM4,428 and RM2,521 respectively by 2020. The new jobs and increased
household spending will augur well for all the companies under our retail and consumer coverage.

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♦ More competition for existing players. However, some of the EPPs proposed are slightly negative for existing
large retail companies, e.g. AEON and Parkson. The TUKAR (Transformasi Kedai Runcit) initiative, which aims to
improve the small mom and pop stores, would bring about a more competitive environment for the segment. For
example, one of the measures for improving the small businesses is setting up a centralised distribution centre
to drive down unit cost for the small business owners enabling them to price their products competitively.

♦ Option to expand is not new. On the flip side, the ETP also aims to encourage large format retailers such as
AEON’s Jusco to increase operations and hire more people, as long as they do not canibalise the small mom and
pop stores. This, in our view, is no different from the current policy where hypermarkets are allowed to expand
in new areas but subject to certain restrictions.

Healthcare

♦ Key issues. The ETP identified key issues under the healthcare NKEA, including: 1) Malaysia imported 5.4x
more pharmaceutical products than it exported in 2009 which showed a lack of export competitiveness and is a
significant cost burden; 2) 82% of Malaysia’s exports of medical consumables consist of lower value products
(e.g. rubber gloves); and 3) Health tourism in Malaysia suffered a declined of 4% in 2009, although we believe
this was linked to the global economic downturn.

♦ EPPs.

o Private medical insurance for foreign workers - MOH and MOHR have agreed to implement enhanced foreign
workmen’s compensation and medical insurance;

o Clinical Research Malaysia – To create one stop shop to enable business transactions and financial
transparency. This will be attractive for the pharmaceutical industry as sponsored trials will be conducted in
Malaysia;

o Malaysian generic products – To take advantage of the patent expiry products in order to capture the
Organisation of Islamic Conference (“OIC”) countries as Malaysia has a credible Halal platform;

o Healthcare tourism – To further enhance Malaysia’s presence in the international level as the top healthcare
destination in Asia;

o Diagnostic Services Nexus – To practice ad-hoc outsourcing to the private sector in order to re-distribute
workloads;

o Health Metropolis – To create knowledge clusters combining medical care with leading edge in research and
education.

♦ Funding and contribution to the economy. The healthcare NKEA will require RM23.2bn funding, of which
99% will come from private sector funding. The healthcare industry is expected to generate RM35bn incremental
GNI contribution to RM50bn by 2020. The ETP targets to welcome 1m health travelers and conduct 1,000 clinical
trials, all of which will result in approximately 181,000 new jobs.

♦ Key beneficiaries. Malaysia’s pharmaceutical companies and healthcare providers that are focused on medical
tourism are expected to benefit from the healthcare NKEA. However, we highlight that Malaysia is competing
against the more established players in India (for production of medicines), Thailand and Singapore (for medical
tourism).

Electrical & Electronics

♦ 15 EPPs in four key sectors. 15 EPPs have been identified in order to move the electronic and electric industry
(E&E) up the value chain. The EPPs focus on four key sectors i.e. semiconductor, solar, LED, and packaging and
equipment.

♦ Funding requirements. Total funding under the initiative will be RM78.4bn of which 12% is expected to from
the public sector. This aims to generate the sector GNI contribution to RM90bn and increase the labour force by
157,000 in 2020. The transformation initiative also plans for cross-cutting enablers, to improve the talent and
skilled labour, liberalisation of government policies, and committed key developments to improve infrastructure.

♦ Positive for the sector. In our view, the NKEA plan for to improve the E&E sector will be beneficial to the
sector, in particular to the semicon & IT sector. Some of the near-term benefits include:

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o Moving up the value chain. The programme seeks to move the industry’s capabilities up to the next level
with strong emphasis on research and development as well as the production of innovative electronics. This
bodes well for semicon players that produce high-value products such as wafer level packaging (solder balls
technology) i.e. Unisem’s wafer bumping technology and MPI’s high value micro lead packages.

o Wafer fabrication and tech labs. The establishment of several wafer fabrication facilities in the country
may reduce the dependence of local semicon players i.e. Unisem and MPI to purchase raw materials
(wafers) from Taiwan. While this may reduce logistics-based costs, this may also reduce the volatility of ASP
of raw materials as well as fluctuations in forex as purchases are mainly denominated in US$. However, the
risk is that an overcapacity of wafer fabrication may lead to a supply glut during downcycles.

o Increasing skilled labour. We are positive on the move to improve the skill labour pool and increase the
number of skilled labour. Semicon players have recently complained about the shortage of skilled labour
which had prompted several key players to relocate to countries with bigger pool of skilled labour or to
import more expensive skilled labour. Under the ETP, key semicon players are expected to collaborate with
local universities to help produce skilled engineers with high capabilities to work in the industry.

Table 4. Economic Transformation Programme – Summary

NKEA Entry Point Projects Potential Beneficiaries^
Oil, Gas & Energy Four main thrusts for 12 EPPs, which include: 1) Continuation of domestic oil Dialog, Petronas Gas,
and gas production via Enhanced Oil Recovery (EOR) efforts, developing small SapuraCrest, Kencana, Sime
fields and increasing exploration activities; 2) Enhancement of the nation’s Darby
liquefied natural gas facilities to accommodate natural gas importation by
2013; 3) Creation of a regional oil storage and trading hub by 2017; and 4)
Making Malaysia a preferred Asian hub for oil field services by 2015.
Financial Services 10 EPPs, including: 1) revitalise equity markets; 2) deepen and broaden bond Banks, Allianz
markets; 3) transformation of development financial institutions; 4) creating
an integrated payment eco-system; 5) insuring the population; 6)
development of a private pension industry; 7) spurring growth of wealth
management; 8) further development of the asset management industry; 9)
creating regional champions; and 10) to become a global Islamic finance hub.
Palm Oil Eight main thrusts, including increasing FFB yield through replanting, and oil IOI Corp, KLK, Sime Darby
extraction rate through a FFB grading system.
Wholesale & Retail 13 EPPs, and three themes, Modernise, Globalise and Revolutionise. EPPs AEON, Parkson, APM
include large format retail, duty-free shopping, and modernisation of
automotive service and repair.
Tourism 12 EPPs including: 1) improving the connectivity between shopping and AirAsia, MAS
entertainment districts of Kuala Lumpur; and 2) marketing the biodiversity of
Malaysia’s natural habitats.
Business Services Six EPPs across two themes, including: 1) Accelerate the growth of Banks
differentiated sectors; and 2) Develop future growth segments. This NKEA is
cross-linked with other NKEAs.
Electrical & 15 EPPs in four key sectors including semiconductor (wafer fab and higher Unisem, MPI
Electronics value products), solar, LED, and packaging and equipment.
Communications 10 EPPs in three themes, including: 1) Strengthening advanced applications TM, Axiata, Digi, Maxis
such as content creation, platforms, payments and connectivity; 2)
communications content and infrastructure to drive e-learning and e-
government; and 3) coverage, affordability and quality of access.
Healthcare Clinical research, generic products, medical tourism, diagnostic services. KPJ, Faber
Education Increasing capacity of education providers, discipline clusters to address the Paramount
challenges of scale, and developing Malaysia as a regional education hub.
Agriculture Expanding the export of premium-grade food products, increasing the QL Resources, KFC
production of rice, participation in the regional value chain.
Greater KL 10 key areas, including 1) Kuala Lumpur; 2) Klang; 3) Kajang; 4) Subang Gamuda, MRCB, SP Setia, Mah
Jaya; 5) Petaling Jaya; 6) Selayang; 7) Shah Alam; 8) Ampang Jaya; 9) Sing, Suncity, IJM Land, Glomac,
Putrajaya; and 10) Majlis Daerah Sepang. Projects highlighted include MRT, Sunrise
Klang river beautification, central bus depots, and 10 nodes of redevelopment
along the Klang river.
^ Based on companies under RHBRI coverage only Source: PEMANDU, RHBRI

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Risks

♦ Execution risk. We remain wary that the execution of the NKEA projects may be affected by political
interference with the Sarawak state elections due to be held by May 2011. Again, we highlight that the petrol
price hike recommendations of the Subsidy Rationalisation Lab were in fact watered down by the time the price
hikes were announced in Jul.

Conclusion

♦ Securing the buy-in from the private sector. We want to believe in the ETP and to be confident about its
end-results. However, history has taught us otherwise, and we believe our view is not an isolated one. PEMANDU
has its work cut out to implement as well as secure the buy-in from the private sector (excluding the GLCs)
which will provide 53% of the funding. Nevertheless, investors are starved for good news and therefore, the ETP
will likely continue to provide news flow for the market and certain key stocks (see Table 1).

IMPORTANT DISCLOSURES

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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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