Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

23 September 2010 (Media, Sunway REIT, Tan Chong, KPJ; Technical: Sunrise)

Top Story : Media – Aug print and TV ad spend up 8.7% yoy Overweight
Sector Update
- According to Nielsen Media Research, Aug’s gross ad spend for print and TV media rose 8.7% yoy with
both TV and TV media reporting yoy growth of 11.3% and 5.7% respectively.
- For print media, Aug’s adex was led by the Malay dailies, where adex grew 22.2% yoy led by Berita Harian
(+26.5% yoy) and Harian Metro (+24.1% yoy) largely due to Hari Raya festival. English dailies grew 7.0%
yoy while Chinese dailies recorded an adex growth of 4.5% yoy.
- Aug’s TV adex grew by a slower pace of 5.7% yoy, the slowest monthly adex growth thus far this year.
Collectively, Media Prima’s FTA channels posted yoy growth of 4.2% led by 8TV (+15.5% yoy).
- Media Prima (FV=RM2.75) remains our preferred pick as we believe adex (especially TV) will be a prime
beneficiary of a recovering economy. We maintain our Outperform call on Media Chinese (FV=RM1.21)
and Outperform call on Star (FV=RM4.34).
- No change to our Overweight call on the sector.

Macro View

Inflation : Accelerated in August, but remains manageable

Economic Highlights (published 22 Sep)
- The headline inflation rate accelerated to 2.1% yoy in Aug, from +1.9% in July and a low of +1.2% in Feb.
This was the 6th consecutive month of picking up and the fastest rate of increase in 15 months, pushed up
partly by the Government’s move to increase fuel and sugar prices in mid-Jul and partly by the lower base
effect given that inflation contracted in the same month last year.
- Going forward, inflation is expected to increase at a faster pace. The Government has indicated that it
would reduce its subsidies once every six months. A moderation in demand as the economy softens,
however, will provide some mitigation. On balance, we expect inflation to trend up to an average of 2.8% in
2011, from an estimate of +2.0% in 2010.
- We believe Bank Negara is likely to be done with interest rate hikes this year, after raising it by a total of 75
basis points in three meetings and the overnight policy rate (OPR) will likely stay at 2.75% until end-2010.
Further out, we believe the Central Bank will likely resume its policy normalisation and the OPR will likely
be raised by 50-75 basis points in 1H 2011 to bring it to a more neutral level of 3.25-3.50% by mid-2011.

Corporate Highlights

Sunway REIT : The Goliah of MREITs Outperform

New Coverage
- Sunway REIT is the largest REIT in Malaysia by market cap, asset size, and total outstanding units. It has
8 strategic commercial assets in its portfolio, which include three retail properties, three hotel properties
and two office towers. Total asset size is estimated at RM3.7bn.
- Investment case: a) High investibility due to its large market value and free float; b) A portfolio of quality
retail and commercial assets that provide sustainable and steady earnings growth; c) Growing young
demographics to support private consumption and retail spending growth; and d) A pool of assets available
from Sponsor for future expansion in assets size.
- Our EPU forecasts are decent, estimated at 10% growth for FY11, on the back of slightly higher rental rate
for Sunway Pyramid Shopping Mall, as well as higher occupancy rate for Sunway Resort Hotel & Spa and
Pyramid Tower Hotel, supported by better macroeconomic environment and hence private consumption.
Note that, we have not factored in any potential acquisition of properties in our earnings projections and
balance sheet forecasts.
- We assume 100% payout for Sunway REIT over the next three years. As such, our DPU forecasts
translate to a gross yield of 7% and 7.6% p.a. for FY11 and FY12. In line with our valuations for other
REITs under our coverage (Axis REIT and Quill Capita), and based on our target MREIT yield of 7%
against our FY12 DPU forecast of 7.3 sen, our indicative fair value for Sunway REIT is RM1.05. We thus
initiate coverage on Sunway REIT with an Outperform rating.
Tan Chong : Securing a foothold in Vietnam Outperform
News Update
- Tan Chong agreed to purchase a 74% stake in Nissan Vietnam Co., Ltd. from Danish company Kjaer
Group for US$7.4m (RM22.9m). Japan’s Nissan Motor Co. Ltd. holds the remaining 26% stake.
- Tan Chong paid a premium of US$3m (RM9.2m) over the indicative fair value of NVL of US$4.4m
(RM13.6m) based on 74% of NVL’s net assets as at Jul 2010. We suspect the price paid is to reimburse
Kjaer Group for their initial charter capital contribution. NVL reported losses of US$2.4m as at 31 Jul 2010.
- Tan Chong is positive on the venture as NVL gives it the exclusive rights to import and distribute Nissan
vehicles and spare parts in Vietnam and it foresees significant growth there going forth. Nissan Motor Ltd
has an option to increase its 26% stake up to 50% at any point post this agreement is itself a plus point.
- The company looks to cut costs for NVL within the year and break even by 2012. Hence, net earnings for
the next 2 years will be minimal. We leave our earnings estimates unchanged for now.
- We are positive on the buy given that it will spearhead Tan Chong’s entrance into the Vietnam market and
is the last remaining piece of the company’s Indochina strategy. Our fair value is unchanged at SOP fair
value of RM6.16 and we reiterate our Outperform call on the stock for now although we are currently
reviewing our valuation targets for the sector.

KPJ : Expanding into the aged care business Outperform

News Update
- KPJ announced that it has acquired a 51% stake in Jeta Gardens for a cash consideration of RM19m.
- Jeta Gardens is an owner of an aged care facility in Queensland, Australia. We estimate that the purchase
consideration of RM19m was based on the book value of the company, given that its net asset value is
worth approximately AUD13.1m.
- KPJ believes that the prospects of the aged care and the retirement village industry should remain positive
moving forward.
- We are leaving our FY10-12 earnings forecasts unchanged for now given that we have already projected
RM200m in capex for FY10.
- Maintain indicative fair value of RM4.51, which is based on unchanged target FY11 PER of 17x (10%
discount to regional peers’ average of 18.5x). We reiterate our Outperform call on the stock.

Technical Highlights

Daily Trading Strategy : Rotational interests and healthy volume to sustain trading sentiment…
- Dampened by ongoing profit-taking pressure on the core blue chips, the FBM KLCI extended its profit-
taking leg yesterday instead of chalking a fresh year high after successfully tested last Friday’s high of
1,479.59.
- The negative candlestick and the overbought momentum readings suggest continuous selling pressure is
likely today.
- Nevertheless, we remain confident that the benchmark’s recent uptrend will be underpinned by the rising
10-day SMA near 1,460 and the 1,450 important support level.
- Not only that, the growing bullish sentiment amongst the retail and institutional investors of late will keep
check on selling activities in the near term, in our view.
- As such, we remain optimistic that should the buying momentum expand soon, the FBM KLCI will restore
its rally with a closure of the technical gap at 1,490.50-1,497.64, before charging towards the all-time high
level of 1,524.69.
- Trading wise, the increased rotational interests on midcaps as well as the lower liners will keep the trading
sentiment robust and maintain the healthy trading volume at around 1.0-1.2bn shares for the near term.

Daily Technical Watch: Sunrise – Penetrating RM2.25 will accelerate its upward momentum…
- 10-day SMA: RM2.067
- 40-day SMA: RM2.072
- Support: IS = RM2.10 S1 = RM1.93 S2 = RM1.70
- Resistance: IR = RM2.25 R1 = RM2.39 R2 = RM2.54
 Bulletin Board

Co/Sector News Impact Recom

Sime Darby In a response to a query from Bursa Malaysia, Positive. However, while this clarification will MP, FV =
Sime Darby has clarified that no additional assure investors that all provisions that need to RM8.90
provisions need to be made for the four key be made have already been made for those four
projects which were audited in the forensic audit, projects, it does not preclude any additional
as the provisions incurred were estimated costs provisions that may be required for any of Sime’s
to completion. In addition, Sime stated that it will other oil and gas projects.
make the required announcement as to the
nature of the breaches of duties and
inappropriate conduct once legal proceedings
have commenced. (Bursa)
CIMB CIMB targets a 15% growth in its retail deposits this This would help form part of the Group’s 18% target OP, FV =
year and expects the pace to increase next year. As for CASA growth. A pickup in CASA deposit growth RM8.40
for the dual listing in Thailand, CIMB said it had in 2H10 would also be positive given that 1H10
applied to the SC for an extension until Apr 2011 in annualised growth only stood at 9.4%. As for the
order to iron out issues on double taxation. dual listing in Thailand, assuming all 100m IPO
(Business Times) shares are new shares issued, we estimate this
would only increase the paid up capital by less
than 1.5% and dilute EPS by a similar amount.
Affin Affin investment Bank expects the volume of This would be positive in helping the group grow OP, FV =
shares traded by its clients on listed foreign stock its non-interest income portion further. Already, RM4.10
exchanges to grow by 100% to around RM400m we note that 1H10 brokerage fees jumped 54%
in value within the next 12 months with the yoy while 1H10 non-interest income made up
launch of its cross border trading platform. 24.8% of total income, up from 23% in 1H09.
(Financial Daily)
TNB TNB is “ready” to undertake the planned Under the ETP, a 2,000MW nuclear power plant OP, FV =
construction of the country’s first nuclear plant. facility is expected to start operations by 2021. RM10.20
Also, TNB may bid for the second 1,000MW As we mentioned previously, much would
expansion, if given the opportunity. (Financial depend on the Government’s willpower in
Daily) implementing the project with a key hurdle being
obtaining the public’s buy-in. As for the second
1,000MW expansion, securing the project would
be a positive development as this would keep
future capacity payments “in-house”. However,
after having secured the first 1,000MW block, we
believe MMC or Jimah are now the front runners
for the second block.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
MISC Entitlement to MMHE IPO on a restricted ballot basis 1-Oct-10 -
AEON Credit Service (M) Interim dividend of 11.5 sen less 25% tax 1-Oct-10 20-Oct-10

Going “ex” on 24 Sep

Hua Yang Bonus issue on the basis of 1-for-5 24-Sep-10 -
SLP Resources First single tier interim dividend of 1 sen 24-Sep-10 20-Oct-10

...For more details, see individual reports attached

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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
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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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