Market Dateline PP 7767/09/2011(028730)

RHB Research Institute

RHB Equity 360°

12 October 2010 (Plantation, Globetronics; Technical: Kulim, IOI, Sime, Genting Plant, CPO)

Top Story : Plantation – The contagion effect – how much more can it go? Neutral
Sector Update
- Malaysia’s CPO production fell in Sep by 2.7% mom, while exports rose by a significant 21.2% mom.
Despite the significant jump in exports, the lower production, slightly higher imports and lower domestic use
caused closing CPO stock levels to remain relatively flat at 1.708m tonnes in Sep (from 1.704m tonnes in
Aug). As a result of the flat CPO stock levels, stock/usage ratio in Sep was also relatively flat at 9.18%
(from 9.12% in Aug), in line with the 7-year average of 9.1%.
- CPO prices shot through the roof yesterday to close at a high of RM2,900/tonne. We believe the reasons
for this are threefold: 1) a contagion effect from the spike in soyoil, corn and rapeseed oil prices on 8 Oct;
2) demand rebalancing activities as the discount between CPO versus soybean oil and rapeseed oil has
widened considerably again; and 3) impact from spike in crude oil prices above US$80/barrel mark again.
- As CPO is to be relied on more to fill the gap from other vegetable oils, should there be any disappointment
in CPO production, this would likely result in an even larger-than-expected spike in CPO prices. However,
as global CPO stock/usage ratios are expected to be relatively flat in 2011, we believe the contagion
impact on CPO prices could be capped given the as yet unaffected fundamentals of CPO demand and
supply. In addition, as we believe there are a lot of financial and speculative factors at play currently, the
downside risk is also higher. As such, should there be any positive newsflow surrounding soybean and
rapeseed output in the near term, this could cause a pullback of these competing oil prices, which could
potentially result in a pullback of CPO prices as well.
- No change to our forecasts and our Neutral recommendation on the sector. Top pick remains KLK.

Corporate Highlights

Globetronics : Joining the LED revolution Not Rated

Visit Note
- According to IMS Research, the LED general lighting market outlook will continue to be highly positive, with
a forecast 5-year CAGR of 45%. The demand for LED will see robust growth mainly due to: 1) increasing
awareness amongst consumers of the benefits of LED; 2) rising penetration of LED in various applications;
and 3) Government incentives and regulations.
- Going forward, Globetronics will focus on two high-growth segments, mainly: 1) LED for general lighting;
and 2) timing devices used in smartphones and notebooks.
- The company is poised to leverage on the growth of these segments and is spending RM80m in 2010 to
ramp-up capacity.
- We forecast FY10-FY11 earnings growth of 61.2% and 31.9% respectively mainly driven by: 1) strong LED
growth from the general lighting segment; 2) higher-than-expected demand for its timing devices stemming
from robust demand from the electronic devices as well as automotive sectors; and 3) resilient earnings
from its IC and plating services.
- We derive a fair value of RM1.29 based on 10x FY11 EPS. This implies 24.2% upside to our fair value.
Including the estimated 8.7% dividend yield for FY11, we estimate 32.9% total return for the stock.

Technical Highlights

Daily Trading Strategy : Further upside potential in the near term…

- Technically, although the FBM KLCI still registered a possible “star” candle that implies a potential pullback
on profit-taking pressure in the immediate term, we see limited downside ahead.
- This is because of the index’s ability to record another fresh year high of 1,490.10 yesterday, thanks to the
steady buying support on the heavyweights.
- In fact, with the current robust short-term momentum readings and the strong daily turnover, the index
could see further upside potential in the near term.
- Going forward, we opine that the market’s bullish uptrend will be driven by optimism ahead of the upcoming
2011 Budget announcement on Friday, as well as a potential rally in crude palm oil-related stocks amid the
powerful breakout rally in the CPO futures yesterday (see also Chart Surveillance (CPO) and Short-term
 Trading Ideas for today - 12 Oct 2010).
- This, in our view, could pave ways for the FBM KLCI to cover the technical gap near 1,490.5 – 1,497.64
soon and to retake the psychological level of 1,500, before gearing for an eventual retest of the all-time
high level of 1,524.69.

Daily Technical Watch: Kulim – The SMAs showed a positive medium-term sign on the chart…
- 10-day SMA: RM8.871
- 40-day SMA: RM8.524
- Support: IS = RM9.20 S1 = RM8.60 S2 = RM7.90
- Resistance: IR = RM9.80 R1 = RM10.26

Short-term Trading Idea : IOI Corporation – A possible breakout rally ahead… Bargain Buy
- Strategy: Bargain buy for a breakout of RM5.60 soon.
- Target: IR = RM6.40 R1 = RM7.20 R2 = RM8.15
- Support: IS = RM5.35 S1 = RM4.85 S2 = RM3.88
- Exit: Cut loss if it falls to below the 40-day SMA of RM5.35

Short-term Trading Idea : Sime Darby – It will head towards RM10.00-10.80 resistance zone…Bargain Buy
- Strategy: Bargain buy before an eventual breakout of RM9.00 soon.
- Target: IR = RM9.00 R1 = RM10.00 R2 = RM10.80
- Support: IS = RM8.00 S1 = RM7.50 S2 = RM6.70
- Exit: Cut loss if it falls to below the key support of RM8.00.

Short-term Trading Idea : Genting Plantations – It is likely to propel higher in the near term… Bargain Buy
- Strategy: Bargain buy above the 10-day SMA of RM7.80.
- Target: IR = RM8.60 R1 = RM9.30
- Support: IS = RM7.55 S1 = RM6.60 S2 = RM5.80
- Exit: Cut loss if it falls to below RM7.55 technical level.

Chart Surveillance – Crude Plam Oil Futures (CPO) - To head towards RM3,000 - RM3,300 soon!
- Technically, the CPO has broke out from the nearly one-year old consolidation between RM2,500 and
RM2,760 yesterday, with a powerful breakout candle and a huge breakaway gap.
- Given the upbeat momentum readings, the uptrend on the 10-week SMA at RM2,677, and the positive
breakaway pattern, the CPO is likely to head towards the next resistance zone of RM3,000 – RM3,300 in
the near term.
- Yesterday’s powerful bounce has highlighted a fresh opportunity to cross over the 50%FR level.
- If it manages to surpass the current resistance and chalks greater height, it will pierce into the “bull zone” of
the FR chart.

Bulletin Board

Co/Sector News Impact Recom

Proton Proton mentioned that it would cost over
GBP300m (RM1.48bn) to develop five new Lotus
models for launch in 2013-2015, and that the
project is doable with fewer than 10,000 units in
annual production. The new units cited were
Elan, Elite, Elise, Eterne and Esprit. In terms of
branding and product positioning it would be
“lower” than Porsche and Aston Martin.
Management has assumed that Lotus could
generate RM3.5-4.5bn in revenue if they can sell
10,000 units. In terms of financing for the Lotus
project; about 80% will be funded by borrowings
from local and international brands.
The 80% funding translates into borrowings of OP, FV =
some RM1.18bn for the venture, and we believe RM5.50
this will do little to change Proton’s net cash
standing. In regards to technical collaboration
with the various parties and the industry
consolidation, we have heard such news before
and pending firmer indications, we believe it will
do little for the stock. We keep our earnings
estimates unchanged at this juncture.
 In terms of technical collaboration as well as
strategic partnerships in areas of production and
manufacturing Proton is currently in talks with
parties such as Nissan-Renault, Fiat and
Hindustan Motor.

With regards to industry consolidation, a proposal

may be tabled at year-end for the government to
be the ultimate shareholder in various national
car and automotive projects such as Proton,
Perodua and motor division of Sime Darby.
(Financial Daily)
YTL Power YTL Communications (YTLC) plans to roll out its We think YTLC will find stiff competition in the pay- MP, FV =
wireless hybrid television service by end-2011, TV space given Astro’s dominance there as well as RM2.20
which reportedly could cost the company RM1-2bn. the entry of players such as TM and Maxis. As for
The hybrid-TV (comprising traditional TV, on- the reported capex, this appears to be on top of the
demand and internet content) would be priced RM2.5bn (over a 5-year period) earmarked for the
“competitively”, according to Tan Sri Francis Yeoh. roll-out of its WiMAX services. Not much details are
(Starbiz) known about this capex at this juncture (e.g.
financing mix, time period over which the capex
would be incurred) and for now, we are keeping our
annual gross DPS of 17.5 sen, a key investment
thesis for the stock, unchanged.
Jaya Tiasa A team of investigators from Korean Trade Neutral as we have already highlighted earlier OP, FV =
Commission is in Sarawak for a probe into that Jaya Tiasa is likely to be one of the plywood RM4.43
allegations that Sarawak plywood suppliers were exporters under investigation. We reckon that
dumping their products in South Korea. Two out there will be a negative impact on Jaya Tiasa if
of the eight plywood exporters being investigated the ruling turns out to be unfavourable as South
are subsidiaries of Jaya Tiasa. The results of the Korean market constitutes roughly about 20% of
probe will be known by Dec 2010. (Starbiz) Jaya Tiasa’s plywood export, or about 8-9% of its
revenue base. Nevertheless, we maintain our
earnings and recommendation for now, pending
clarification from mgt and the results of the
investigation.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Tien Wah Press Renounceable rights issue on the basis of 2-for-5 22-Oct-10 -
Teo Guan Lee Corp Final dividend of 15 sen less 25% tax 1-Dec-10 22-Dec-10

Going “ex” on 13 Oct

Superlon Holdings Final single-tier dividend of 1.75 sen 13-Oct-10 11-Nov-10
Metro Kajang Hldgs First interim dividend of 5 sen less 25% tax 13-Oct-10 28-Oct-10
SBC Corporation First and final dividend of 1.5% less 25% tax 13-Oct-10 29-Oct-10
Tekala Corporation First and final tax exempt dividend of 4% 13-Oct-10 29-Oct-10

...For more details, see individual reports attached

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