00a -- malaysia strat cover kn - nomura holdings...alliance financial group bhd 25 ammb holdings 28...

6 December 2010 Nomura

N O M U R A S E C U R I T I E S M A L A Y S I A S D N B H D

AN

CH

OR

R

EP

OR

T

Nomura Anchor Reports examine the key themes and value drivers that underpin our sector views and stock recommendations for the next 6 to 12 months.

Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 105 to 108.

Strategy | M A L A Y S I A 2011 Outlook Wai Kee Choong +60 3 2027 6893 [email protected]

And the Malaysia Research Team

The rally is still young Most of the characteristics of the super bull market in the early 1990s have resurfaced, with five key features clearly apparent: economic recovery, liquidity, sector rotational plays, M&A activity and rising retail participation. The excitement infused by the ongoing flurry of M&A activity in three different sectors can only be positive for market sentiment, not to mention for investment banking earnings. Set against a favourable backdrop of — 1) an ongoing consumption boom, driven by a younger and wealthier population; 2) improving commodity prices; and 3) ample liquidity supporting asset reflation evident in the buoyant property market — the bull market in Malaysia looks set to continue into 2011. Going into the New Year, we believe the property, palm oil and bank sectors will be the winners. Our top picks include CIMB, Maybank, AMMB, Media Prima, SP Setia, Sime Darby and Genting Malaysia.

The 5Cs

M&A euphoria — a positive new theme

Consumption and asset reflation theme

Index target and sector strategy

TOP DOWN

Stocks for action We recommend those stocks we think

will be prime beneficiaries of the

consumption boom in Malaysia:

Maybank, AMMB, CIMB, Media Prima,

SP Setia, Sime Darby and Genting

Malaysia.

Stock Rating PricePrice

targetUpside

(%)

Maybank (MAY MK) BUY 8.44 10.70 27

AMMB (AMM MK) BUY 6.19 7.30 18

CIMB (CIMB MK) BUY 8.38 10.00 19

Media Prima (MPR MK) BUY 2.39 2.90 21

Sime Darby (SIME MK) BUY 8.63 11.10 29

SP Setia (SPSB MK) BUY 5.24 6.11 17

Genting (GENM MK ) BUY 3.22 4.12 28

Prices as of 1 December 2010

Analyst Wai Kee Choong +60 3 2027 6893 [email protected]

And the Malaysia Research Team

Don’t miss our companion outlook

reports on Asia and Singapore, published on 6 December 2010.

6 December 2010 Nomura 1

Strategy | M A L A Y S I A

Wai Kee Choong +60 3 2027 6893 [email protected]

Action The 2010 market rally shares many characteristics of the super bull market of the

early 1990s. Reminiscent of those booming days, market liquidity and trading volumes are surging, corporate activity through mergers and acquisitions is picking up. Interest is broadening to more sectors from the usual GLCs and banking stocks. We are turning even more Bullish.

Anchor themes In addition to our recently introduced ‘Malaysia’s consumption boom’ and ‘Asset reflation’ themes, a new M&A theme is emerging that will help broaden market interest to more sectors.

While the consensus earnings upgrades cycle is likely to remain in positive territory, we believe the Malaysia consumption boom story will be the next focus.

The rally is still young Malaysia Boleh #25: The favourite “5Cs” are back

The 5Cs

The 2010 market rally shares many characteristics (“C”s) of the super bull market of the early 1990s. The five bull market characteristics – economic recovery, rising liquidity, rotational interest in different sectors, buoyant M&A activity and small but rising participation from retail investors – are being found in the current market rally. Together with the forecast 13% currency appreciation, we expect 15% further upside to the market.

M&A euphoria a positive new theme

It has been a long time since the Malaysian stock market was dominated by the hubbub of M&A news and activity. The M&A euphoria has spread from the property sector to the usually quiet consumer sector. In the past four weeks alone, we have seen three major M&A announcements involving six companies.

Consumption and asset reflation themes

In addition to our recently introduced ‘Malaysia’s consumption boom’, ‘Asset reflation’ is another theme we like. Strong demand for residential properties continues to drive property sales and earnings. Malaysians are consuming more, aided mainly by improving consumer confidence.


Our bottom-up analysis implies that the FBM KLCI index target will hit 1,703 by end-2011. Going into 2011, we believe property, palm oil, and banks will be the clear winners. Our top picks include CIMB, Maybank, AMMB, AFG, Media Prima, SP Setia, Genting Malaysia, Sime Darby and Malaysia Airports.


Stocks for action We recommend those stocks we think will be prime beneficiaries of the consumption boom in Malaysia: Maybank, AMMB, CIMB, Media Prima, SP Setia and Genting Malaysia.

Stock RatingPrice(RM)

Price target

Maybank (MAY MK) BUY 8.44 10.70

AMMB (AMM MK) BUY 6.19 7.30

CIMB (CIMB MK) BUY 8.38 10.00

Media Prima (MPR MK) BUY 2.39 2.90

Sime Darby (SIME MK) BUY 8.63 11.10

SP Setia (SPSB MK) BUY 5.24 6.11

Genting Malay (GENM MK ) BUY 3.22 4.12

Prices as at 1 December, 2010 close

TOP DOWN

Analysts Wai Kee Choong +60 3 2027 6893 [email protected]

Julian Chua +60 3 2027 6892 [email protected] Jacinda Loh +60 3 2027 6889 [email protected] Ken Arieff Wong +60 3 2027 6895 [email protected] Muzhafar Mukhtar +60 3 2027 6891 [email protected] Daniel Raats +852 2252 2197 [email protected] B. Roshan Raj +65 6433 6961 [email protected] Andrew Lee +852 2252 6197 [email protected] Tanuj Shori +65 6433 6981 [email protected]

Strategy | Malaysia Wai Kee Choong


Contents

Bull market ver. 2.0 3

M&A euphoria a positive new theme 5

Consumption boom story 6

Stock and Sector recommendations 10

Sector views 12 Banks 12 Property 13 Construction 14 Power 14 Telcos 15 Plantations 15 Rubber gloves 15 Airlines 15

Latest company views AirAsia Berhad 22

Alliance Financial Group Bhd 25

AMMB Holdings 28

Axiata Group Berhad 31

British American Tobacco (M) 34

CIMB Group Holdings 37

DiGi.Com 40

Evergreen Fibreboard Bhd 43

Gamuda 46

Genting Malaysia Bhd 49

IJM Corp 52

IOI Corporation 55

Kossan Rubber Industries 58

Kuala Lumpur Kepong 61

Malayan Banking 64

Malaysia Airports Holdings Bhd 67

Malaysian Airline Systems 70

Maxis Communications 73

Media Prima 76

Public Bank 79

Sime Darby 82

SP Setia 85

Supermax Corporation Berhad 88

Telekom Malaysia 91

Tenaga Nasional 94

UEM Land Holdings Berhad 97

WCT Bhd 100

Also see our Anchor Report: Singapore Strategy — Riding the reflation cycle in 2011 (6 December, 2010)

Also see our Anchor Report: Asia Pacific Strategy — Deflation, inflation and the return of the productive economy (6 December, 2010)

http://www.nomura.com/research/GetPub.aspx?spid=7227

http://www.nomura.com/research/GetPub.aspx?spid=7226



2011 Outlook

Bull market ver. 2.0 The 2010 market rally has many characteristics of the super bull market of the early 1990s. Emerging from the 2008 global financial crisis, the Malaysian stock market has rebounded by a whopping 77% from the bottom in 2009 to stage a 17% YTD increase in 2010. Back in the early 1990s, Malaysia, like everyone else in the region, was newly discovered as one of the fast-growing emerging economies.

Exhibit 1. Bull market check list

1993 Ver. 2.0

Strong FDI √ ×

Rising exports √ √

Property boom √ √

Low interest rates √ √

Foreign ownership √ ×

Infrastructure boom √ √

Strengthening ringgit √ √

“The Amah Syndrome” √ ×

Inflow of foreign capital √ √

Rotational thematic plays √ √

Large current account surplus √ √

Consensus view on bull market × √

Source: Nomura research

In the early 1990s, strong foreign direct investment (FDI) and exports growth led to strong account surpluses, which added further liquidity into the market. With interest rates at record low levels, the stock market was an ideal place for investors to seek extra returns. The general view that the ringgit was undervalued also attracted strong capital inflows into the country as economic growth prospects were underscored by the prolonged infrastructure spending up-cycle then.

Although the missing part in the current rally is Malaysia’s much smaller share of FDI flowing into the region, the Malaysian stock market boasts five important characteristics (5Cs) of a bull market reminiscent of the bull market days of the early 1990s.

1st C: Economic recovery

Malaysia’s GDP growth is firmly back on a positive trajectory. And this is the most important characteristic in our view. It allows investors to have a positive perspective on the corporate earnings outlook. It gives investors confidence to buy on intermittent market corrections. In Malaysia, signs of a lasting bull market are emerging and encouraging. We are seeing improving investor confidence and appetite for stock ideas on market weakness.

2nd C: Liquidity

As the saying goes, “no money, no talk”; liquidity is equally important. And no matter how one can slice and dice, a bull market rally will be short-lived in the absence of strong and sustainable liquidity inflow. In a relatively illiquid and under-owned market such as Malaysia, it doesn’t take a lot of liquidity for the market to shine. The ample liquidity conditions currently are ripe for a further rally in the market as market trading volumes continue to pick up.

Reminiscent of the 1990s



3rd C: Sector rotational plays

Another important bull market characteristic is the evidence of strong investor interest and participation rotating from one sector to another. Rotational plays on different sectors help sustain trading volume and momentum. In Malaysia, investors have been rotating their focus from banks and construction to the property sector lately.

4th C: Buoyant M&A activity and GLC divestments

Corporates are bullish on the outlook of the economy and the stock market as signalled by the spate of M&A activities taking place in the past few weeks. Controlling shareholders’ willingness to embark on M&A activities underscores our Bullish view. The improving market outlook will likely lead to more M&A activities in the coming months.

Year 2011 is likely to be another busy year for the GLCs as we expect more divestments to take place. The divestments by Khazanah so far have been well received by investors as more shares were released into the market to lift liquidity. The continuous improvement in financial performance among the GLCs will continue to allow Khazanah to lighten its stakes in the GLCs.

5th C: The “Amah Syndrome”

As Andrew Sheng (former Chairman of the Hong Kong Securities and Futures Commission) put it in his book titled From Asian to Global Financial Crisis, the two main indicators to the irrational exuberance during the super Bull Run in 1993 were: 1) the amah (domestic maid) syndrome, and; 2) when businessmen began to speculate in the stock market seeking better returns from excess cash on corporate balance sheets. In Malaysia, at least, there is a strong belief that when the amah or retail investors start to be active in the stock market, it is usually a signal that the market is near its peak. Psychologically, investors can draw comfort that the market has yet to reach its peak as none of the above-mentioned syndromes prevails in the present bull market.

Bull market Ver. 2.0

Malaysian companies have grown larger in the current bull market cycle through acquisitions and organic growth. In the banking sector, the contribution from Indonesia has been one of the key growth drivers to the Malaysian banks, especially for CIMB and Maybank. Malaysian telcos are also reaping the fruits of their early forays into the Indonesia market, which has been the main growth driver.

The recent mergers and acquisitions in the property sector will see Malaysian property companies growing to be larger companies both in land bank assets and market capitalisation terms. With trading liquidity expected to improve post mergers, the sector should be more appealing to institutional investors. Although the Malaysian market has rallied 77% over the 90 weeks from the bottom in 2009, we see further upside driven mainly by strong corporate earnings.

Exhibit 2. FBMKLCI rallies — Duration and performance

Date % Increase Weeks Rally Event

1982/83 70 50 Post US Recession

1986/87 155 71 Post US Recession

1987/90 136 119 Post Black Monday

1992/93 112 67 Foreign Fund Inflows

1998/00 205 79 Post Asian Crisis

2007/08 68 104 Liquidity Driven Surge

Average 124 82

2009/2010 77 90 Post Global Credit Crisis

Source: Bloomberg, Nomura research



2011 Outlook

M&A euphoria a positive new theme It has been a long time since the Malaysian stock market was dominated by the hubbub of M&A news and activities. The M&A euphoria has spread from the property sector to the usually quiet consumer sector. In the past four weeks alone, we have seen four major M&A announcements involving six property companies and a consumer group.

Property

As highlighted in our potential sector consolidation note out on 3 November, the recent spate of mergers and acquisitions and consolidation (UEM-Sunrise, IJM Land-MRCB, Sunway Holdings-SunCity) is likely to ensure: 1) continued interest and focus on the property sector in FY11F, and: 2) the emergence of larger and more liquid players which could put the Malaysian property sector on the radar for more investors.

Besides improved liquidity being a catalyst for the re-rating, we are also positive on sector fundamentals as a whole – we see favourable supply demand dynamics emerging in Malaysia residential property where demand has increased up to 6% in major cities while incoming supply growth has contracted in recent years. Latent demand remains strong where the average additions of 200k units to housing supply pa are balanced by c. 190k marriages pa. We see latent demand being unlocked from 2011F on the back of improving affordability and income levels; positive Budget 2011 measures to increase home ownership (instead of previously anticipated restrictions) are likely to spur ‘would be’ buyers out of ‘wait and see’ mode while these attractive demographics and high savings rates top off a powerful combination to propel the property sector forward in 2011F.

Banks

We see select bankers benefiting from the pick-up in M&As. CIMB, as the premier investment banking group, is the clear leader especially for deals related to the government-linked companies, in our view. Recent transactions such as the proposed UEM Land-Sunrise merger and the VGO for Parkway by Khazanah were advised by CIMB. On the other hand, we have seen deals involving companies where the EPF is the major shareholder being advised by RHB Capital, such as the MRCB-IJM Land merger proposal. Other key players are Maybank (potential adviser within the PNB stable of companies) and AMMB (potential adviser to private entrepreneur-run companies such as IOI and Berjaya Group).

The other angle worth exploring is M&As within the banking space itself. The last completed merger was Southern Bank’s acquisition by CIMB back in 2006. Since then, Hong Leong Bank has launched a bid for EON Bank group although this deal is currently subject to legal issues being ironed out. What’s next? The obvious targets are the smaller banks and here we think Alliance Financial Group could be a suitable candidate for a foreign bank looking for a presence in Malaysia. Among the mid-sized banks, we think AMMB and RHBC would make a good pair: 1) AMMB would benefit from RHBC’s larger low-cost CASA deposit base; 2) RHBC’s higher proportion of variable rate loans (~70%) would reduce the structural mismatch at AMMB, where variable rate loans are only ~50% of total loans, and; 3) this allows EPF to dilute its current 54% shareholding in RHBC to a smaller stake in a banking group that is nearly double in size.



2011 Outlook

Consumption boom story An ongoing theme worth revisiting

On 26 July, 2010, we launched the Malaysian consumption boom theme, highlighting that the potential impact was under-researched and overlooked by the Street, in our view. The strong 3Q earnings in the banking and property sectors reaffirmed our view that Malaysia’s augmented consumer base will continue to be a strong and growing pillar to the Malaysia consumption boom story.

Who would have imagined that Malaysia’s population would have doubled to 28mn over the past 30 years growing an average of 2.4% pa during this period? In the past decade alone, the population has grown by nearly 5mn. To put this figure into perspective, the 5mn increase is larger than the entire population of Singapore and close to Hong Kong’s population of 6.98mn.

According to government statistics, there is one birth every 58 seconds and a net increase in population of one person every 56 seconds. Malaysia’s population has been growing at a rate of about 560K per year, or nearly 2% pa from 2000 to 2010. We estimate that Malaysia’s population will probably exceed 30mn by 2015. Between 2000 and 2008, within the ASEAN region, Malaysia has the fastest growing population base.

Exhibit 3. ASEAN: Population growth 2000-2008

0.0

0.5

1.0

1.5

2.0

2.5

Bru

nei

Dar

ussa

lam

Phi

lippi

nes

Mal

aysi

a

Sin

gapo

re

Lao

PD

R

Cam

bodi

a

Indo

nesi

a

Vie

t N

am

Tha

iland

Mya

nmar

(%)

Source: UNESCAP

Large and growing Malay population

What’s more surprising and remains relatively unknown is the huge increase in the indigenous group or Bumiputera – mainly Malay – population, which now accounts for 61% of all Malaysians. This segment has more than doubled over the past 30 years, increasing from 8.1mn in 1980 to an estimated 17.0mn this year. The next largest ethnic group, the Chinese, has grown at a slower pace from 4.4mn in 1980 to an estimated 6.5mn in 2010 and now accounts for 23% of the population, down from 32% back in 1980. This decline has largely been filled by non-citizens (mainly foreign workers who now comprise nearly 9% of the nation’s headcount).

The government forecasts that the Bumiputera population will grow by about 1.7% pa over the next 5 years (similar to the growth rate from 2000-2010) to 18.5mn and will account for 62% of total population. The Chinese population is expected to grow at a slower pace of 1.2% pa to 6.7mn, but it is expected that the immigrant population will decline about 2.2% pa through 2015.

To put this figure into perspective, the 5mn increase is larger than the entire population of Singapore

Malaysia’s population will probably exceed 30mn by 2015

Bumiputera population – mainly Malays, have more than doubled over the past 30 years, rising from 8.1mn in 1980 to about 17.0mn in 2010

Bumiputera population will grow by about 1.7%pa over the next 5 years to 18.5mn



Exhibit 4. Malaysian population

1980 (%) 1990 (%) 2000 (%) 2010F (%) 2015F (%)

Bumiputeras 8.1 59 11.1 61 14.3 61 17.0 60 18.5 62

Chinese 4.4 32 5 27 5.8 25 6.5 23 6.7 22

Indian 1.1 8 1.4 8 1.7 7 1.9 7 2.0 7

Others 0.1 1 0.7 4 1.7 7 2.9 10 2.6 9

Total 13.7 18.2 23.5 28.3 29.8

Source: 5-year Malaysia Plans

Young demographic

Because of the relatively strong birth rate, Malaysia has a young population base, with 50% of the population under the age of 25 years, and 73% below the age of 40. The young population tends to consume more and is a key driver of consumption growth. Furthermore, the young population profile and high rate of household formation (2% pa growth) also feeds into demand for mortgages and car financing.

Exhibit 5. Some 50% of Malaysians under 25 years of age

0-14 years32%

15-24 years18%

25-39 years22%

40-64 years23%

65+ years5%

Source: CEIC

Strong GDP per capita growth …

Even as the population is growing at a clip, Malaysia enjoys a relatively high GDP per capita in the region. Malaysia’s GDP per capita (in current terms) was US$6,897 in 2008 compares favourably with Thailand’s US$3,939 and Indonesia’s US$2,329. After PPP adjusting, GDP per capita levels for Malaysia at US$14,082 with Thailand at US$8,232 and Indonesia at US$3,980.

GDP per capita has risen at a decent pace of 9% pa since 2000. Sectors leading the growth were government services, mining/quarrying, accommodation/restaurants (ie, tourism-related sectors), agriculture, telcos, general commerce and business services. If we could distil this into three main areas, it would be government, commodities and services sector. Manufacturing however, has lagged behind, expanding at just 5% pa.

Some 50% of the population under the age of 25 years



Exhibit 6. Malaysia: Nominal GDP growth 2000-2009

0

2

4

6

8

10

12

Gov

ernm

ent

serv

ices

Min

ing

&qu

arry

ing

Gen

eral

com

mer

ce

Agr

icul

ture

Com

mun

icat

ion

Who

lesa

le,

reta

il tr

ade

Rea

l est

ate

&bi

z se

rvic

es

Nom

inal

GD

Pgr

owth

Fin

ance

&in

sura

nce

Tra

nspo

rt &

stor

age

Util

ities

Con

stru

ctio

n

Man

ufac

turin

g

(%)

Source: Bank Negara Malaysia

… strong surge in the number of middle class consumers

After 20 years of strong economic growth and development, not only did GDP per capita rise at a healthy pace, income levels are now more evenly distributed compared to 1990. Some 55% of households now earn at least RM2,500/month compared to 60% of households earning less than RM1,000/month back in 1990. This has given rise to a much bigger middle-income consumer group and a meaningful bankable population. Among the three major ethnic groups, Bumiputera household incomes are growing the fastest, growing at a rate of 6% pa from 1999-2009. As a result, the income gap between the Chinese and Bumiputera households narrowed to 35% in 2007 from 43% in 1999.

Exhibit 7. Malaysia: Mean Monthly Gross Household Income 1970-2000 (RM)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1970 1979 1989 1999 2009

Bumiputera Chinese Indian

12%7%

8%

6%

1:2.29Income disparity ratio of Bumiputera to Chinese

Income disparity ratio of Bumiputera to Indians

1:1.77

1:2.04

1:1.54

1:1.74

1:1.29

1:1.74

1:1.36

1:1.38

1:1.10

CAGR of Bumiputera monthly gross household income

Mea

n in

com

e (

RM

)

Source: 10th Malaysia Plan

Some 5% of households now earn at least RM2,500/month compared to 60% of households earning less than RM1,000/month back in 1990



Exhibit 8. Malaysia: Distribution of households by income 1990, 2009 (%)

0

5

10

15

20

25

30

35

40

< 5

00

500

- 9

99

100

0-14

99

150

0 -

1999

200

0-24

99

250

0 -

2999

300

0-34

99

350

0 -

3999

400

0-49

99

500

0 -

6999

700

0-99

99

> =

1000

0

% o

f ho

useh

olds

1990

2009

Bottom 40% Middle 40% Top 20%

Source: 10th Malaysia Plan

Positive effects of high commodity prices

The effects of high palm oil prices have finally reached the smaller rural planters. Based on statistics provided by Federal Land Development Authority, the average income of FELDA’s settlers has risen more than three times since the start of the commodities in 2007. Consumption spending, which has traditionally been stronger in urban areas is now being felt in the rural cities, as seen in recent car sales data.

Exhibit 9. FELDA settlers average income rise in tandem with CPO prices

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Federal Land Development Authority



Actionable ideas

Stock and Sector recommendations To ride on the consumption, asset reflation and M&A themes, we are recommending CIMB, Maybank, Media Prima, Genting Malaysia, SP Setia, Axiata, Evergreen Fibreboard, AMMB, UEM Land, Sime Darby, AFG and Malaysia Airports as our top Buy ideas.

Exhibit 10. Sector allocation



Our bottom-up analysis implies that the FBM KLCI index target will hit 1,703 by end-2011. Going into 2011, we believe property, palm oil, banks will be the clear winners. Our top picks include CIMB, Maybank, AMMB, AFG, Media Prima, SP Setia, Genting Malaysia, Sime Darby and Malaysia Airports.

In our view, the price-to-book valuation for the Malaysian market, while approaching +1sd above the historical mean, could stay high, as we saw in the liquidity-driven bull market days of 2007 and early 2008. After a 65% jump in FY10F EPS, consensus market EPS growth is estimated at 12.6% for FY11F and 10.7% in FY12F.

Exhibit 11. Malaysia – 12 month forward P/E

9

10

11

12

13

14

15

16

17

18

Jul-0

0

Jul-0

1

Jul-0

2

Jul-0

3

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

12mth fwd P/E(x) +1 stdev

Mean -1 stdev

(x)

13.8x

15.3x

Current P/E = 14.95x

12.4x

Source: FTSE, ExShares, Nomura Strategy Research

Exhibit 12. Malaysia – Trailing P/B

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

Jul-0

0

Jul-0

1

Jul-0

2

Jul-0

3

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

P/B - 1 stdev

Mean +1 stdev

Current P/BV = 2.27x

1.8x

2.0x

2.3x

(x)




Exhibit 13. Malaysia – Dividend yield

0

1

2

3

4

5

6

Jul-0

0

Jul-0

1

Jul-0

2

Jul-0

3

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

Div Yield (%) -1 stdev

Mean +1 stdev

(%)

2.0%

3.4%

2.7%

Current dividend yield = 2.73%


Exhibit 14. Malaysia – ROE

7

9

11

13

15

17

19

21

Jul-0

0

Jul-0

1

Jul-0

2

Jul-0

3

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

(%)


Exhibit 15. Malaysia – Revision index

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jun-

95

Jun-

96

Jun-

97Ju

n-98

Jun-

99

Jun-

00Ju

n-01

Jun-

02

Jun-

03

Jun-

04Ju

n-05

Jun-

06Ju

n-07

Jun-

08Ju

n-09

Jun-

10

Rev

isio

n in

dex

0

100

200

300

400

500

600

MS

CI

Mal

aysi

a

Revision index (12m MA)

MSCI Malaysia

18 mths

13 mths

Source: IBES, Nomura International (HK) Ltd. - Quantitative Research

Exhibit 16. Malaysia – Earnings revisions

(35)

(30)

(25)

(20)

(15)

(10)

(5)

0

5

10

15

Jan

-07

Ap

r-07

Jul-

07

Oct-

07

Jan

-08

Ap

r-08

Jul-

08

Oct-

08

Jan

-09

Ap

r-09

Jul-

09

Oct-

09

Jan

-10

Ap

r-10

Jul-

10

Oct-

10

Earnings Revision

(%)

Current ER = 6.06%

(%)

(35)

(30)

(25)

(20)

(15)

(10)

(5)

0

5

10

15

Jan

-07

Ap

r-07

Jul-

07

Oct-

07

Jan

-08

Ap

r-08

Jul-

08

Oct-

08

Jan

-09

Ap

r-09

Jul-

09

Oct-

09

Jan

-10

Ap

r-10

Jul-

10

Oct-

10

Earnings Revision

(%)

Current ER = 6.06%

(%)


Exhibit 17. Malaysia – Fund flows

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

Apr

-03

Dec

-03

Aug

-04

Apr

-05

Dec

-05

Aug

-06

Apr

-07

Dec

-07

Aug

-08

Apr

-09

Dec

-09

Aug

-10

Cum

ulat

ive

net

inflo

w (

US

$mn)

0

100

200

300

400

500

Ben

chm

ark

(US

$, M

SC

I in

dex)

MSCI Malaysia (RHS)

Cumulative Malaysia

Source: Bloomberg, EPFR Global, Nomura International (HK) Ltd Quantitative Research

Exhibit 18. Malaysia – Portfolio investment

(60,000)(50,000)(40,000)(30,000)(20,000)(10,000)

010,00020,00030,00040,000

1Q 2

005

2Q 2

005

3Q 2

005

4Q 2

005

1Q 2

006

2Q 2

006

3Q 2

006

4Q 2

006

1Q 2

007

2Q 2

007

3Q 2

007

4Q 2

007

1Q 2

008

2Q 2

008

3Q 2

008

4Q 2

008

1Q 2

009

2Q 2

009

3Q 2

009

4Q 2

009

1Q 2

010

2Q 2

010

(RMmn)

Source: Bank Negara Malaysia, Nomura Research



Malaysia by Sector

Sector views Banks Loan growth for end-2010 is on track to reach double-digit territory for the second time over the past 10 years. Unlike the 2008 loan growth of 13%, this year’s growth has been driven largely by the consumer sector, which accounts for nearly 60% of incremental growth. The bulk of this growth comes from mortgages, which comprise roughly half of consumer loans outstanding. Going forward, we remain Bullish on the consumer sector. The debt service ratio is comfortable, at 25% of average household income. Household savings in the form of financial assets are huge and outnumber household liabilities by 2.5x to 1. The population has doubled to 28mn over the past 30 years, growing an average of 2.4% pa since 1980. Due to the relatively large household size of about 4.5 persons per household (3.5 in Singapore, 2.9 in Hong Kong), we view that household formation as remaining firm, underpinning demand for mortgages and car loans. As for the business sector, much hinges on the successful execution of the economic transformation programme, where the government envisages total investments of >US$440bn over the next ten years. We have not factored in the potential infrastructure projects in our forecasts given the uncertainty in timing as well as execution. However, if these projects do materialise, it would be a boon to loan growth. For 2011, assuming a constant RM7bn increase in loans per month (RM4.5bn from consumer, RM2.5bn from businesses), we would arrive at a loan growth of about 10%. Nominal GDP growth is expected to be 9% next year, thus a 10% loan growth rate is not unreasonable. Our bottom-up forecast suggests growth of 11%.

The central bank has raised interest rates three times in 2010, bringing the Overnight Policy Rate to 2.75% from 2.00%. For 2011, our economics team believes that Bank Negara will continue its normalisation process, taking the OPR to 3.25%, representing an increase of 50bps. The real policy rate will fall next year – we forecast CPI to rise to 3.3% in 2011 from 1.7% this year. Furthermore, global uncertainty (which was the main factor behind BNM’s current rate pause) should subside. That said, the key risk to this view is further strengthening of the ringgit, which acts to tighten monetary conditions and reduce the need for OPR hikes.

Rate hikes from current levels are positive for banks. They enjoy a temporary lift to margins as lending rates reprice faster than deposit rates. Banks with ample liquidity or a low loan-deposit ratio (Public Bank), a high proportion of variable rate loans (AFG) and a high CASA base (Maybank, AFG) should benefit from a margin perspective. In contrast, higher rates will likely have a negative impact on AMMB as 50% of its loans are on a fixed-rate basis. However, we would note that AMMB has been positioning its balance sheet for a rise in interest rates and thus the hikes may not have as great an impact.

In recent months, banks have started to compete aggressively again in mortgages and auto loans. Recall, back in November 2009, the domestic banks reduced the discount on mortgages to BLR minus 1.8-1.9%. This held true until August 2010, when banks Bank began offering mortgages at BLR minus 2.2%. This means that the incremental margins for housing loans will come under pressure. Thus, we expect net interest margins to remain stable as rising interest rates should offset industry competitive pressure.

Amid ample liquidity, the Malaysian asset reflation theme is manifesting itself in strong property demand while the stock market is near historical peaks. Moreover, there are several high-profile deals on the table, such as the privatisation of Plus Expressways and acquisition of Sunrise by UEM Land. Add to this mix the ongoing divestment of the government's stakes in government-linked entities, as well as firming commodity prices, and we believe the capital markets will continue to excite investors and corporates next year. As we see it, the Quantitative Easing programme in the US is expected to result in favourable liquidity conditions globally and, in particular, the ASEAN economies, given a strong domestic demand growth outlook driven by the rise of the



middle class. For Malaysia in particular, we think the commodities boom should be an added bonus. Taken together, we see brightening prospects for the capital markets next year. First, strong market liquidity should put downward pressure on bond yields and boost bond prices. Second, the movement of liquidity should result in better FX flows, leading to improved FX income for the banks. Third, tighter corporate spreads and ample liquidity should result in greater disintermediation in the banking space, as companies increasingly tap into the bond market to secure long-term funding at relatively low interest rates.

So far, banks have been surprising on the upside with regards to loan losses. For 1H10, we estimate that average credit losses came in at 54bps versus our earlier forecast of 71bps (FY09: 90bps). While selective banks have been implementing the new accounting standard FRS139, the overall impact to loan-loss provisions have been minimal in spite of the higher headline NPL ratios. This was attributed to the sector build-up of loan loss coverage prior to implementation of FRS139 as banks front-loaded the bulk of the provisioning for problem loans. We believe that asset quality will remain robust but the improvement is unlikely to be as dramatic. We have lowered our credit cost forecast to 52bps for FY10F and 45bps for FY11F-FY12F.

The Basel Committee on Banking Supervision recently announced its final recommendation on capital requirements. Key takeaway from the announcement is that banks are given a long lead-time to implement these capital requirements. Furthermore, the deductions from capital are likely to be less than earlier expectations. Under the original recommendation, Maybank was to deduct its entire investment in associates, MCB of Pakistan and An Binh Bank of Vietnam, with a (written-down) book value of RM2.47bn, which is equivalent to 1pp of capital. Under the revised measure, the deduction for its investments is reduced to circa 0.3pp. There will be also be some prudent recognition of minority interest, versus zero recognition under the original document. The excess capital above the minimum of a subsidiary will now be deducted in proportion to the minority interest share. Public Bank, where minorities own a 27% share of Public Financial Holdings (HK), was estimated to see a 0.5pp reduction from the de-recognition of minority interests. Under the new guideline, the impact is reduced to 0.3pp, on our estimates.

What remains to be seen is how much countercyclical buffer will be imposed by Bank Negara. For banks like Maybank, CIMB and Public Bank, there is also expected to be an additional capital requirement for systemically important banks. In our view, the banks best-positioned to implement Basel III are AMMB and AFG, where current core Tier-1 capital ratios are in excess of 10%, even after applying a 2.5% counter-cyclical buffer.

Property As highlighted in our potential sector consolidation note out on 3 November, the recent spate of mergers and acquisitions and consolidation (UEM-Sunrise, IJM Land-MRCB, Sunway Holdings-SunCity) is likely to ensure 1) continued interest and focus on the property sector in FY11F and 2) the emergence of larger and more liquid players which could put the Malaysian property sector on more investors’ radars. Besides improved liquidity being a catalyst for the re-rating, we are also positive on sector fundamentals as a whole – we see favourable supply demand dynamics emerging in Malaysia residential property where demand has increased up to 6% since 2000 in major cities while incoming supply growth has contracted in recent years. Latent demand remains strong where the average addition of 200k units to housing supply pa are balanced by c. 190k marriages p.a. We see latent demand being unlocked from 2011F on the back of improving affordability and income levels; positive Budget 2011 measures to increase home ownership (instead of previously anticipated restrictions) are likely to spur ‘would be’ buyers out of ‘wait and see’ mode while these attractive demographics and high savings rates top off a powerful combination to propel the property sector forward in 2011F.



Construction The Malaysian construction sector has had a good run (YTD, IJM is up 30%, Gamuda is up 40% and WCT is up 14% whilst the KLCI index is up 17%) on the back of excitement surrounding mega projects such as MRT. Although MRT is a real possibility, the execution challenges will be high and earnings support should take a long time to come. Similarly most of the other domestic projects are long term contracts. We believe the run-up is now ahead of fundamentals, with sector looking expensive on P/E CY11F valuations (IJM 18x, Gamuda 23x and WCT 19x).

Order inflow and improving margins should lead construction businesses to report healthy growth. Similarly, strong property sales over the past 12 months will flow down to the bottom-line in CY11F, in our view. Overall, we expect a strong earnings CAGR (FY10-12F) for all three players – 30% for Gamuda, 32% for IJM and 25% for WCT. But the run-up has mostly priced in these expectations, in our view.

MRT’s inclusion in the government’s budget speech and Economic Transformation Programme suggests an announcement on the project could be forthcoming. But implementing such a massive project will be a challenge and concerns over funding and foreign competition may evolve over a period of time. On property, our channel checks suggest things may be cooling a bit after the recent momentum. Thus, we think the risks are more on the downside to our and the Street’s earnings assumptions.

We remain NEUTRAL on IJM, Gamuda and WCT, hence on the entire Malaysian construction space. Among the domestic players, we continue to prefer IJM for its diversified business model and exposure to plantations and property businesses, as compared to the construction-dominated businesses of Gamuda and WCT. The positive news flow seems to be priced in, as the stocks are trading rich, more expensive than their regional peers; investors may look to pare weightings.

Power We approach 2011 with a Neutral stance on the Malaysian power sector, reflecting our view on Tenaga as Malaysia’s dominant genco and the industry’s sole downstream offtaker. While electricity consumption demand has picked up strongly in 2010 and momentum will likely remain healthy into the coming year, this is being driven primarily by low margin industrial segment sales. Moreover, with gas supplies to the power industry capped and tariffs stagnant, we see increased near-term margin pressure given upwardly trending coal costs and the fact that, at the margin, incremental demand will likely be met with more costly coal-fired generation. Over a more extended horizon, an increased dependence on internationally sourced coal, in the absence of an automatic tariff setting mechanism and a credible regulatory environment, creates scope for amplified volatility and a downward bias in TNB’s operating margins, in our view. Moreover, with elections looming we believe the implementation of structural reforms to natural gas prices, TNB’s tariff setting mechanism and the balance of risks in the industry – in our view a precondition to a sustainable re-rating of TNB – are unlikely over the near term

For upstream IPPs, an increasingly constrained investment universe following the privatisation of Tanjong, highly insulated PPAs mean little exposure to more robust volume trends. However, reserve margins are once again approaching levels conducive to future capacity win opportunities, with government looking to allocate an additional 1000MW of coal fired capacity by early 2011. Moreover, given the strength of Malaysia’s consumption rebound in 2010 and with Bakun’s 1,800MW capacity no longer destined to service Malaysia’s shores, we see little alternative to regulators extending substantially all of the c.4,100MW of first generation PPAs due to mature over 2014/16F



Telcos In FY11, we continue to see: 1) reasonable revenue and earnings growth outlook, ranging from 3-17%; 2) solid cashflows with 5-9% FY11F FCF yield, and; 3) reasonable risk-return profile. Although a pick-up in the competitive intensity appears likely, driven by the WiMAX service providers and the overall higher broadband coverage by all operators, we do not think an aggressive price war is likely. Also, we expect investment levels to decline across all major operators and incremental areas of cost reduction likely to be further explored. On the regulatory front, we expect MCMC’s proposal on spectrum re-farming to be the key development (expected around 1Q11) and depending on the outcome (auction, beauty pageant etc.) there could implications for the wireless operators over the medium term. On a relative basis, we favour Axiata over DiGi and TM – all rated BUYs, followed by Maxis – rated NEUTRAL.

Plantations We recently upgraded our view of the plantation sector to Bullish on the back of our higher CPO price assumptions. We think tighter supply/demand fundamentals for the vegetable oil complex, higher crude oil prices and increased flows into the commodities space provide support for higher CPO prices and our more positive view on the sector. Our sector pick is Sime Darby, which we think offers cheaper exposure to strong plantation earnings, as well as upside from management turnaround

Rubber gloves Going into FY11F, we see demand rebounding as customers work off excess inventory accumulated from the 2009 H1N1 crisis (even up to 1Q10 this year), companies like Supermax continue to see orders rebounding up to March delivery – regardless of high latex prices. While high latex prices may dampen sentiment, price hikes of anywhere between 6-8% have been instituted and we flag that demand (in terms of number of pieces sold) is still up anywhere from 20-50% for the glove makers we cover – evidencing a continued structural demand which we believe has been largely overshadowed by high latex prices and ringgit appreciation headwinds, not unlike the 2008 cycle which saw latex prices hit highs then. It is in these headwinds, the ringgit appreciation and latex price highs, that we see potential opportunities for consolidation – a theme that may likely occur next year (similar to the consolidation when the ringgit was depegged in 2005, reducing the number of Malaysian manufacturers from >100 to 60 in the span of a year or so) should cost and forex headwinds persist – as larger players with more resilient long term margins see cheap acquisition opportunities in smaller players with smaller number of lines and lower margin resilience; inevitably ensuring that world demand continues to remain in the hands of the famous five (Top Glove, Supermax, Kossan, Siam Sempermed (unlisted), Hartalega. For larger potential upside in the next two-three months, we recommend Supermax and Kossan given a higher exposure in the nitrile segment, which is comparatively benefiting more owing to all-time high latex prices.

Airlines We see two key themes emerging in the Malaysian airline sector in 2011F: 1) continued ringgit appreciation (Nomura’s new forecasts are RM2.80 in FY11F – an 13% strengthening from current levels) benefiting Malaysian-based airlines arising from a US$-skewed debt and cost structure, and; 2) continued flow-throughs from intra-ASEAN travel leading to our overall passenger forecasts of 6-10% growth for MAS and AirAsia. Lower hedging proportions of c. 33% of our airlines may turn out to be in their favour arising from a depreciating US dollar, which offsets any increase in oil prices (Nomura forecasts US$95/bbl in 2011F). We like MAS in the Malaysian space as we see: 1) its 3Q10 profit turnaround to continue seeing exponential upside (from years of restructuring and unprofitability) with its new fleet delivery in FY11F which is likely to strengthen its product offering; 2) greater yield and profitability upsides arising from the said new fleet offering, and; 3) as potentially a laggard play for airlines given its highest underperformance among Asian airlines this year.



Exhibit 19. Coverage universe Company Bloomberg M/Cap Rating Target Pr Price Pr Perf (%) Ave Vol EV/EBITDA (x) N.EPS Grwth (%) Norm PER (x) PBV (x) Yield (%) ROE (%)

code US$ mn RM 1-Dec YTD 1 M 3M 3M (US$mn) FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F

Consumer Related 52,255 9.74 12.9 9.7 4 129 37.4 16.7 4.2 3.8 1.7 2.6 21 231 British American Tobacco Bhd ROTH MK 4,000 Reduce 42.00 44.18 3 (8) (3) 1.39 12.0 12.1 (2) (2) 17.4 17.6 19.3 18.1 5.3 5.4 133 1062 Genting Berhad GENT MK 11,986 Neutral 10.38 10.18 39 (4) 8 17.81 6.6 5.3 63 37 22.4 16.3 2.5 2.2 0.8 0.9 10 143 IOI Corporation Bhd IOI MK 12,331 Neutral 6.20 5.81 6 (1) 10 13.99 13.9 13.3 9 26 22.8 18.0 3.5 3.2 2.1 2.0 21 184 Kuala Lumpur Kepong Bhd KLK MK 6,960 Neutral 21.70 20.56 25 4 21 5.41 13.9 11.1 62 30 22.1 17.1 3.6 3.4 2.7 3.5 17 205 Sime Darby Berhad SIME MK 16,446 Buy 11.10 8.63 (4) (3) 3 17.81 16.8 9.1 (68) 350 71.4 15.9 2.5 2.4 0.7 3.1 3 156 QSR Brands QSR MK 532 Buy 6.12 5.78 75 10 32 2.03 4.5 3.7 40 16 14.7 12.7 1.7 1.5 2.4 2.8 17 18

Financials 61,920 10.20 30 19 16.3 13.6 2.6 2.3 3.0 3.2 17 187 Aeon Credit Service M Bhd ACSM MK 141 Buy 6.10 3.70 (5) 2 (1) 0.13 N/A N/A 11 18 8.2 7.0 1.8 1.5 4.6 5.8 23 238 Alliance Financial Group Bhd AFG MK 1,512 Buy 3.90 3.08 14 (6) (1) 2.18 N/A N/A 31 33 15.8 11.9 1.6 1.5 2.1 3.4 11 139 AMMB Holdings Bhd AMM MK 5,917 Buy 7.30 6.19 24 (3) 7 7.24 N/A N/A 19 34 18.5 13.8 1.9 1.7 1.5 2.9 12 13

10 Bursa Malaysia Bhd BURSA MK 1,311 Buy 9.00 7.78 (3) (9) 8 3.02 12.9 11.7 96 7 21.6 20.0 4.2 4.1 4.4 4.7 22 2211 CIMB Group Holdings Bhd CIMB MK 19,755 Buy 10.00 8.38 31 0 7 27.43 N/A N/A 26 25 16.8 13.5 2.4 2.1 1.1 1.5 16 1712 Malayan Banking Bhd MAY MK 18,946 Buy 10.70 8.44 23 (6) (1) 26.02 N/A N/A 44 16 15.6 13.5 2.1 2.0 4.9 4.4 14 1513 Public Bank Bhd-Foreign Mkt PBKF MK 14,338 Neutral 13.70 12.80 15 0 5 5.38 N/A N/A 16 10 15.1 13.6 3.6 3.2 3.6 4.0 25 25

Gaming, Hotels & Leisure 7,837 4.69 7.6 7.0 (3) 4 14.6 14.0 4.2 3.6 2.7 2.8 28 2614 Genting Malaysia Bhd GENM MK 6,042 Buy 4.12 3.22 15 (8) 7 7.68 6.8 6.0 (2) 6 14.5 13.6 1.7 1.5 1.9 2.0 12 1215 Berjaya Sports Toto Bhd BST MK 1,796 Neutral 4.40 4.19 (4) 1 1 1.70 10.1 10.6 (8) (2) 14.8 15.1 12.7 10.5 5.6 5.6 82 76

Health Care & Pharmaceuticals 1,921 2.56 8.2 6.7 28 23 12.0 9.8 2.8 2.4 2.7 3.2 27 2716 Kossan Rubber Industries KRI MK 329 Buy 4.76 3.24 19 3 (4) 0.82 6.1 4.3 (5) 34 9.3 6.9 2.3 1.8 1.9 2.5 28 2917 Supermax Corp Bhd SUCB MK 465 Buy 7.00 4.31 15 (5) (15) 3.79 8.1 6.6 25 21 7.0 5.8 1.6 1.3 2.9 3.5 27 2618 Top Glove Corp Bhd TOPG MK 1,128 Buy 6.82 5.75 15 6 (7) 3.08 8.9 7.4 39 21 14.8 12.3 3.5 2.9 2.8 3.3 27 26

Industrials 5,585 6.38 20.3 14.6 17 30 27.2 22.4 1.8 1.6 1.5 2.0 8 919 Gamuda Bhd GAM MK 2,361 Neutral 3.93 3.64 40 (4) 3 9.63 31.0 23.4 45 24 26.2 24.0 2.2 2.1 1.9 2.4 9 1020 IJM Corp Bhd IJM MK 2,486 Neutral 5.80 5.80 29 5 16 6.78 14.3 9.5 (5) 37 30.8 22.5 1.5 1.3 0.9 1.5 7 721 WCT Bhd WCT MK 738 Neutral 3.50 2.96 14 (4) 4 2.72 6.1 3.2 4 25 18.3 17.4 1.3 0.9 2.3 2.9 10 9

Media & Internet 759 0.68 8.6 7.6 260 18 18.3 15.5 2.3 2.1 2.7 3.2 19 1422 Media Prima Bhd MPR MK 759 Buy 2.90 2.39 43 9 15 0.68 8.6 7.6 260 18 18.3 15.5 2.3 2.1 2.7 3.2 19 14

Power & Utilities 17,305 12.26 8.5 8.0 31 8 15.1 13.8 1.6 1.5 3.5 2.8 13 1223 Tenaga Nasional Bhd TNB MK 11,715 Neutral 9.60 8.47 1 (4) (6) 20.06 6.4 6.0 19 9 14.3 13.1 1.3 1.2 2.9 1.8 12 1124 YTL Power International Bhd YTLP MK 5,591 Neutral 2.28 2.43 8 4 6 4.47 12.7 12.2 57 5 16.9 15.3 2.2 2.0 4.7 4.8 16 16

Telecoms 34,984 8.86 7.8 7.3 24 9 17.2 15.8 4.7 4.4 3.9 4.9 29 2825 Axiata Group Berhad AXIATA MK 12,350 Buy 5.90 4.61 51 3 1 18.24 6.1 5.4 58 17 14.9 12.8 1.8 1.7 0.0 3.5 15 1426 DiGi.Com Bhd DIGI MK 6,121 Buy 30.00 24.82 13 (3) 1 2.86 8.3 7.7 15 3 16.8 16.3 12.7 11.0 6.0 4.9 76 7227 Maxis Bhd MAXIS MK 12,609 Neutral 5.45 5.30 (1) 0 (1) 7.83 9.8 9.6 (1) 3 17.3 16.8 4.5 4.5 6.0 6.0 26 2728 Telekom Malaysia T MK 3,904 Buy 4.00 3.44 12 1 (3) 6.52 5.4 5.2 7 15 24.4 21.2 1.8 1.8 5.7 5.7 9 8

Property 5,005 4.70 102.8 50.7 (24) 50 71.2 45.6 2.7 2.6 0.8 1.0 6 729 SP Setia SPSB MK 1,690 Buy 6.11 5.24 34 3 14 3.26 23.7 18.2 17 21 26.6 22.0 2.5 2.4 2.3 2.7 10 1130 UEM Land ULHB MK 2,461 Buy 2.88 2.13 73 (5) 25 6.64 179.6 82.4 (56) 59 104.9 65.9 3.0 2.9 0.0 0.0 4 431 Malaysian Resources MRC MK 854 Neutral 2.13 1.95 54 (5) 15 4.22 38.0 23.5 (14) 84 62.1 33.7 2.3 2.2 0.3 0.5 5 7

Transport/Logistics 13,665 5.24 11.0 8.2 25 253 37.0 11.0 2.8 2.4 3.0 3.3 16 2432 Air Asia AIRA MK 2,268 Reduce 1.74 2.58 87 2 47 5.68 10.3 8.2 (5) 63 13.2 8.1 2.3 1.8 0.0 0.0 19 2433 Malaysian Airline Systems MAS MK 2,248 Buy 2.65 2.12 (4) (4) 0 1.57 14.1 6.3 104 1314 145.2 10.3 2.1 1.6 0.0 0.0 2 1834 PLUS Expressways PLUS MK 6,979 Neutral 5.01 4.40 35 0 4 12.78 10.3 7.8 13 48 16.5 11.1 3.4 3.1 4.7 5.5 21 2935 Malaysia Airports Holdings MAHB MK 2,170 Buy 8.54 6.22 57 2 14 0.94 10.6 11.8 13 10 16.0 14.5 2.0 1.9 3.7 3.3 12 13

Basic Materials 220 0.28 4.4 3.3 46 12 5.6 5.0 0.9 0.8 7.4 8.1 17 1736 Evergreen Fibreboard EVF MK 220 Buy 2.99 1.35 (4) (9) (15) 0.28 4.4 3.3 46 12 5.6 5.0 0.9 0.8 7.4 8.1 17 17

Nomura Coverage (36 companies)** 201,456 Source: Bloomberg, Nomura research. Prices as at 1 December, 2010. Sector coverage ratios are weighted by market cap.

Exhibit 20. Sector coverage

N. FD P/E (x) Norm EPS growth (%) Yield (%) ROE (%)

FY09 FY10F FY11F FY09 FY10F FY11F FY09 FY10F FY11F FY09 FY10F FY11F

Nomura Malaysia Coverage 23.4 24.8 15.7 (1) 20 61 2.1 2.7 3.2 19.2 19.9 21.0

Basic Materials 8.2 5.6 5.0 11 46 12 0.0 7.4 8.1 12.9 16.7 17.0

Consumer Related 27.7 37.4 16.7 (31) 4 129 1.7 1.7 2.6 23.0 21.0 23.5

Gaming, Hotels & Leisure 14.2 14.6 14.0 0 (3) 4 2.6 2.7 2.8 34.3 28.1 26.4

Financials 22.9 16.3 13.6 2 30 19 1.6 3.0 3.2 13.3 17.4 18.0

Health Care & Pharmaceuticals 15.4 12.0 9.8 40 28 23 2.1 2.7 3.2 23.2 26.8 26.8

Industrials 29.9 27.2 22.4 (34) 17 30 2.6 1.5 2.0 7.0 8.0 8.6

Media & Internet 65.8 18.3 15.5 (76) 260 18 3.8 2.7 3.2 25.8 18.8 14.2

Power & Utilities 21.1 15.1 13.8 (25) 31 8 2.8 3.5 2.8 5.7 13.2 12.5

Property 42.4 71.2 45.6 52 (24) 50 0.8 0.8 1.0 7.7 5.8 7.1

Telecoms 20.8 17.2 15.8 69 24 9 2.9 3.9 4.9 30.4 28.9 28.2

Transport/Logistics 13.3 37.0 11.0 (53) 25 253 2.3 3.0 3.3 19.5 16.3 24.0

Source: Bloomberg, Nomura research. Prices as at 1 December, 2010



Exhibit 21. Top picks

Normalised EPS gth (%)

Norm. P/E (x)

P/BV (x) Yield (%) ROE (%)

Company Ticker

Market

cap (US$mn)

Price

(local) TP

(local)

Up-side(%)

Avgdaily

vol 3M(US$mn) FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F

BUY

1 CIMB Group Holdings CIMB MK 19,755 8.38 10.00 19 27.4 26 25 16.8 13.5 2.4 2.1 1.1 1.5 16 17

2 Malayan Banking MAY MK 18,946 8.44 10.70 27 26.0 44 16 15.6 13.5 2.1 2.0 4.9 4.4 14 15

3 AMMB Holdings AMM MK 5,917 6.19 7.30 18 7.2 19 34 18.5 13.8 1.9 1.7 1.5 2.9 12 13

4 Alliance Financial Gp AFG MK 1,512 3.08 3.90 27 2.2 31 33 15.8 11.9 1.6 1.5 2.1 3.4 11 13

5 Sime Darby SIME MK 16,446 8.63 11.10 29 17.8 (68) 350 71.4 15.9 2.5 2.4 0.7 3.1 3 15

6 Axiata Group AXIATA MK 12,350 4.61 5.90 28 18.2 58 17 14.9 12.8 1.8 1.7 0.0 3.5 15 14

7 Genting Malaysia GENM MK 6,042 3.22 4.12 28 7.7 (2) 6 14.5 13.6 1.7 1.5 1.9 2.0 12 12

8 SP Setia SPSB MK 1,690 5.24 6.11 17 3.3 17 21 26.6 22.0 2.5 2.4 2.3 2.7 10 11

9 UEM Land Holdings ULHB MK 2,461 2.13 2.88 35 6.6 (56) 59 104.9 65.9 3.0 2.9 0.0 0.0 4 4

10 Malaysia Airports MAHB MK 2,170 6.22 8.54 37 0.9 13 10 16.0 14.5 2.0 1.9 3.7 3.3 12 13

11 Evergreen Fibreboard EVF MK 220 1.35 2.99 121 0.3 46 12 5.6 5.0 0.9 0.8 7.4 8.1 17 17

12 Media Prima MPR MK 759 2.39 2.90 21 0.7 260 18 18.3 15.5 2.3 2.1 2.7 3.2 19 14

Source: Bloomberg, Nomura research. Prices as at 1 December, 2010

Exhibit 22. Valuation methodology and investment risks

Company Valuation methodology Investment risks

AEON Credit Service

We peg a fair P/E of FY12F 10x for ACSM, a 29% discount to the current market P/E of 14x.

Select commercial banks are aggressively competing in the micro-lending space, which may negatively affect ACSM’s market share and profit margins, in our view. Any sudden increase in funding costs will result in narrower margins. Provision for bad and doubtful debts (and bad debt recovery) is a function of domestic economic growth

AirAsia We value AirAsia on FY11F BVPS applied to a target multiple of 1.2x, the average levels it has traded at for the past few years

Upside risks include: 1) better-than-expected improvement in its associates’ financial performance, yield improvement and passenger growth numbers and eventuation of listings; 2) US dollar appreciation from our assumptions of a strengthening ringgit (Nomura’s house view is for RM3.18 in 2010F, 2.80 in 2011F and 2.65 in 2012F), and; 3) ASEAN Open Skies liberalisation occurring earlier than anticipated by 2015; we currently do not assume any impact from ASEAN open skies given that agreements are largely still in the negotiation stage

Alliance Financial Group

Our Gordon-growth-based price target is derived after imputing an FY12 ROE forecast of 13.8% and rolling forward to FY12F book value of RM 2.29. This implies an FY12F P/BV of 1.7x, which is mid-way between the post-crisis mean and +1 standard deviation P/BV

Downside risks include: 1) higher-than-expected loan charge-offs and sluggish loan growth if the domestic economy recovers more slowly than expected, and; 2) delay in further policy rate hikes by Bank Negara, which could result in lower margin expansion than forecast

AMMB Holdings

Our Gordon growth-based price target is based on cost of equity of 9.75%, a terminal growth rate of 4% and a risk-free rate of 3.75% (all unchanged from previous assumptions). Our new price target is based on our new ROE forecast of 14.7% and implies an FY12F P/B of 1.9x. This falls between the post-crisis mean of 1.5x and +1 standard deviation level of 2.2x

Key downside risks include: 1) Weaker-than-expected economic growth which could result in slower loan growth and higher credit costs, and; 2) sharper-than-anticipated interest rate hikes that would cause NIMs to contract given the large fixed-rate hire purchase portfolio which accounts for 40% of total loans

Axiata Group Our price target is based on a sum of the valuations of subsidiaries and associates. We use DCF methodology for valuing the four key subsidiaries: Celcom, XL, AxB, and Dialog using WACCs of 7.7%, 12.6%, 7.7%, and 8.0%, respectively; our terminal growth rates are 2.5%, 3%, 1.5%, and 1.5%, respectively

Key downside risks include aggressive price competition; weaker-than-expected take-up of wireless broadband in Malaysia; and tariff wars and regulatory risks in Indonesia, India, Sri Lanka and Bangladesh

Berjaya Sports Toto

To derive our price target, we apply a 16% historical average discount to our 12-month forward DCF-derived RNAV. To derive our intrinsic value, we discount its future cashflows by a weighted average cost of capital (WACC) of 7.8%. The WACC is derived from a cost of equity of 8.2%, a risk-free rate of 3.75%, an equity risk premium of 4.5% and beta of 0.983

Economic downturns and further regulatory changes, such as higher taxes and betting duties, are key downside risks

British American Tobacco

We currently assume a risk free rate of 3.7%, with an equity risk premium of 5.2%, a beta of 0.45 and a terminal growth rate of 0.5%. The implied P/E of 16.8x for FY11F is in line with its historical average P/E of 16.8x

Upside risks to our PT and earnings forecasts include a halt in industry volume contractions, lower-than-expected downtrading and illicit trade, and a likelihood of BAT being able to recover market share in the value-for-money segment of the market

Bursa Malaysia

Our Gordon-growth based price target assumes an FY10F ROE of 22%, dividend payout of 90%, terminal growth rate of 4.2% and cost of equity of 7.8%

Risks: 1) Reversal of liquidity trends, resulting in a fall in equity and derivative trading volumes, and; 2) Weaker-than-expected economic growth, which will cause corporate earnings to slow

CIMB Group Holdings

Our Gordon growth-based target price implies a FY11F price to book multiple of 2.5x. The higher price target is driven by our higher earnings estimates; we keep our cost of equity (9.25%) and terminal growth rates (4.25%) unchanged.

Downside risks to our call include a reversal in sentiment, leading to a downswing in capital markets. This would likely impact CIMB's earnings. A weaker economic growth outlook in Malaysia and/or Indonesia could result in lower loan growth and higher credit costs for both businesses




Digi.Com We derive our price target using DCF valuation, assuming 7.8% WACC, 8.5% cost of equity, 5% cost of debt and 15% gearing. Our terminal growth rate is at 1%

Key risks to our rating and price target for DiGi include a continued macro slowdown, increased competition, pricing pressure and weaker-than-expected take-up of broadband services

Evergreen Fibreboard

We value EVF by ascribing to our 2011F EPS estimate a P/E multiple of 11x , which is +1 standard deviation above the company's average historical 12 month forward P/E (actual earnings)

Downside risks include: 1) a slower-than-expected economic recovery, particularly in Asia; 2) higher-than-expected cost increases, and; 3) large sudden currency swings

Gamuda We value Gamuda using a SOTP methodology. We value its construction business at 15x and its water assets at their NAV. We apply a 10% discount to our NAV estimates for its property business and expressway BOT assets.

A delay in the award of key mega-projects may impact our order inflow assumptions, thereby affecting construction revenues and earnings negatively. Delays in upcoming launches due to a correction in property markets and/or lower margins would result in downside risks to our property revenues and earnings estimates. Any regulatory action directed towards decreasing/abolishing tolls from concession assets could also hurt revenues and earnings. Gamuda being awarded the MRT project in capacity of project manager with further increase in project cost would result in upside risk to construction revenues and earnings estimate. Very high margins from the new and upcoming property projects could also lead to upward revision of revenues and earnings

Genting Bhd In deriving our price target, we value GENT’s listed assets using our price targets for GENM and GENS. Other components of the RNAV were the discounted cash flow (DCF) values of its non-listed assets such as the casino management, power generation and oil & gas businesses. Shareholders’ funds were added to the computation but costs of its listed assets were deducted

Downside risks could come from regulatory issues related to its gaming business, with its gaming licence renewable on a quarterly basis. Competition from regional casinos is an emerging threat. New large-scale casino developments have started operations in Singapore and are reaching completion in Macau. Disease outbreaks could impede overseas and/or local arrivals. On the power side, GENT is required to operate its existing plants at a minimum availability level for dispatch based on its PPAs. Failure to meet these obligations would mean lost revenue and penalties. Risks to its plantation division earnings include CPO price volatility and lower-than-expected yields. Upside risks include a recovery in the valuations of global gaming companies, better-than-expected news flow on its Singapore IR project (GENS) and favourable regulatory policies, which could lead to a re-rating of GENT shares

Genting Malaysia

We are setting our price target based on the stock’s average historical discount to DCF-based RNAV since 1997. On average, GENM shares have traded at a 12%discount to DCF-based RNAV since then. Applied to our DCF-derived RNAV estimate for FY11F, this translates into a price target of RM4.12/share. GENM’s intrinsic value, if measured by the discounted cashflow (DCF) model, comes to RM4.69/share (before discounts), on our estimate. In deriving this value, we have discounted its future cashflow by a weighted average cost of capital (WACC) of 9.7%. The WACC is derived from a cost of equity of 9.7%, risk-free rate of 3.75%, equity risk premium of 4.5% and beta of 1.32

Risk: Although we believe that to a large extent fear of potential loss of revenue to the two Singapore casinos has been largely priced in, a sharper-than-expected fall in GENM’s revenue would likely see the shares trading at a sharper discount to RNAV. Conversely, a lower-than-expected loss in revenue could be an upside risk to our estimates and price target. Historically, the shares have traded at up to a 45% discount to RNAV in 1998 and 34% discount in 2001

IJM Corp We value IJM using a sum-of-the-parts (SOTP) methodology (unchanged). We value its construction, plantation and industrial businesses at 15x and apply a 10% discount to our NAV estimates for its IJM Land and BOT assets.

Delays in the awarding of key mega projects may affect our order inflow assumptions, which could have a negative impact on construction revenue and earnings. Delays in upcoming launches due to correction in property markets and/or lower margins could also result in downside risks to our property revenue and earnings estimates. Moreover, any regulatory action directed towards decreasing/abolishing tolls from concession assets could hurt revenue and earnings. Very high margins from property and construction projects, and progress on the IJM Land-MRCB merger could lead to upward revision of revenues and earnings

IOI Corp Our PT is derived by pegging our rolling 12M-fwd P/E to 18x and rolling forward to FY11F from 15x, being +0.6sd from its mean P/E of 15x

Upside risks for IOI include better-than-expected FFB yields while a downside risk would be larger-than-expected global vegetable oil production, thus hurting CPO prices

Kossan Rubber Industries

We peg Kossan’s target 10x FY11F P/E at a ~30% historical discount to Top Glove’s FY11F P/E of 14.5x and apply this to our FY11F EPS forecast

Potential downside to our view includes delays / hiccups to the new product launch, which could affect Kossan’s strategy to gain market share from other nitrile players and the higher-end segment. Industry downsides are similar to those that apply to Top Glove

Kuala Lumpur Kepong

We now value KLK at 18x FY11F EPS, slightly above +1sd above its five-year historical average of 17.5x. This is justified, in our view, since KLK has the strongest mature hectarage growth among Malaysian planters (mature area expected to expand by >6% pa through to FY12F, on our estimates)

The key downside risk to our call is if global vegetable oil (mainly including palm oil) production comes in higher than expected in 2011, lowering realised CPO prices below our assumption

Malaysia Airports Holdings

Our target price is derived by summing: (i) the discounted free cashflow to equity for domestic operations until Feb 2034; (ii) the residual cash held; (iii) proceeds from the sale of Sepang International Circuit in 2019 discounted at a risk free rate of 3.79%; (iv) our fair value estimate of its KLIA land bank assuming 2,730 acres is leased out for 60 years at RM20/sqm/year in 2015. NPV calculations are discounted to 2011-end, and use cost of equity of 9.78%, except for the SIC sale which uses the risk free rate of 3.79%

Downside risks for MAHB include: (i) extraordinary events such as disease, terrorism and natural disasters affecting passenger traffic; (ii) significant KLIA 2 construction delay; (iii) further significant investments overseas




Malaysian Airline System

We value MAS at the average of FY11-12F book value pegged to a target midcycle valuation of 1.8x P/BV, as we believe mid-FY11-12F will be a defining period for MAS as its fleet rejuvenation is expected to take firm hold by then

Key downside risks to our view include further delays of MAS’s fleet deliveries and stronger-than-expected competition from low cost carriers and other full service carriers. Other downside risks include: current sentiment on the uncertainty of the strength of the economic rebound, political and environmental (ie, plane delays from natural disasters) headwinds, as well as oil price uncertainty could persist for the next few quarters, dampening possible performance. Also, in a worst-case scenario, assuming zero hedging (as hedging policy varies), we highlight a potential 15% earnings impact from each 1% movement in the US dollar

Malayan Banking

Our Gordon-growth based price target is derived after imputing a FY12F ROE forecast of 16.2%. Our price target implies a P/BV of 2.5x, which is just above its post-crisis average P/BV of 2.4x

Risks: 1) weaker-than-expected economic growth could result in slower loan growth and higher credit costs; and 2) Bank Negara curbs on mortgage LTV would result in slower growth in the consumer space

Maxis Our DCF-based valuation methodology uses a WACC of 7.4%, an 8.5% cost of equity, 5% cost of debt, a 1.5% terminal growth rate and 20% gearing

Key upside risks include a strong pickup in broadband growth and active capital management. Key downside risks include aggressive price competition, weaker-than-expected take-up of wireless broadband and further sell-off by Binariang GSM (BGSM)

Media Prima Our DCF-based price target uses a discount rate of 10.3% (risk -free rate 3.75%, beta of 1.3x and terminal growth rate of 2%)

Risks include the following: 1) if the global recovery is slower than expected, consumer demand/sentiment and ultimately advertising spending will follow; 2) forex changes – a sharp depreciation in the ringgit would lead to significantly higher costs of programming content and newsprint; and; 3) competition – if competitors become more aggressive in gaining TV adex market share, it may result in greater discounting for ad space

Malaysian Resources Corp

We peg MRCB’s price target at parity to our RNAV-based fair value, derived from: 1) the net present value of profits from its property segment at 10% discount rate; 2) valuing the construction profits at 15x P/E based on the multiples used for other construction stocks in our rating universe, and; 3) valuing the two toll concessions using a 10% discount rate

Downside risks exist should: 1) project billings be delayed; 2) landbank / orderbook replenishment remain weak; or 3) slowdown in the economy, double dip or recessionary scenario moving forward. Upside risks include faster than expected orderbook wins and faster progress billing pace

PLUS Expressways

We value PEB: 1) using an FCFE model to calculate the NPV of the Malaysian concessions and PLUS BKSP; using a cost of equity of 9.00% and 12.74%, respectively, and; 2) subtracting the net debt held at parent company level from this total

Downside risks: 1) Non-cash compensation for toll rate variations, and; 2) government intervention / regulatory changes that are not NPV-neutral. Upside risks: 1) a significantly higher competing offer

Public Bank Our Gordon-growth based price target is derived after imputing an FY11F ROE of 24.9%, cost of equity of 8.5%, terminal growth rate of 1.8% and risk-free rate of 3.75%

Key downside risks: 1) weaker-than-expected economic growth could result in slower loan growth and higher credit cost, and; 2) a high counter-cyclical capital buffer imposed by regulators would be negative on capital adequacy. Upside risks: better-than-expected loan growth benefiting from continued strength in the domestic consumer business

QSR Brands Our SOTP valuation is arrived at by ascribing: 1) a 22.2x multiple to the FY11F PAT of the Indian operations, based on the three-year India consumer stock average multiple, and; 2) the rest of the businesses at 12x FY11F PAT based on the midway of the stock's historical mean and -1SD level. Our fair value is based on the average ofFY11F-12F fair value, given we believe the company's growth profile is likely to be different by FY12F, as India's growth is likely to be more meaningful then as the Malaysian operations mature and growth stabilises for Malaysia

Downside risks to our PT include: 1) non-renewal of the franchise licence with Yum! after the 10+10 year contract period; 2) deteriorating domestic consumer confidence on concerns of a double dip in QSR’s key markets; 3) fewer-than-expected store openings; and 4) a sharp and sustained spike in input costs

Sime Darby We value Sime Darby using an SOTP valuation: 1) ascribing a P/E multiple of 18x to its plantations division FY11F PAT, 14x to heavy equipment FY11F PAT, 15x to automobiles FY11F PAT, 10x to Utilities FY11F PAT, and 8x to others; and 2) valuing the property business at RNAV

Risks to the group include poor execution of its restructuring, weaker-than-expected CPO production and a sharp fall in CPO prices

SP Setia We peg SPSB’s price target at parity to our RNAV-based and diluted fair value (after accounting for any warrants conversion), derived from a combination of a net present value of profits from on-going projects at a discount rate of 9% and revaluation surplus of land values above their book value

Risks to our PT include: 1) any project delays or disappointing take-up rates could dent our earnings forecasts. Profit margin could also vary at different stages of billing – a slower actual schedule might result in a difference between actual reported net profit and our estimates. Project delays could arise from longer-than-expected approval/completion on land acquisition and building designs; 2) Project concentration in Johor / Klang Valley - While the company has stepped up its diversification efforts in recent years by securing projects in Vietnam and China, the bulk of its portfolio still consists of projects in Malaysia, and in particular, residential projects in Johor and Klang Valley. Its operational as well as stock performance is therefore closely tied to the Johor and Klang Valley residential markets, and; 3) double dip or recessionary scenario occurring moving forward

Supermax Corp

We peg Supermax’s target P/E of 11.5x at a 21% discount to Top Glove, derived from its historical discount of ~30% to Top Glove; however, we argue that it should see an upward re-rating given its write-off of the APLI investment.

Downside to our call is industry-related similar to Top Glove, as well as adverse and rapid currency movements that could affect income from its overseas distribution arms




Telekom Malaysia

Our DCF-based valuation methodology uses a WACC of 7.7%, an 9.0% cost of equity, 5% cost of debt, a 1% terminal growth rate and 25% gearing

Key downside risks include competition from cellular operators, and weaker -than-expected pick up of HSBB

Tenaga Nasional

We value TNB using 14.5x forward P/E multiple applied to our FY12F normalised EPS estimate

We believe the key downside risks to our view include weaker-than-anticipated volumes and higher-than-expected coal costs without an upward adjustment to Tenaga’s tariffs. On the upside, an automatic pricing mechanism and or base tariff review should support a strong re-rating of this name

Top Glove Corp

We value Top Glove by ascribing an FY11F P/E of 11.8x to FY11F EPS, close to its three-year average P/E and equal to the one-year forward market P/E of 14.5x

Downside to our call is mostly industry-related and includes: 1) overcapacity and price wars occurring sooner than expected (ie, by end-FY10); 2) if the government removes natural gas subsidies on an immediate basis instead of a gradual approach, and 3) a sharp, quick appreciation of the ringgit

UEM Land Holdings

We peg ULHB’s price target at parity to our RNAV-based fair value, derived from a combination of a net present value of profits from on-going projects at a discount rate of 10% and revaluation surplus of its landbank above its book value

Risks include: 1) slowdown in the economy, double dip or recessionary scenario moving forward; 2) negative newsflow on land sales / deals progress; 3) any reversal in the positive tone and progress in Malaysia-Singapore relations as negotiations continue; 4) political events, eg, election upsets that could encroach on UEM Land’s position as a strategic Khazanah holding and change the regulatory environment; and 5) delayed launches / project delays which could lead to earnings downsides as Nusajaya is less concentrated than the markets of Selangor and KL

WCT We value WCT’s construction business at 15x FY11F earnings, and apply a 10% discount to our NAV estimates for the property development business and BOT assets. We have built in the contribution from the new LCCT concession and other recent project awards into our forecasts

A delay in the award of key mega-projects may impact our order inflow assumptions, thereby affecting construction revenues and earnings negatively. Delays in upcoming launches due to correction in property markets and/or lower margins would result in downside risks to our property revenues and earnings estimates. Any regulatory action directed towards decreasing/abolishing tolls from concession assets could also hurt revenues and earnings. Very high margins from property and construction projects could lead to upward revision of revenues and earnings

YTL Power International

We value YTLP using a SOTP valuation based on COE of 9.0% for Malaysia, and 17% for Indonesia. We value Wessex Water at 1.08x FY11F RAB and PowerSeraya at 11.5x EV/EBITDA

Key risks include the Malaysian regulatory environment and exchange rate risk, specifically relating to YTLP's Wessex Water in the UK




Company views


AirAsia Berhad AIRA MK

AIRLINES | MALAYSIA

Jacinda Loh +60 3 2027 6889 [email protected]

Action At current levels, it appears the market is pricing in the listing of Thai and Indonesia

AirAsia by 3Q11 as a certainty, and implying a listing multiple of at least 22x P/E. We do not expect 3Q10 earnings to disappoint given strong seasonality, but at 8x EV/EBITDA (on par with EasyJet and at an 18% premium to Ryanair) we believe it is priced for execution perfection in FY11F, while local niche budget carrier Firefly is stepping up domestic competition with its competitive fares; any potential delays in listing may trigger a de-rating of AirAsia. Maintain REDUCE.

Catalysts Potential re-rating catalysts include better-than-expected performance from

associates (Thai AirAsia and Indonesia AirAsia) and passenger and yield numbers.

Anchor themes

We expect Malaysian airlines to be beneficiaries of the consumption boom and ringgit appreciation, although FY11F may see domestic competitive pressures.

High hopes, priced for perfection High hopes for associates’ listings at current level

We believe AirAsia’s current share price factors in certainty of the listings of both associates at at least 22x P/E (trailing), assuming AirAsiaX is listed at 16x P/E. We, on the other hand, believe it is still too early to accurately price in any certainty. An improving capital market outlook leads us to shift from valuing AirAsia on an adjusted BVPS basis (adjusted for receivables due, where repayment was contingent upon the listing of the associates) to normal BVPS. However, we believe any news on a potential delay or any event affecting the associates’ operations or a deterioration in economic conditions could trigger a fairly quick de-rating of the stock.

Competition is dynamic and will only grow

While AirAsia has postponed the delivery of seven planes scheduled for 2011, MAS recently announced Firefly’s expansion plan for 30 737-800s to be added to its fleet in the next five to six years, with the first two to be on the KL-Kota Kinabalu and KL-Kuching routes, which we think contribute at least 15% of AirAsia’s total revenues. News flow on AirAsia has been positive, with the announcement of new routes such as KL-Haneda and KL-Seoul. However, we believe investors need to focus on the earnings impact: these routes do not contribute directly to AirAsia’s earnings given they are operated by unlisted AirAsiaX.

Maintain REDUCE, valuation on par with global peers

We are already 10% higher than consensus, we think owing to our in-house forex assumptions which we have revised up by 7-9% from our earlier forecasts. On EV/EBITDA, AirAsia is trading at par/premium to its global peers, suggesting little room for upside. Instead, given competition is not static, we believe there is potential downside risk arising from stiff competition in the domestic market, which contributes some 60% of its total revenues.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FRevenue 3,133 3,802 4,479 5,290

Reported net profit 507 541 882 950

Normalised net profit 507 541 882 950

Normalised EPS (RM) 0.21 0.20 0.32 0.34

Norm. EPS growth (%) (8.8) (5.2) 63.0 7.7

Norm. P/E (x) 12.5 13.2 8.1 7.5

EV/EBITDA (x) 11.3 10.3 8.2 8.2

Price/book (x) 2.4 2.3 1.8 1.4

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 24.0 18.7 24.5 21.0

Net debt/equity (%) 261.8 245.3 182.0 182.9

Earnings revisions

Previous norm. net profit 541 882 950

Change from previous (%) - - -

Previous norm. EPS (RM) 0.20 0.32 0.34

Source: Company, Nomura estimates

Share price relative to MSCI Malaysia

1m 3m 6m

2.4 47.4 106.4

0.5 46.3 116.4

4.1 42.4 93.8

Hard


52-week range (RM)

3-mth avg daily turnover (US$mn)

Employees Provident Fund

Stock borrowabili ty

6.9

Major shareholders (%)

Tune Air 26.4

Absolute (RM)

Absolute (US$)

Relative to Index

Estimated free float (%)

Market cap (US$mn) 2,267

60.0

2.65/1.11

5.59

0.9

1.4

1.9

2.4

2.9

Dec

09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

Nov

10

70

90

110

130

150

170

190

Price

Rel MSCI Malaysia(RM)

Closing price on 1 Dec RM2.58

Price target RM1.74(set on 15 Nov 10)

Upside/downside -32.6%Difference from consensus -37.9%

FY11F net profit (RMmn) 882Difference from consensus -0.5%Source: Nomura

Nomura vs consensus We are at the higher end, given we like the business model, but high expectations are in the price, while competition and moderating growth point to earnings pressure in FY11F.

Maintained

REDUCE


AirAsia Berhad Jacinda Loh


No positive contribution seen from Thai and Indonesia associates since start-up in 2004; earnings accretion from untapped potential in Thailand and Indonesia unlikely at least until FY12F

Lowering finance costs by 13% on seven plane delay

Financial statements

Income statement (RMmn)

Year-end 31 Dec FY08 FY09 FY10F FY11F FY12F

Revenue 2,855 3,133 3,802 4,479 5,290Cost of goods sold (2,477) (2,345) (2,864) (3,188) (3,872)Gross profit 378 788 938 1,291 1,418SG&AEmployee share expenseOperating profit 378 788 938 1,291 1,418

EBITDA 725 1,236 1,442 1,769 1,985Depreciation (347) (448) (504) (479) (568)Amortisation - - - - - EBIT 378 788 938 1,291 1,418Net interest expense (283) (290) (430) (442) (498)Associates & JCEs - - - - - Other income 66 125 50 80 80Earnings before tax 162 623 558 928 1,000Income tax 373 (116) (17) (46) (50)Net profit after tax 534 507 541 882 950Minority interestsOther items - - - - Preferred dividendsNormalised NPAT 534 507 541 882 950Extraordinary items (876) - - - Reported NPAT (342) 507 541 882 950

DividendsTransfer to reserves (342) 507 541 882 950

Valuation and ratio analysisFD normalised P/E (x) 11.4 12.5 13.2 8.1 7.5 FD normalised P/E at price target (x) 7.7 8.4 8.9 5.5 5.1 Reported P/E (x) na 12.5 13.2 8.1 7.5 Dividend yield (%) - - - - - Price/cashflow (x) na 8.1 5.7 5.5 4.6 Price/book (x) 3.8 2.4 2.3 1.8 1.4 EV/EBITDA (x) 18.8 11.3 10.3 8.2 8.2 EV/EBIT (x) 36.0 17.8 15.9 11.2 11.5 Gross margin (%) 13.2 25.1 24.7 28.8 26.8 EBITDA margin (%) 25.4 39.4 37.9 39.5 37.5 EBIT margin (%) 13.2 25.1 24.7 28.8 26.8 Net margin (%) (12.0) 16.2 14.2 19.7 18.0 Effective tax rate (%) (230.7) 18.6 3.0 5.0 5.0 Dividend payout (%) na - - - - Capex to sales (%) 91.9 62.2 66.9 25.0 60.1 Capex to depreciation (x) 7.6 4.4 5.1 2.3 5.6

ROE (%) na 24.0 18.7 24.5 21.0 ROA (pretax %) 8.2 7.9 8.2 10.2 9.8

Growth (%)Revenue 48.5 9.7 21.4 17.8 18.1 EBITDA 29.6 70.4 16.7 22.7 12.2

EBIT 12.5 108.4 19.1 37.5 9.8

Normalised EPS 28.8 (8.8) (5.2) 63.0 7.7 Normalised FDEPS 28.8 (8.8) (5.2) 63.0 7.7

Per shareReported EPS (RM) (0.14) 0.21 0.20 0.32 0.34Norm EPS (RM) 0.23 0.21 0.20 0.32 0.34Fully diluted norm EPS (RM) 0.23 0.21 0.20 0.32 0.34Book value per share (RM) 0.68 1.07 1.14 1.46 1.80DPS (RM) - - - - - Source: Nomura estimates

AirAsia Berhad Jacinda Loh


Big swing in free cashflow owing to capex reductions for FY11F; as of now, no plane delays have been announced for FY12F

Cashflow (RMmn)


EBITDA 725 1,236 1,442 1,769 1,985Change in working capital (548) 243 416 155 (10)Other operating cashflow (593) (695) (612) (634) (432)Cashflow from operations (416) 784 1,246 1,290 1,543Capital expenditure (2,623) (1,948) (2,544) (1,120) (3,180)Free cashflow (3,039) (1,164) (1,298) 170 (1,637)Reduction in investments (27) 0 - - - Net acquisitions - - - - - Reduction in other LT assets (24) (424) - - - Addition in other LT liabilities 0 (0) - - - Adjustments 196 1 (4) (12) (7)Cashflow after investing acts (2,894) (1,587) (1,302) 158 (1,644)Cash dividends - - - - - Equity issue 3 509 - - - Debt issue 3,046 1,670 1,352 589 1,794Convertible debt issueOthers - Cashflow from financial acts 3,048 2,180 1,352 589 1,794Net cashflow 154 592 50 748 150Beginning cash - 154 746 797 1,545Ending cash 154 746 796 1,544 1,695Ending net debt 6,453 6,862 7,756 7,360 9,133Source: Nomura estimates

Balance sheet (RMmn)

As at 31 Dec FY08 FY09 FY10F FY11F FY12F

Cash & equivalents 154 746 797 1,545 1,695Marketable securities - - - - - Accounts receivable 689 721 625 798 1,015Inventories 21 21 25 28 34Other current assets 1,032 733 654 484 608Total current assets 1,896 2,221 2,101 2,854 3,353LT investments 27 27 27 27 27Fixed assets 6,594 7,942 10,045 10,687 13,299Goodwill 9 9 9 9 9Other intangible assets 856 751 500 500 600Other LT assets 24 449 449 449 449Total assets 9,406 11,398 13,130 14,525 17,736Short-term debt 539 540 600 780 859Accounts payable 1,030 1,156 1,412 1,572 1,910Other current liabilit ies 164 13 3 3 3Total current liabilities 1,733 1,710 2,015 2,355 2,772Long-term debt 6,068 7,068 7,953 8,125 9,969Convertible debt - - - - - Other LT liabilities 0 0 0 0 0Total liabilities 7,800 8,777 9,968 10,481 12,741Minority interest - - - - - Preferred stock - - - - - Common stock 237 276 276 276 276Retained earnings 632 1,138 1,680 2,562 3,512Proposed dividends - - - - -

Other equity and reserves 736 1,207 1,207 1,207 1,207Total shareholders' equity 1,606 2,621 3,162 4,044 4,995

Total equity & liabilities 9,406 11,398 13,130 14,525 17,736

Liquidity (x)

Current ratio 1.09 1.30 1.04 1.21 1.21 Interest cover 1.3 2.7 2.2 2.9 2.8

LeverageNet debt/EBITDA (x) 8.90 5.55 5.38 4.16 4.60

Net debt/equity (%) 401.9 261.8 245.3 182.0 182.9

Activity (days)Days receivable 44.2 82.2 64.6 58.0 62.7 Days inventory 1.5 3.2 3.0 3.1 3.0 Days payable 76.1 170.1 163.7 170.8 164.6 Cash cycle (30.4) (84.7) (96.1) (109.8) (98.9) Source: Nomura estimates


Alliance Financial Group Bhd AFG MK

FINANCIALS/BANKS | MALAYSIA

Julian Chua +60 3 2027 6892 [email protected]

Our top small-cap pick Loan growth to pick up next year, in our view

At present, management appears to be adopting a more cautious approach to loan growth and seems focussed on growing fee income revenue, which at 12% of gross income is far lower than the sector average of 18%. Emphasis will be on broadening the fee/commission from wealth management, treasury, remittances and derivatives. Current loan growth is 6% y-y (Industry: +12%), which is all the more disappointing as AFG is operating off a small base. However, we view this as a temporary concern given the senior management changes in 2010. The encouraging part is that asset quality has been very strong even during this transition phase. The bank remains one of the most under-leveraged in the sector, with a core equity Tier 1 ratio of 12.8%. Once the new management is comfortable with the credit risk and a clearer picture emerges on external environment, we can expect healthier loan growth. AFG could potentially be an acquisition target, in our view. The bank is part of the Temasek stable of banks. We see DBS – also a Temasek-linked company – as a potential suitor given its stated intentions of increasing its revenue base in the Asean region.

NIMs will see a lift next year

Our economics team expects Bank Negara to raise the overnight policy rate to 3.25% in 2011. This is positive for AFG as more than 80% of its loan portfolio is on variable rate basis, while about 35% of its total deposits are low-cost CASA which does not reprice. Meanwhile, asset quality should remain robust with the NPL ratio forecast to trend lower to 3.6% in FY12F from 3.8% in FY11F.

Valuations now marginally above mid-cycle level

We see ROE expanding to 14% by FY13F after factoring in loan growth of 12-13% over the next 3 years, 13bps expansion in NIMs and credit costs contained at 30bps. Our target price of RM3.90 implies an FY12F P/BV of 1.7x, which is mid-way between the post-crisis mean and +1 standard deviation P/BV.

Key financials & valuations31 Mar (RMmn) FY10 FY11F FY12F FY13FPPOP 510 610 712 800




Norm. EPS growth (%) 31.0 32.9 16.9 12.7

Norm. P/E (x) 15.8 11.9 10.2 9.0

Price/adj. book (x) 1.62 1.47 1.34 1.22

Price/book (x) 1.62 1.47 1.34 1.22

Dividend yield (%) 2.1 3.4 3.9 4.5

ROE (%) 10.6 12.9 13.8 14.2

ROA (%) 0.95 1 .19 1.23 1.25

Earnings revisions






1m 3m 6m

(6.4) (0.6) 10.8

(8.1) (1.4) 16.2

(4.5) (5.3) (6.5)

Hard


1,512

70.0

3.30/2.41

2.13

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

13.3


Vertica l Theme 29.1

52-week range (RM)


EPF


2.3

2.5

2.7

2.9

3.1

3.3

3.5

Dec

09

Jan

10

Feb1

0

Mar

10

Apr

10

Ma

y10

Jun1

0

Jul1

0

Au

g10

Se

p10

Oct

10

No

v10

80859095100105110115

Price



Price target RM3.90(set on 30 Sep 10)

Upside/downside 26.6%Difference from consensus 13.4%

FY12F net profit (RMmn) 468.2Difference from consensus 4.3%Source: Nomura

Nomura vs consensus We think AFG can surprise positively on loan growth, asset quality and net interest margins.

Maintained

BUY


Action Loan growth should gather momentum in 2011 when the new management team is

comfortable with credit risks and external environment, in our view. AFG is one of the most under-leveraged banks in the sector, with a core equity Tier 1 ratio of 12.8%. Reiterate BUY.

Catalysts Further OPR hikes by the Central Bank would benefit AFG. We consider AFG a

potential M&A play if other banks in the region look to establish a Malaysian presence.

Anchor themes

Malaysia’s strong population growth rate is feeding into the consumption boom. The young population base and surge in the middle class are creating a large bankable population. Household debt has risen but household financial assets are currently 2.5x debt levels, suggesting leverage levels are still comfortable.

Alliance Financial Group Bhd Julian Chua


NIMs to expand 13bps from FY10F low


Profit and Loss (RMmn)

Year-end 31 Mar FY09 FY10 FY11F FY12F FY13F

Interest income 1,250 1,094 1,305 1,638 1,910Interest expense (589) (478) (580) (813) (1,000)Net interest income 662 617 725 825 910Net fees and commissions 132 132 145 160 185Trading related profits 97 51 50 50 60Other operating revenue 168 264 290 322 370Non-interest income 397 448 485 532 615Operating income 1,058 1,065 1,210 1,357 1,525Depreciation (51) (56) (60) (65) (65)Amortisation 0 0 0 0 0Operating expenses (513) (499) (540) (580) (660)Employee share expense - - - - - Op. profit before provisions 494 510 610 712 800Provisions for bad debt (190) (101) (65) (75) (82)Other provision charges - - - - - Operating profit 303 409 545 637 718Other non-operating incomeAssociates & JCEs 0 0 0 0 0Pre-tax profit 303 409 545 637 718Income tax (74) (107) (144) (169) (190)Net profit after tax 229 302 401 468 528Minority interests 0 (0) (0) (0) (0)Other items

Preferred dividendsNormalised NPAT 229 301 401 468 528Extraordinary itemsReported NPAT 229 301 401 468 528Dividends (97) (99) (160) (187) (216)Transfer to reserves 132 202 240 281 312

Valuation and ratio analysisFD normalised P/E (x) 20.8 15.8 11.9 10.2 9.0 FD normalised P/E at price target (x) 26.4 20.0 15.1 12.9 11.4 Reported P/E (x) 20.7 15.8 11.9 10.2 9.0 Dividend yield (%) 2.0 2.1 3.4 3.9 4.5 Price/book (x) 1.7 1.6 1.5 1.3 1.2 Price/adjusted book (x) 1.7 1.6 1.5 1.3 1.2 Net interest margin (%) 2.84 2.33 2.48 2.48 2.46 Yield on interest earning assets (%) 5.37 4.13 4.47 4.93 5.17 Cost of interest bearing liabilities (%) 2.27 1.71 1.96 2.43 2.68 Net interest spread (%) 3.10 2.42 2.51 2.50 2.50 Non-interest/operating income (%) 37.5 42.1 40.1 39.2 40.3 Cost to income (%) 53.3 52.1 49.6 47.5 47.5 Effective tax rate (%) 24.5 26.3 26.5 26.5 26.5 Dividend payout (%) 42.2 32.9 40.0 39.9 40.9 ROE (%) 8.6 10.6 12.9 13.8 14.2 ROA (%) 0.77 0.95 1.19 1.23 1.25 Operating ROE (%) 11.3 14.3 17.6 18.8 19.3 Operating ROA (%) 1.02 1.29 1.62 1.68 1.70

Growth (%)Net interest income 3.9 (6.8) 17.5 13.8 10.3 Non-interest income 4.2 12.9 8.3 9.7 15.6 Non-interest expenses 22.0 (2.8) 8.3 7.4 13.8 Pre-provision earnings (9.8) 3.3 19.6 16.7 12.4 Net profit (39.7) 31.6 32.9 16.9 12.7 Normalised EPS (41.5) 31.0 32.9 16.9 12.7 Normalised FDEPS (39.7) 31.6 32.9 16.9 12.7 Source: Nomura estimates

Alliance Financial Group Bhd Julian Chua


We expect loan growth to accelerate to 12-13% next year from 6% currently

Balance Sheet (RMmn)

As at 31 Mar FY09 FY10 FY11F FY12F FY13F

Cash and equivalents 4,998 3,565 3,500 3,000 3,000Inter-bank lending 199 150 199 199 199Deposits with central bank 199 259 228 256 285Total securities 6,681 6,086 7,681 8,681 8,681Other interest earning assetsGross loans 19,590 21,410 24,000 27,000 30,500Less provisions (872) (761) (858) (936) (1,024)Net loans 18,718 20,648 23,142 26,064 29,476Long-term investments 0 0 0 0 0Fixed assets 337 163 280 280 280Goodwill 369 362 362 362 362Other intangible assetsOther non IEAs 354 431 377 1,235 2,358Total assets 31,854 31,664 35,768 40,076 44,641Customer deposits 25,575 23,628 27,000 31,000 35,500Bank deposits, CDs, debentures 1,191 2,290 2,500 2,500 1,500Other interest bearing liabilities 1,261 1,766 1,958 1,958 2,285Total interest bearing liabilities 28,027 27,684 31,458 35,458 39,285Non interest bearing liabilities 1,061 1,028 1,061 1,061 1,450Total liabilities 29,088 28,712 32,519 36,519 40,735Minority interest 5 5 8 8 8Common stock 1,548 1,548 1,548 1,548 1,548Preferred stockRetained earnings 481 595 960 1,268 1,243Proposed dividends

Other equity 733 804 733 733 1,108Shareholders' equity 2,762 2,947 3,241 3,549 3,898

Total liabilities and equity 31,854 31,664 35,768 40,076 44,641Non-performing assets (RM) 875 806 912 972 1,037

Balance sheet ratios (%)Loans to deposits 76.6 90.6 88.9 87.1 85.9 Equity to assets 8.7 9.3 9.1 8.9 8.7

Asset quality & capitalNPAs/gross loans (%) 4.5 3.8 3.8 3.6 3.4 Bad debt charge/gross loans (%) 0.97 0.47 0.27 0.28 0.27 Loss reserves/assets (%) 2.74 2.40 2.40 2.33 2.29 Loss reserves/NPAs (%) 99.7 94.4 94.1 96.3 98.7 Tier 1 capital ratio (%) 10.3 11.7 11.1 11.0 11.0 Total capital ratio (%) 14.7 16.0 14.9 14.6 14.1

Growth (%)Loan growth 19.8 10.3 12.1 12.6 13.1 Interest earning assets 24.1 5.2 15.1 12.6 9.8 Interest bearing liabilities 17.6 (1.2) 13.6 12.7 10.8 Asset growth 15.1 (0.6) 13.0 12.0 11.4 Deposit growth 19.8 (7.6) 14.3 14.8 14.5

Per shareReported EPS (RM) 0.15 0.19 0.26 0.30 0.34Norm EPS (RM) 0.15 0.19 0.26 0.30 0.34Fully diluted norm EPS (RM) 0.15 0.19 0.26 0.30 0.34DPS (RM) 0.06 0.06 0.10 0.12 0.14PPOP PS (RM) 0.32 0.33 0.39 0.46 0.52BVPS (RM) 1.78 1.90 2.09 2.29 2.52ABVPS (RM) 1.78 1.90 2.09 2.29 2.52NTAPS (RM) 1.55 1.67 1.86 2.06 2.28

Source: Nomura estimates


AMMB Holdings AMM MK



Resilient top-line growth Pre-provision earnings to stay strong

AMMB’s recent results showed resilience in margins that helped it post the highest quarterly pre-provision profit of RM646mn. We forecast an average PPOP growth of 12% pa over the next two years on loan growth of 10% and steady net interest margins. NIMs have been surprising on the upside: 1) management has been actively hedging off interest rate risks on its fixed-rate loan portfolio; 2) there has been strong growth in low-cost CASA deposits – nearly double the industry rate over the past six quarters and 3) it has maintained pricing discipline in hire purchase in the face of stiffening competition.

Sturdy asset quality

So far, the rate of NPL formation has been under control. After peaking at 2% at the depth of the recession in 4Q FY09, it has been on an improving trend and averaged 0.9% over the past four quarters. Credit costs have been low at just 57bps in 1H FY11 (in line with our forecast of 60bps). The recent RM66mn impairment charge for securities and foreclosed asset recorded in 2Q FY11 is expected to be one-off. We estimate the credit charge for FY12-13 to average 44bps.

Valuations are still reasonable

The stock is trading at a FY11F P/BV of just 1.7x. We expect ROE to trend higher to 14.9% by FY13F, in line with management’s forecast of 15% in 2 years. Our target price of RM7.30 implies a FY12F P/BV of 1.9x, which falls between the post-crisis mean of 1.5x and +1 standard deviation level of 2.2x.

Key financials & valuations31 Mar (RMmn) FY10 FY11F FY12F FY13FPPOP 2,089 2,330 2,600 2,885

Reported net profit 1,009 1,356 1,658 1,851

Normalised net profit 1,009 1,356 1,658 1,851


Norm. EPS growth (%) 19.0 34.5 22.2 11.7

Norm. P/E (x) 18.5 13.8 11.3 10.1

Price/adj. book (x) 1.94 1.74 1.58 1.43

Price/book (x) 1.94 1.74 1.58 1.43

Dividend yield (%) 1.5 2.9 3.3 3.6

ROE (%) 11.6 13.3 14.7 14.9

ROA (%) 1.08 1 .35 1.51 1.56

Earnings revisions

Previous norm. net profit 1,356 1,658 1,851





1m 3m 6m

(2.5) 6.7 26.3

(4.3) 5.9 32.5

(0.7) 2.0 9.8

Hard


52-week range (RM)


AmcorpGroup


16.8


ANZ 23.8

Absolute (RM)

Absolute (US$)

Relative to Index



45.0

6.35/4.61

7.07

4.4

4.9

5.4

5.9

6.4

6.9

Dec

09

Jan

10

Feb1

0

Mar

10

Apr

10

Ma

y10

Jun1

0

Jul1

0

Au

g10

Se

p10

Oct

10

No

v10

90

95

100

105

110

115

Price





FY12F net profit (RMmn) 1,658Difference from consensus 10.0%Source: Nomura

Nomura vs consensus Consensus is underestimating asset quality and NIM resilience, in our view.

Maintained

BUY


Action Contrary to earlier fears, AMMB’s net interest margins have held up better than

expected, while asset quality remains robust. Business loan volumes are gaining traction and leading top-line growth. Valuations are still at relatively attractive levels and we expect the re-rating to continue. BUY reaffirmed.

Catalysts Consistent outperformance in net interest margins and asset quality would lead to

an upward re-rating of the stock.

Anchor themes


AMMB Holdings Julian Chua


NIMs were earlier forecast to fall 21bps in FY11F




Interest income 3,793 3,615 4,250 4,940 5,360Interest expense (2,017) (1,728) (2,180) (2,730) (2,970)Net interest income 1,776 1,887 2,070 2,210 2,390Net fees and commissions 457 542 585 635 665Trading related profits (115) 195 200 220 240Other operating revenue 690 967 1,085 1,240 1,390Non-interest income 1,032 1,704 1,870 2,095 2,295Operating income 2,808 3,591 3,940 4,305 4,685Depreciation (78) (86) (90) (95) (100)Amortisation - - - - - Operating expenses (1,191) (1,416) (1,520) (1,610) (1,700)Employee share expense - - - - - Op. profit before provisions 1,539 2,089 2,330 2,600 2,885Provisions for bad debt (416) (712) (470) (330) (350)Other provision charges - - - - - Operating profit 1,123 1,377 1,860 2,270 2,535Other non-operating incomeAssociates & JCEs (0) (1) 2 2 2Pre-tax profit 1,123 1,377 1,862 2,272 2,537Income tax (339) (334) (484) (591) (660)Net profit after tax 783 1,043 1,378 1,681 1,877Minority interests (17) (34) (22) (24) (26)Other items - - - - -

Preferred dividends - - - - - Normalised NPAT 766 1,009 1,356 1,658 1,851Extraordinary items 95 0 0 0 0Reported NPAT 861 1,009 1,356 1,658 1,851Dividends (163) (283) (538) (625) (680)Transfer to reserves 698 725 818 1,033 1,171


Growth (%)Net interest income 6.4 6.2 9.7 6.8 8.1 Non-interest income (28.3) 65.2 9.7 12.0 9.5 Non-interest expenses 3.6 18.9 7.4 5.9 5.6 Pre-provision earnings (18.4) 35.7 11.5 11.6 11.0 Net profit 6.1 31.7 34.5 22.2 11.7 Normalised EPS (7.8) 19.0 34.5 22.2 11.7 Normalised FDEPS 6.1 27.5 34.5 22.2 11.7 Source: Nomura estimates

AMMB Holdings Julian Chua


Loan growth of 10%



Cash and equivalents 17,187 11,627 11,000 12,000 12,000Inter-bank lending 46 1,832 2,000 2,000 2,000Deposits with central bank 518 168 217 235 255Total securities 8,823 11,387 12,200 14,000 16,000Other interest earning assets - - - - - Gross loans 58,769 66,283 73,000 80,000 87,000Less provisions (1,821) (1,857) (2,359) (2,525) (2,695)Net loans 56,948 64,426 70,642 77,475 84,305Long-term investments 2 1 2 2 2Fixed assets 235 236 236 236 236Goodwill 1,808 1,825 1,808 1,808 1,787Other intangible assets - - - - - Other non IEAs 4,327 4,978 7,036 6,424 7,242Total assets 89,893 96,480 105,140 114,180 123,827Customer deposits 64,132 68,874 75,000 83,000 91,000Bank deposits, CDs, debentures 6,135 4,315 4,500 4,000 4,000Other interest bearing liabilities 6,481 7,185 7,785 7,785 7,785Total interest bearing liabilities 76,748 80,374 87,285 94,785 102,785Non interest bearing liabilities 5,234 6,262 6,930 7,330 7,730Total liabilities 81,981 86,636 94,215 102,115 110,515Minority interest 175 206 215 235 255Common stock 2,723 3,014 3,014 3,014 3,014Preferred stockRetained earnings 1,823 2,557 3,630 4,749 5,976Proposed dividends - - - - -

Other equity 3,190 4,067 4,067 4,067 4,067Shareholders' equity 7,736 9,638 10,711 11,830 13,057

Total liabilities and equity 89,893 96,480 105,140 114,180 123,827Non-performing assets (RM) 2,426 1,866 2,190 2,240 2,436



Growth (%)Loan growth 8.3 13.1 9.6 9.7 8.8 Interest earning assets 1.4 17.3 9.3 10.2 9.4 Interest bearing liabilities 8.7 4.7 8.6 8.6 8.4 Asset growth 8.1 7.3 9.0 8.6 8.4 Deposit growth 15.0 7.4 8.9 10.7 9.6




Axiata Group Berhad AXIATA MK

TELECOMS | MALAYSIA

B Roshan Raj +65 6433 6961 [email protected]

Sachin Gupta, CFA +65 6433 6968 [email protected]

Pankaj Suri (Associate)

Consistent execution to continue Data growth remains a key for XL and Celcom

XL’s strong execution in FY10 is likely to continue in FY11F and we see another 13-15% growth in revenue and EBITDA with scope for upside surprises. Data is already a key revenue contributor – 41% of total revenue versus 38% in FY08 and we expect it to drive the medium-term growth trend at XL. Barring a drastic pick-up in cellular competition, we see limited risks to XL’s operational outlook.

Celcom is likely to increase its visibility in the Smartphone segment, where both Maxis and Digi have so far been more active. Increasing broadband coverage beyond current 70-75% levels and more aggressive broadband pricing appear likely – drive broadband growth and offset competition from WiMAX operators.

Cost management will be a key focus area across the group and could be a driver for possible margin surprises ahead, in our view. We expect Celcom to progress on executing its network sharing plans with Digi. In our opinion, XL could possibly continue to drive revenue growth ahead of expenses – further margin uplift, and margins at other subsidiaries could hold stable.

Limited M&A initiatives, near-term

We believe disposal of smaller assets is likely to be explored over the next 12-18 months. However, a material M&A initiative may not unfold in the near term. As such, we see limited cash flow risks over the medium term and see potential upside to our 4-5% yield forecasts.

Axiata remains our key regional pick

At 13x FY11F PE, Axiata’s valuation remains attractive compared to 13-14x for regional peers. It remains our key regional telco pick.





Norm. EPS growth (%) 226.4 57.6 16.8 8.9

Norm. P/E (x) 23.6 14.9 12.8 11.7

EV/EBITDA (x) 9.5 6.1 5.4 4.7

Price/book (x) 2.1 1.8 1.7 1.6

Dividend yield (%) 0.0 0.0 3.5 5.1

ROE (%) 11.2 15.0 13.9 14.1

Net debt/equity (%) 56.7 25.2 14.0 3.9

Earnings revisions

Prev ious norm. net profit 2,605 3,044 3,315


Prev ious norm. EPS (RM) 0.31 0.36 0.39



1m 3m 6m

3.4 1.3 23.3

1.4 0.5 29.3

5.1 (3.4) 6.6

Hard


12,344

31.7

52-week range (RM)


Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

4.61/3.01

Employees Provident Fund Board

Stock borrowability

15.2


Khazanah Nasional Berhad 44.5

18.16

2.8

3.3

3.8

4.3

4.8

De

c09

Jan

10

Feb

10

Ma

r10

Ap

r10

Ma

y10

Jun

10

Jul1

0

Aug

10

Se

p10

Oc

t10

No

v10

90

100

110

120

130

140

Price






Nomura vs consensus Our above-consensus price target is driven by the expectation of continued growth at Celcom and XL, and easing investment risks.

Maintained

BUY

N O M U R A S I N G A P O R E L I M I T E D

Action For FY11F, we continue to see growth in Axiata’s earnings, led by: 1) solid revenue

and earnings growth at XL; 2) potential upside to Celcom’s data growth, as it gets more active with Smartphones and broadband; and 3) possible upside surprise on margins, driven by continued cost saving initiatives. Axiata’s 13% average earnings growth over FY11F-12F will be one of the highest in regional telcos, according to our estimates. We also see upside bias to our 4-5% dividend yield forecast. BUY.

Catalysts Continued operational strength in domestic and overseas businesses remains a

potential catalyst. FY10F dividend timing could positively surprise.

Anchor themes

Celcom is likely to provide a consistent cash flow stream; XL to provide the revenue / earnings growth appeal; trends at subsidiaries, associates can improve.

Axiata Group Berhad B Roshan Raj





Revenue 11,348 13,105 15,638 17,266 18,644Cost of goods sold (3,140) (3,538) (3,791) (4,215) (4,575)Gross profit 8,207 9,567 11,847 13,052 14,069SG&A (6,190) (7,270) (7,652) (8,343) (9,019)Employee share expense (29) 918 400 200 200Operating profit 1,989 3,214 4,595 4,909 5,250

EBITDA 4,356 5,157 7,202 7,841 8,419Depreciation (2,319) (2,860) (3,007) (3,132) (3,369)Amortisation (48) 918 400 200 200EBIT 1,989 3,214 4,595 4,909 5,250Net interest expense (1,015) (649) (560) (411) (320)Associates & JCEs (59) 101 141 230 270Other income - - 173 - - Earnings before tax 914 2,666 4,349 4,728 5,200Income tax (435) (910) (1,044) (1,182) (1,300)Net profit after tax 480 1,756 3,305 3,546 3,900Minority interests 27 (103) (366) (502) (585)Other items - - (335) - - Preferred dividendsNormalised NPAT 506 1,653 2,605 3,044 3,315Extraordinary items - - 335 - - Reported NPAT 506 1,653 2,940 3,044 3,315

Dividends - - - (1,370) (1,989)Transfer to reserves 506 1,653 2,940 1,674 1,326

Valuation and ratio analysisFD normalised P/E (x) 76.9 23.6 14.9 12.8 11.7 FD normalised P/E at price target (x) 98.4 30.1 19.1 16.4 15.0 Reported P/E (x) 76.9 23.6 13.2 12.8 11.7 Dividend yield (%) - - - 3.5 5.1 Price/cashflow (x) 15.7 8.2 6.0 5.7 5.3 Price/book (x) 3.5 2.1 1.8 1.7 1.6 EV/EBITDA (x) 12.8 9.5 6.1 5.4 4.7 EV/EBIT (x) 28.0 15.3 9.6 8.6 7.6 Gross margin (%) 72.3 73.0 75.8 75.6 75.5 EBITDA margin (%) 38.4 39.4 46.1 45.4 45.2 EBIT margin (%) 17.5 24.5 29.4 28.4 28.2 Net margin (%) 4.5 12.6 18.8 17.6 17.8 Effective tax rate (%) 47.5 34.1 24.0 25.0 25.0 Dividend payout (%) - - - 45.0 60.0 Capex to sales (%) 46.9 25.1 23.0 20.0 17.0 Capex to depreciation (x) 2.3 1.2 1.2 1.1 0.9

ROE (%) 4.8 11.2 15.0 13.9 14.1 ROA (pretax %) 6.8 9.6 13.6 14.7 15.6


EBIT (20.4) 61.6 43.0 6.8 6.9

Normalised EPS (70.4) 226.4 57.6 16.8 8.9 Normalised FDEPS (70.4) 226.4 57.6 16.8 8.9

Per shareReported EPS (RM) 0.06 0.20 0.35 0.36 0.39Norm EPS (RM) 0.06 0.20 0.31 0.36 0.39Fully diluted norm EPS (RM) 0.06 0.20 0.31 0.36 0.39Book value per share (RM) 1.33 2.15 2.50 2.70 2.86DPS (RM) - - - 0.16 0.24Source: Nomura est im ates

We expect a double-digit FY09-12F CAGR in revenue and EBITDA

Axiata Group Berhad B Roshan Raj


Cashflow (RMmn)


EBITDA 4,356 5,157 7,202 7,841 8,419Change in working capital 122 (195) 491 403 317Other operating cashflow (1,991) (216) (1,204) (1,393) (1,420)Cashflow from operations 2,487 4,746 6,489 6,851 7,316Capital expenditure (5,324) (3,290) (3,597) (3,453) (3,169)Free cashflow (2,837) 1,457 2,892 3,398 4,147Reduction in investments (5,914) 5,734 - - - Net acquisitions (441) (1) - - - Reduction in other LT assets (5,914) - 2,018 - - Addition in other LT liabil ities (71) 559 - - - Adjustments 5,990 (6,304) - - - Cashflow after investing acts (9,188) 1,444 4,910 3,398 4,147Cash dividends (30) 90 90 (1,280) (1,899)Equity issueDebt issue 10,477 (8,118) (1,250) (750) (750)Convertible debt issueOthers 103 5,260 - - - Cashflow from financial acts 10,551 (2,768) (1,160) (2,030) (2,649)Net cashflow 1,363 (1,325) 3,750 1,368 1,498Beginning cash 1,968 3,331 2,006 5,756 7,125Ending cash 3,330 2,006 5,756 7,125 8,623Ending net debt 16,692 10,317 5,316 3,198 950Source: Nomura est im ates



Cash & equivalents 3,331 2,006 5,756 7,125 8,623Marketable securitiesAccounts receivable 1,540 1,559 2,142 2,365 2,554Inventories 77 35 35 35 35Other current assets 129 97 97 97 97Total current assets 5,077 3,698 8,031 9,622 11,309LT investments 5,914 181 181 181 181Fixed assets 14,960 15,815 16,405 16,726 16,527GoodwillOther intangible assets 8,326 8,563 8,563 8,563 8,563Other LT assets 3,075 8,887 7,094 7,234 7,414Total assets 37,352 37,144 40,274 42,326 43,993Short-term debt 9,477 2,149 1,899 1,649 1,399Accounts payable 4,538 4,263 5,337 5,963 6,469Other current liabilities 195 221 221 221 221Total current liabilities 14,211 6,634 7,458 7,834 8,090Long-term debt 10,546 10,173 9,173 8,673 8,173Convertible debtOther LT liabilities 898 1,457 1,457 1,457 1,457Total liabilities 25,655 18,264 18,088 17,964 17,720Minority interest 481 696 1,062 1,564 2,150Preferred stockCommon stock 3,753 8,445 8,445 8,445 8,445Retained earnings 7,463 9,739 12,679 14,353 15,679Proposed dividends

Other equity and reservesTotal shareholders' equity 11,217 18,184 21,124 22,798 24,124


Liquidity (x)



Net debt/equity (%) 148.8 56.7 25.2 14.0 3.9

Activity (days)Days receivable 39.4 43.2 43.2 47.6 48.3 Days inventory 8.9 5.8 3.4 3.1 2.8 Days payable 494.5 454.0 462.1 489.3 497.3 Cash cycle (446.2) (405.1) (415.5) (438.6) (446.2) Source: Nomura est im ates


British American Tobacco (M) ROTH MK

CONSUMER RELATED | MALAYSIA

Ken Arieff Wong +60 3 2027 6895 [email protected]

Sector fundamentals weak Continue to expect further industry contraction

We like BAT for its strong management, ability to execute and decent dividend yield (5-6% historically). However, we think that poor industry fundamentals make it hard to justify the recent run-up in valuations (close to 19x P/E in October). Total industry volumes have been falling for six consecutive years (as much as 10.7% in 2009) – mainly on higher selling prices (annual excise duty hikes by the government) and consistently high illicit trade. We continue to expect a contraction in industry volumes (-1.5% for 2010F and -3% for 2011F), and remain Bearish on the tobacco sector.

Recent surprise excise duty hike doesn’t help

The Deputy Finance Minister on 4 October confirmed an excise duty hike for tobacco which took most by surprise. The 3sen per stick increase (to 22sen in excise duties per stick) we believe is higher than what most would have hoped (given the relatively tame 1sen increase last year). This we believe will continue to drive down industry volumes and promote illicit trade (due to higher cigarette prices). The earnings impact should, however, be relatively muted given that the excise duty hike will be passed through, although we note that the company has taken a smaller margin increase than usual (negative for earnings).

Maintain REDUCE – valuation not compelling

Valuation of 17.6x FY11F P/E (+0.7SD) and a low dividend yield of 5.4% versus historical yield (below its -1SD of 5.5%) are difficult to justify in light of the weak industry fundamentals (our outlook for industry volume contraction and illicit trade continuing) and the lower margins post the small-pack ban (June 2010) still weighing on the stock. The stock reached a peak of RM49.94 in October, up from its recent trough of RM42 in May (+16.7%, but underperforming the index by 1.8%). The stock has since retreated (underperforming the index by 14%), but we would need it to pull back further before we would recommend holding the company for its dividend yield.





Norm. EPS growth (%) (9.0) (1.6) (1.6) (1.0)

Norm. P/E (x) 17.1 17.4 17.6 17.8

EV/EBITDA (x) 11.4 12.0 12.1 12.1

Price/book (x) 28.7 19.3 18.1 17.3

Dividend yield (%) 5.3 5.3 5.4 5.3

ROE (%) 176.5 132.9 105.9 99.5

Net debt/equity (%) 109.6 65.4 53.8 44.4

Earnings revisions






1m 3m 6m

(7.7) (2.9) 0.2

(9.4) (3.7) 5.1

(5.8) (7.6) (17.6)

Hard


52-week range (RM)


Skim ASB


6.3


British Amer ican Tobacco BV 50.0

Absolute (RM)

Absolute (US$)

Relative to Index



50.0

49.94/41.60

1.41

40

42

44

46

48

50

52

De

c09

Jan1

0

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Se

p10

Oct

10

No

v10

80

85

90

95

100

105

Price



Price target RM42.00(set on 5 Oct 10)

Upside/downside -4.9%Difference from consensus -1.5%

FY11F net profit (RMmn) 715Difference from consensus -2.5%Source: Nomura

Nomura vs consensus We are largely in agreement with the street’s negative view on the stock, although our earnings estimates are lower on more conservative margin estimates.

Maintained

REDUCE


Action Although we like BAT Malaysia as a company, we think the poor fundamentals of

the Malaysian tobacco industry make an unappealing investment case. Industry volumes have been contracting for six consecutive years, and we expect this trend to continue on annual strong excise duty hikes (making cigarettes more expensive for consumers) and the enduring problem of illicit trade (e.g., sale of unlicensed competing cigarettes). Maintain REDUCE rating on unappealing valuation.

Catalysts Weaker-than-expected total inventory volumes, coupled with the full impact of the

small-pack ban (lower margins) on earnings are negative catalysts.

Anchor themes

Continued contraction of the legal tobacco industry volumes, weaker margins following the small-pack ban, and stiff competition for a shrinking pie, remain key negative themes for the industry.

British American Tobacco (M) Ken Arieff Wong


Contraction in sales caused by lower-than-expected price hikes coupled with our assumptions of tobacco industry sales volume contraction




Revenue 4,135 3,923 3,963 4,087 4,046Cost of goods sold (2,465) (2,379) (2,483) (2,617) (2,591)Gross profit 1,670 1,544 1,480 1,470 1,455SG&A (544) (473) (476) (486) (483)Employee share expenseOperating profit 1,126 1,072 1,004 984 972

EBITDA 1,200 1,152 1,090 1,076 1,070Depreciation (74) (80) (86) (92) (98)Amortisation - - - - - EBIT 1,126 1,072 1,004 984 972Net interest expense (21) (22) (35) (30) (28)Associates & JCEs - - - - - Other income (24) (44) - - - Earnings before tax 1,081 1,005 969 954 944Income tax (269) (259) (242) (238) (236)Net profit after tax 812 747 727 715 708Minority interests - - - - - Other items - (8) - - - Preferred dividends - - - - - Normalised NPAT 812 739 727 715 708Extraordinary items - 8 - - - Reported NPAT 812 747 727 715 708

Dividends (757) (674) (669) (680) (673)Transfer to reserves 55 73 58 36 35

Valuation and ratio analysisFD normalised P/E (x) 15.5 17.1 17.4 17.6 17.8 FD normalised P/E at price target (x) 14.8 16.2 16.5 16.8 16.9 Reported P/E (x) 15.5 16.9 17.4 17.6 17.8 Dividend yield (%) 6.0 5.3 5.3 5.4 5.3 Price/cashflow (x) 14.7 13.6 19.9 15.8 15.8 Price/book (x) 31.0 28.7 19.3 18.1 17.3 EV/EBITDA (x) 11.0 11.4 12.0 12.1 12.1 EV/EBIT (x) 11.7 12.2 13.0 13.2 13.3 Gross margin (%) 40.4 39.4 37.3 36.0 36.0 EBITDA margin (%) 29.0 29.4 27.5 26.3 26.5 EBIT margin (%) 27.2 27.3 25.3 24.1 24.0 Net margin (%) 19.6 19.0 18.3 17.5 17.5 Effective tax rate (%) 24.9 25.7 25.0 25.0 25.0 Dividend payout (%) 93.2 90.2 92.0 95.0 95.0 Capex to sales (%) 2.5 2.7 1.8 1.7 1.7 Capex to depreciation (x) 1.4 1.3 0.8 0.8 0.7

ROE (%) 215.7 176.5 132.9 105.9 99.5 ROA (pretax %) 80.3 79.3 74.1 68.4 68.1

Growth (%)Revenue 7.9 (5.1) 1.0 3.1 (1.0) EBITDA 5.0 (4.0) (5.4) (1.3) (0.5)

EBIT 5.4 (4.8) (6.3) (2.0) (1.2)

Normalised EPS 10.9 (9.0) (1.6) (1.6) (1.0) Normalised FDEPS 10.9 (9.0) (1.6) (1.6) (1.0)

Per shareReported EPS (RM) 2.84 2.62 2.55 2.51 2.48Norm EPS (RM) 2.84 2.59 2.55 2.51 2.48Fully diluted norm EPS (RM) 2.84 2.59 2.55 2.51 2.48Book value per share (RM) 1.42 1.54 2.29 2.44 2.55DPS (RM) 2.65 2.36 2.34 2.38 2.36Source: Nomura estimates

British American Tobacco (M) Ken Arieff Wong


Cashflow (RMmn)


EBITDA 1,200 1,152 1,090 1,076 1,070Change in working capital 36 72 (171) (11) (8)Other operating cashflow (379) (298) (285) (268) (264)Cashflow from operations 856 926 634 797 798Capital expenditure (102) (107) (70) (70) (70)Free cashflow 755 819 564 727 728Reduction in investments - - - - - Net acquisitions - - - - - Reduction in other LT assets - - - - - Addition in other LT liabilities (15) 5 0 1 (1)AdjustmentsCashflow after investing acts 740 823 564 728 727Cash dividends (751) (714) (511) (674) (676)Equity issue - - - - - Debt issue - - - - - Convertible debt issue - - - - - Others - - - - - Cashflow from financial acts (751) (714) (511) (674) (676)Net cashflow (11) 109 53 54 51Beginning cash 71 59 169 222 276Ending cash 59 169 222 276 327Ending net debt 591 481 428 374 323Source: Nomura estimates



Cash & equivalents 59 169 222 276 327Marketable securitiesAccounts receivable 112 - 109 112 111Inventories 225 214 272 287 284Other current assets 200 169 173 182 191Total current assets 596 552 775 856 912LT investmentsFixed assets 474 459 451 428 400Goodwill 412 412 412 412 412Other intangible assets 5 19 19 19 19Other LT assetsTotal assets 1,487 1,442 1,657 1,715 1,743Short-term debt 250 - - - - Accounts payable 178 - 180 189 187Other current liabilit ies 204 300 120 126 125Total current liabilities 632 300 299 315 312Long-term debt 400 650 650 650 650Convertible debtOther LT liabilities 48 53 53 54 53Total liabilities 1,081 1,003 1,002 1,019 1,015Minority interest - - - - - Preferred stock - - - - - Common stock 143 143 143 143 143Retained earnings 264 297 512 553 585Proposed dividends - - - - -

Other equity and reserves - - - - - Total shareholders' equity 407 439 655 696 728


Liquidity (x)



Net debt/equity (%) 145.2 109.6 65.4 53.8 44.4

Activity (days)Days receivable 9.7 5.2 5.0 9.8 10.1 Days inventory 34.8 33.7 35.7 39.0 40.3 Days payable 23.1 13.7 13.2 25.7 26.6 Cash cycle 21.4 25.2 27.5 23.1 23.8 Source: Nomura estimates

Could see another special dividend if cash balance continues to build up in the coming years


CIMB Group Holdings CIMB MK

FINANCIALS | MALAYSIA


2011 = 2007 + the 90s? Capital markets entering a sweet spot

Amid ample liquidity, the Malaysian asset reflation theme is manifesting itself in strong property demand, while the stock market is near historical peaks. Moreover, there are several high-profile deals on the table, such as the privatisation of Plus Expressways and the acquisition of Sunrise by UEM Land. Add to this mix the ongoing divestment of the government's stakes in government-linked entities as well as firming commodity prices, and we believe the capital markets will continue to excite investors and corporates next year. This scenario reminds us of the liquidity-led rally of 2007 and the property/stock market boom of the mid-1990s.

CIMB recorded consensus-beating results

CIMB's 9M10 net profit was 74% of consensus full-year forecast. Given the 4Q10 is likely to be stronger with the completion of the two mega IPOs (AIA HK and Petronas Chemicals), the full year results are likely to come in ahead of expectations. Management has retained its FY10F ROE guidance of 16% but highlighted a promising 4Q following its best quarter of IPOs ever. Special dividend of RM1bn declared which we believe was due to the minimal impact from implementing Basel II and greater clarity over Basel III, and this is positive for the stock

We expect decent FY11 loan growth albeit with NIM squeeze

We expect GFY10F loan growth of 14% for the group, led by a strong 23% y-y growth at CIMB Niaga and a 15% expansion in domestic consumer loans. Corporate loans, however, are expected to lag at 8% y-y. The key drivers for FY11F growth of 13% will still be Indonesia and domestic consumers, particularly the mortgage segment. However, we factor in a 6bps decline in NIMs owing to stiff competition in these same growth segments. We expect asset quality to be stable.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FPPOP 4,952 5,809 6,889 7,530




Norm. EPS growth (%) 45.7 26.4 24.5 10.4

Norm. P/E (x) 21.1 16.8 13.5 12.2

Price/adj. book (x) 2.88 2.43 2.11 1.85

Price/book (x) 2.88 2.43 2.11 1.85

Dividend yield (%) 1.6 1.1 1.5 1.6

ROE (%) 15.0 16.3 17.0 16.4

ROA (%) 1.26 1 .46 1.62 1.62

Earnings revisions






1m 3m 6m

0.2 7.4 23.6

(1.6) 6.6 29.6

2.0 2.7 7.0

Hard


52-week range (RM)


EPF


14.2


Khazanah 29.0

Absolute (RM)

Absolute (US$)

Relative to Index



55.0

8.56/6.11

27.10

5.8

6.3

6.8

7.3

7.8

8.3

8.8

Dec

09

Jan

10

Feb1

0

Mar

10

Apr

10

Ma

y10

Jun1

0

Jul1

0

Au

g10

Se

p10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus Consensus appears divided on the growth outlook for the stock. We are more optimistic on domestic capital markets prospects.

Maintained

BUY


Action Capital markets in 2011 are expected to be buoyant against the backdrop of

positive GDP growth and ample liquidity in Malaysia/South East Asia. Group asset quality and growth momentum have been stronger than anticipated. While P/BV at 2.4x has moved above the +1 standard deviation level, we believe the stock could well trend closer to its post-crisis peak of 2.9x given the strong capital markets.

Catalysts Stronger-than-expected capital markets revenue and asset quality should continue

to underpin CIMB’s stock performance.

Anchor themes

Liberal US monetary policy coupled with the commodities boom form positive macro conditions for Malaysian economic growth and capital markets. The Malaysia market has lagged some of its Asean peers such as the Philippines, Indonesia and Thailand.

CIMB Group Holdings Julian Chua


3-year non-interest income CAGR of 10% pa




Interest income 9,590 10,540 12,200 13,730 15,300Interest expense (4,930) (4,471) (5,290) (5,950) (6,750)Net interest income 4,661 6,069 6,910 7,780 8,550Net fees and commissions 1,813 2,150 2,350 2,600 2,700Trading related profits 317 730 600 750 850Other operating revenue 949 1,721 2,370 2,750 3,050Non-interest income 3,080 4,601 5,320 6,100 6,600Operating income 7,741 10,670 12,230 13,880 15,150Depreciation (216) (320) (350) (370) (420)Amortisation 0 0 0 0 0Operating expenses (3,906) (5,398) (6,071) (6,621) (7,200)Employee share expenseOp. profit before provisions 3,619 4,952 5,809 6,889 7,530Provisions for bad debt (861) (1,174) (750) (750) (750)Other provision charges - - - - - Operating profit 2,758 3,778 5,059 6,139 6,780Other non-operating income - - - - - Associates & JCEs (42) 34 25 30 35Pre-tax profit 2,716 3,812 5,084 6,169 6,815Income tax (703) (765) (1,170) (1,419) (1,568)Net profit after tax 2,013 3,047 3,914 4,750 5,247Minority interests (61) (240) (180) (100) (115)Other items

Preferred dividendsNormalised NPAT 1,952 2,807 3,734 4,650 5,132Extraordinary items 0 0 0 0 0Reported NPAT 1,952 2,807 3,734 4,650 5,132Dividends (662) (927) (688) (920) (1,020)Transfer to reserves 1,290 1,880 3,047 3,730 4,112


Growth (%)Net interest income 6.0 30.2 13.9 12.6 9.9 Non-interest income (21.1) 49.4 15.6 14.7 8.2 Non-interest expenses (3.1) 38.2 12.5 9.1 8.7 Pre-provision earnings (11.2) 36.8 17.3 18.6 9.3 Net profit (6.3) 43.8 33.0 24.5 10.4 Normalised EPS (11.7) 45.7 26.4 24.5 10.4 Normalised FDEPS (11.7) 45.3 26.1 24.5 10.4 Source: Nomura estimates

CIMB Group Holdings Julian Chua


Falling charge-off rates reflect stronger asset quality



Cash and equivalents 24,409 28,729 25,194 26,194 30,000Inter-bank lending 4,063 2,383 13,335 13,335 13,335Deposits with central bank 2,736 844 1,506 1,682 1,844Total securities 37,264 44,811 48,000 53,100 58,100Other interest earning assets - - - - - Gross loans 122,537 148,905 170,000 192,000 215,000Less provisions (5,155) (6,687) (9,951) (10,445) (11,058)Net loans 117,382 142,218 160,049 181,555 203,942Long-term investments 914 649 175 175 175Fixed assets 1,820 2,126 1,274 1,274 1,274Goodwill 7,156 9,362 9,676 9,676 9,676Other intangible assets - - - - - Other non IEAs 10,992 9,316 11,645 14,773 12,591Total assets 206,736 240,438 270,854 301,765 330,937Customer deposits 153,425 178,882 208,000 235,000 260,000Bank deposits, CDs, debentures 7,119 10,132 8,201 8,201 8,201Other interest bearing liabilities 20,302 16,284 15,537 15,537 15,537Total interest bearing liabilities 180,845 205,298 231,738 258,738 283,738Non interest bearing liabilities 7,528 12,494 12,635 12,635 12,635Total liabilities 188,373 217,792 244,373 271,373 296,373Minority interest 1,098 2,102 851 900 960Common stock 3,578 3,532 7,434 7,434 7,434Preferred stock 200 200 200 200 200Retained earnings 5,234 6,832 9,355 13,317 17,529Proposed dividends - - - - -









DiGi.Com DIGI MK

TELECOMS | MALAYSIA




Relatively more opportunities Smartphones and broadband to deliver data growth

Smartphones remain critical to Digi’s appeal in the postpaid segment and we expect the company’s involvement to expand to more brands and tariff options.

In wireless broadband, Digi has made steady gains in net-adds and revenue, but we expect to see a lot more activity in FY11F. In 2Q10, Digi’s 8% broadband revenue share (within the top three operators) was an improvement from 2Q09, but still below its 25-26% cellular revenue share – potential reason to advance broadband network roll-out and provide relatively more aggressive tariffs, we believe. Given Digi’s under-geared balance sheet and strong 7% FCF yield, we believe the company is well placed to tap available opportunities in cellular and broadband segments.

Costs to be closely monitored; margins could surprise

For 9M10, despite data revenue contribution increasing 400bps to 23%, Digi was able to improve EBITDA margins by 50bps y-y to 45%. This was driven by various opex initiatives and looking ahead, we see scope for possible margin surprise. Digi could start making some progress in executing its network sharing plans with Celcom, while also exploring incremental cost reductions such as traffic, staff etc.

Conservative guidance with capital management?

Based on our current estimates, with a 130-135% total dividend payout (8% yield) in FY10, Digi's balance sheet gearing will reach the lower end of its 0.5x to 0.8x net-debt/equity target. However, moving ahead, in the absence of another capital management in FY11, its gearing could fall below target. As a result, we expect Digi to maintain its capital management initiatives over the medium term, despite a relatively more cautious tone from management. Maintain BUY.





Norm. EPS growth (%) (13.5) 15.1 3.0 2.2

Norm. P/E (x) 19.3 16.8 16.3 15.9

EV/EBITD A (x) 9.3 8.3 7.7 7.3

Price/book (x) 12.7 12.7 11.0 9.6

Dividend yield (%) 7.2 6.0 4.9 5.0

ROE (%) 58.5 75.7 72.3 64.5

Net debt/equity (%) 32.3 4.8 net cash net cash

Earnings revisions




Source: Company, Nom ura estim ates


1m 3m 6m

(3.0) 0.6 8.4

(4.8) (0.1) 13.7

(1.2) (4.0) (9.0)

Hard


6,118

32.2

52-week range (RM)


Absolute (RM)

Absolute (US$)

Relat ive to Index

Estimated free f loat (%)

Market cap (U S$mn)

25.60/21.00

EPF

Stock borrowability

17.2


TELENOR SA 49.0

2.82

20

21

22

23

24

25

26

De

c09

Jan

10

Feb

10

Ma

r10

Ap

r10

Ma

y10

Jun1

0

Jul1

0

Aug

10

Se

p10

Oct

10

Nov

10

80

85

90

95

100

105

110

Price





FY11F net profit (RMmn) 1,186Difference from consensus -1.5%Source: Nomura

Nomura vs consensus Our price target is higher than consensus, as we see limited downside risks of higher capex.

Maintained

BUY


Action For FY11F, we expect Digi to focus on three key areas: 1) Smartphones, which

have already led postpaid growth and delivered positive surprises in 9M10, 2) broadband – could see a lot more activity, as net-adds/revenue remain below peers and there is a rising threat from WiMAX operators and 3) incremental cost reduction opportunities. These initiatives could deliver positive surprises to our revenue and earnings forecasts. Also, capital management remains a possibility.

Catalysts Capital management, operational improvement in cellular and broadband metrics

stand as potential catalysts.

Anchor themes

The focus for Malaysian telcos is on driving data growth, both on handsets and WBB. Broadband penetration remains low providing solid growth opportunity.

DiGi.Com B Roshan Raj





Revenue 4,827 4,919 5,348 5,642 5,897Cost of goods sold (1,333) (1,454) (1,648) (1,758) (1,840)Gross profit 3,494 3,465 3,700 3,884 4,057SG&A (1,958) (2,071) (2,134) (2,289) (2,444)Employee share expense - - - - - Operating profit 1,536 1,393 1,566 1,595 1,613

EBITDA 2,172 2,125 2,344 2,451 2,547Depreciation (636) (731) (779) (856) (935)Amortisation - - - - - EBIT 1,536 1,393 1,566 1,595 1,613Net interest expense 12 (27) (30) (13) 4Associates & JCEs - - - - - Other income - - - - - Earnings before tax 1,548 1,366 1,536 1,581 1,617Income tax (406) (366) (384) (395) (404)Net profit after tax 1,142 1,000 1,152 1,186 1,213Minority interests - - - - - Other items - - - - - Preferred dividends - - - - - Normalised NPAT 1,142 1,000 1,152 1,186 1,213Extraordinary items - - - - - Reported NPAT 1,142 1,000 1,152 1,186 1,213

Dividends (1,444) (1,384) (1,152) (949) (970)Transfer to reserves (302) (384) - 237 243


ROE (%) 65.7 58.5 75.7 72.3 64.5 ROA (pretax %) 40.3 32.3 36.5 37.4 38.6

Growth (%)Revenue 10.3 1.9 8.7 5.5 4.5 EBITDA 3.0 (2.2) 10.4 4.5 3.9

EBIT 7.6 (9.3) 12.4 1.9 1.1

Normalised EPS 5.0 (13.5) 15.1 3.0 2.2 Normalised FDEPS 5.0 (13.5) 15.1 3.0 2.2


Expect 9% revenue growth for FY10F

DiGi.Com B Roshan Raj


Cashflow (RMmn)


EBITDA 2,172 2,125 2,344 2,451 2,547Change in working capital 266 (89) 365 94 69Other operating cashflow (406) (381) (433) (445) (453)Cashflow from operations 2,032 1,655 2,277 2,100 2,163Capital expenditure (893) (718) (726) (782) (790)Free cashflow 1,139 937 1,551 1,318 1,373Reduction in investments (10) (0) - - - Net acquisitionsReduction in other LT assetsAddition in other LT liabili tiesAdjustments 14 15 19 36 53Cashflow after investing acts 1,143 951 1,570 1,354 1,426Cash dividends (1,501) (1,376) (1,152) (949) (970)Equity issue - - - - - Debt issue 98 523 - - - Convertible debt issue - - - - - Others 14 - - - - Cashflow from financial acts (1,389) (853) (1,152) (949) (970)Net cashflow (246) 99 418 405 456Beginning cash 577 331 430 849 1,253Ending cash 331 430 849 1,253 1,710Ending net debt 67 492 73 (332) (788)Source: Nomura estimates



Cash & equivalents 331 430 849 1,253 1,710Marketable securities 10 11 11 11 11Accounts receivable 421 420 457 483 505Inventories 17 13 13 13 13Other current assets - - - - - Total current assets 779 874 1,329 1,760 2,238LT investments - - - - - Fixed assets 2,870 2,896 2,913 2,908 2,833Goodwill - - - - - Other intangible assets 994 950 881 811 742Other LT assets 12 12 12 12 12Total assets 4,656 4,732 5,134 5,491 5,825Short-term debt 298 150 150 150 150Accounts payable 1,494 1,429 1,831 1,951 2,042Other current liabilities 476 447 447 447 447Total current liabilities 2,267 2,026 2,428 2,547 2,639Long-term debt 100 772 772 772 772Convertible debt - - - - - Other LT liabilities 392 413 413 413 413Total liabilities 2,759 3,211 3,613 3,733 3,824Minority interest - - - - - Preferred stock - - - - - Common stock 78 78 78 78 78Retained earnings 1,819 1,444 1,444 1,681 1,923Proposed dividends - - - - -

Other equity and reserves - - - - - Total shareholders' equity 1,897 1,521 1,521 1,759 2,001


Liquidity (x)

Current ratio 0.34 0.43 0.55 0.69 0.85 Interest cover na 51.6 52.3 119.2 na

LeverageNet debt/EBITDA (x) 0.03 0.23 0.03 net cash net cash

Net debt/equity (%) 3.5 32.3 4.8 net cash net cash


Balance-sheet gearing remains low


Evergreen Fibreboard Bhd EVF MK

BASIC MATERIALS | MALAYSIA

Muzhafar Mukhtar +60 3 2027 6891 [email protected]


Earnings uptrend intact Asian exposure and Indonesia to support sales growth

Although MDF export prices are slowly approaching the peaks seen in 2008, sentiment among buyers is still weak and furniture inventories are relatively low, leaving room for upside. We think EVF’s 85% revenue exposure to Asia will continue to support high utilisation rates (85-90%) and its ability to raise export prices to counter the weakening USD (albeit with a two-three months delay). Full contribution from Indonesia (9%) capacity will likely support sales volume growth.

We expect cost pressures to remain in check

Average wood costs will likely remain supported by rubber prices but are only 25% of total costs. Increasing oil prices will likely cause resin production costs (20% of total costs) to rise, but a stronger ringgit should mitigate this. Management is confident about passing on raw material costs, based on recent feedback from customers. Our shipping team expects overall freight rates to decline in 2011, due to stronger supply growth.

Low net gearing accommodative of positive catalysts

We expect net debt/equity to drop 35% to 0.28x by the end of 2010, and for EVF to reach a net cash position by early 2012F. With no major capex required, EVF may use its stronger balance sheet for acquisitions (land or plants) or higher dividends in 2011-2012F.

Still appealing at 5x FY2011F P/E

The stock looks attractive at 5.2x FY2011F P/E, versus its historical mean 12-month forward consensus P/E of 7.2x. Compared with its closest peer Vanachai (VNG TB) (2011F P/E of 7x with EPS growth of 7%), it looks relatively undervalued.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FRevenue 772 966 1,057 1,148

Reported net profit 85.0 123.8 139.2 149.4

Normalised net profit 85.0 123.8 139.2 149.4


Norm. EPS growth (%) 10.7 45.7 12.5 7.3

Norm. P/E (x) 8.2 5.6 5.0 4.6

EV/EBITDA (x) 7.0 4.3 3.2 2.6

Price/book (x) 1.0 0.9 0.8 0.7

Dividend yield (%) 0.0 7.4 8.1 8.7

ROE (%) 12.9 16.7 17.0 16.5

Net debt/equity (%) 42.6 27.9 9.5 net cash

Earnings revisions

Previous norm. net profit 123.8 139.2 149.4





1m 3m 6m

(8.8) (14.6) (5.6)

(10.5) (15.2) (1.0)

(6.9) (19.1) (23.6)

Hard


52-week range (RM)


EPF


5.2


Kuo Fami ly 45.8

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn) 219.6

54.2

1.76/1.26

0.28

1.2

1.3

1.4

1.5

1.6

1.7

1.8

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

70

80

90

100

110

120

130

Price






Nomura vs consensus We are more optimistic than consensus on Evergreen’s sales and margin recovery.

Maintained

BUY


Action We expect EVF’s top-line growth in 2011F to be supported by higher volumes

(boosted by the Indonesian plant) and ability to pass on both higher raw material prices and USD weakening (due to its 85% sales exposure to Asia). A stronger balance sheet in 2011 should make catalytic asset acquisitions or dividend increases more feasible. Asia’s third largest MDF producer looks attractive at 5x 2011F P/E. Reiterate BUY.

Catalysts Improving sales and margins, acquisition of land for raw material supply, expansion

via acquisitions.

Anchor themes

Medium density fibreboard is the fastest-growing primary wood product. We expect demand to improve the most in those regions emerging fastest from the recession.

Evergreen Fibreboard Bhd Muzhafar Mukhtar



EPS growth to moderate after rebound in 2010F, but still solid



Revenue 731 772 966 1,057 1,148Cost of goods sold (533) (562) (670) (734) (799)Gross profit 198 209 296 323 350SG&A (127) (129) (151) (149) (159)Employee share expense - - - - - Operating profit 71 81 145 174 190

EBITDA 111 140 206 236 253Depreciation (40) (59) (60) (61) (63)Amortisation (0) (1) (0) (0) (0)EBIT 71 81 145 174 190Net interest expense (9) (16) (10) (7) (2)Associates & JCEs 2 2 3 4 4Other income 0 14 - - - Earnings before tax 64 81 139 172 193Income tax 5 0 (14) (22) (29)Net profit after tax 69 81 125 150 164Minority interests 8 4 (1) (10) (15)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 77 85 124 139 149Extraordinary items - - - - - Reported NPAT 77 85 124 139 149

Dividends (22) - (51) (56) (60)Transfer to reserves 55 85 72 83 89

Valuation and ratio analysisFD normalised P/E (x) 9.0 8.2 5.6 5.0 4.6 FD normalised P/E at price target (x) 20.0 18.0 12.4 11.0 10.3 Reported P/E (x) 9.0 8.2 5.6 5.0 4.6 Dividend yield (%) 3.1 - 7.4 8.1 8.7 Price/cashflow (x) 5.2 4.8 4.2 3.1 3.5 Price/book (x) 1.1 1.0 0.9 0.8 0.7 EV/EBITDA (x) 9.7 7.0 4.3 3.2 2.6 EV/EBIT (x) 15.0 12.0 6.1 4.3 3.4 Gross margin (%) 27.1 27.1 30.6 30.6 30.5 EBITDA margin (%) 15.2 18.2 21.3 22.3 22.1 EBIT margin (%) 9.7 10.5 15.0 16.5 16.6 Net margin (%) 10.5 11.0 12.8 13.2 13.0 Effective tax rate (%) (8.3) (0.3) 10.0 13.0 15.0 Dividend payout (%) 28.2 - 41.4 40.5 40.3 Capex to sales (%) 34.0 2.5 2.1 2.4 2.6 Capex to depreciation (x) 6.2 0.3 0.3 0.4 0.5

ROE (%) 13.4 12.9 16.7 17.0 16.5 ROA (pretax %) 7.5 7.2 12.7 15.4 16.9

Growth (%)Revenue (0.1) 5.6 25.2 9.4 8.6 EBITDA (32.8) 26.6 46.5 14.9 7.3

EBIT (48.1) 14.3 79.4 20.2 9.0


Per shareReported EPS (RM) 0.15 0.17 0.24 0.27 0.29Norm EPS (RM) 0.15 0.17 0.24 0.27 0.29Fully diluted norm EPS (RM) 0.15 0.17 0.24 0.27 0.29Book value per share (RM) 1.19 1.37 1.51 1.67 1.85DPS (RM) 0.04 - 0.10 0.11 0.12Source: Nomura estimates

Evergreen Fibreboard Bhd Muzhafar Mukhtar


Low net gearing and high interest cover implies increased ability to gear up and acquire assets

Cashflow (RMmn)


EBITDA 111 140 206 236 253Change in working capital 22 (8) (27) 9 (25)Other operating cashflow 0 11 (14) (22) (29)Cashflow from operations 133 143 164 223 200Capital expenditure (248) (19) (20) (25) (30)Free cashflow (116) 124 144 198 170Reduction in investments - - - - - Net acquisitions (161) - - - - Reduction in other LT assets (2) (2) (3) (4) (4)Addition in other LT liabilities (9) (3) - - - Adjustments 22 7 8 10 12Cashflow after investing acts (265) 126 149 204 178Cash dividends (22) - (51) (56) (60)Equity issue - - - - - Debt issue 234 (67) (97) (89) (54)Convertible debt issue - - - - - Others (12) (22) (15) (12) (9)Cashflow from financial acts 200 (90) (163) (158) (124)Net cashflow (65) 37 (14) 46 54Beginning cash 142 76 113 99 145Ending cash 76 113 99 145 198Ending net debt 393 300 217 82 (26)Source: Nomura estimates



Cash & equivalents 76 113 99 145 198Marketable securities - - - - - Accounts receivable 44 57 69 69 81Inventories 137 112 185 140 213Other current assets 33 28 48 35 54Total current assets 289 310 400 389 547LT investments - - - - - Fixed assets 903 885 845 809 776Goodwill 18 18 18 18 18Other intangible assets 15 15 14 14 14Other LT assets 21 23 26 30 34Total assets 1,246 1,251 1,303 1,260 1,390Short-term debt 255 102 94 59 59Accounts payable 56 47 76 59 88Other current liabilit ies 96 81 128 98 149Total current liabilities 407 231 298 216 296Long-term debt 215 310 221 167 113Convertible debt - - - - - Other LT liabilities 8 5 5 5 5Total liabilities 630 546 525 388 414Minority interest 6 2 3 13 28Preferred stock - - - - - Common stock 128 128 128 128 128Retained earnings 373 458 530 613 702Proposed dividends - - - - -

Other equity and reserves 110 118 118 118 118Total shareholders' equity 611 704 776 859 948


Liquidity (x)


LeverageNet debt/EBITDA (x) 3.55 2.13 1.05 0.35 net cash

Net debt/equity (%) 64.4 42.6 27.9 9.5 net cash



Gamuda GAM MK

INDUSTRIALS/ENGINEERING & CONSTRUCTION | MALAYSIA

Tanuj Shori +65 6433 6981 [email protected]

Raashi Gupta (Associate)

Running too fast for comfort It has been all about MRT, MRT and MRT

Gamuda is up 30% y-t-d (vs a 16% rise in the KLCI), spurred by excitement over the MRT project. Its inclusion in the Economic Transformation programme and subsequent news flow indicates that the Malaysian government may announce the MRT project next month with the budget. However, in our view, implementing such a massive project would still be a challenge and concerns over funding and foreign competition may evolve over a period of time.

Earnings support will come only long term

Gamuda is targeting ~RM14bn (34%) of the ~RM40bn project, with the added responsibility of project supervision. Even including MRT’s share of the pie to Gamuda, the potential addition to market cap should be only RM1.2bn, on our estimates, of which ~RM1bn has been added over the past month’s run-up in stock price. However, the earnings contribution from MRT will start only after a year or so.

Last time as well, run-up was followed by consolidation

During the double-tracking project as well, Gamuda followed a similar pattern. However, the share price consolidated after the project was awarded. Increasing liquidity helped by inclusion in the KLCI 30 index (FII holdings have not moved much over the past four months) and positive news flow may support near-term valuations, in our view.

Maintain NEUTRAL, as risk/reward remains unfavourable

Although Gamuda remains the best proxy to the Malaysian construction story, it is trading at 23x CY11F (34% higher than 1x SD) and looks expensive compared to its local and region peers. The key near-term catalyst for the stock would be MRT, new land bank and launch of its Vietnam property project. However, our earnings growth estimate of 30% in FY11F already builds in these bullish assumptions and any slip up could lead to a downward revision, in our view.

Key financials & valuations31 Jul (RMmn) FY09 FY10F FY11F FY12FRevenue 2,727 2,455 2,879 4,160




Norm. EPS growth (%) (41.2) 44.6 23.6 34.3

Norm. P/E (x) 37.9 26.2 24.0 17.9

EV/EBITDA (x) 24.3 19.5 17.5 13.1

Price/book (x) 2.3 2.3 2.1 2.0

Dividend yield (%) 1.6 1.9 2.4 2.9

ROE (%) 6.2 8.7 10.4 13.1

Net debt/equity (%) 12.2 19.2 37.2 36.2

Earnings revisions






1m 3m 6m

(4.2) 2.5 24.7

(6.0) 1.7 30.7

(2.4) (2.2) 8.1

Hard


2,360

76.3

3.98/2.58

10.03

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

7.4


Employees Provident Fund 8.9

52-week range (RM)


Generasi Setia


2.4

2.9

3.4

3.9

4.4

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80

90

100

110

120

130

Price




Upside/downside 8.0%Difference from consensus -8.1%

FY11F net profit (RMmn) 346.9Difference from consensus -10.3%Source: Nomura

Nomura vs consensus We believe MRT upside is being priced in at current levels. News flow may remain positive, but the project will have its own implementation risks, in our view.

Maintained

NEUTRAL


Action Gamuda has risen ~14% over the past five months on excitement around the MRT

project and increased liquidity following inclusion in the KLCI 30 Index. While Gamuda remains the best proxy to the Malaysian construction story, its valuation looks expensive to us (it has been trading at ~25x FY11F P/E for over a month now). However, the MRT may be approved, leading to positive news flow, which along with liquidity, may support near-term valuation. Maintain NEUTRAL.

Catalysts Positive catalysts will be news flow regarding the MRT project, and other awards in

Malaysia, India and the Middle East. On the downside, a slowdown in property momentum and delay in awards may exert pressure on stock prices.

Anchor themes

The government plans to achieve construction sector growth of 5-6% over the next two years, compared with 2-3% sector growth seen over the past few years.

Gamuda Tanuj Shori



Earnings likely to remain strong


Year-end 31 Jul FY08 FY09 FY10F FY11F FY12F

Revenue 2,404 2,727 2,455 2,879 4,160Cost of goods sold (2,106) (2,570) (2,220) (2,533) (3,657)Gross profit 298 157 235 346 503SG&AEmployee share expenseOperating profit 298 157 235 346 503

EBITDA 316 179 260 372 530Depreciation (12) (15) (18) (19) (20)Amortisation (7) (7) (7) (7) (8)EBIT 298 157 235 346 503Net interest expense (0) (18) (19) 1 (12)Associates & JCEs 173 143 154 127 142Other incomeEarnings before tax 471 282 370 474 632Income tax (132) (78) (81) (118) (158)Net profit after tax 339 204 289 355 474Minority interests (14) (10) (9) (8) (9)Other items - - - - - Preferred dividendsNormalised NPAT 325 194 281 347 466Extraordinary items - - - - - Reported NPAT 325 194 281 347 466

Dividends (370) (121) (140) (173) (210)Transfer to reserves (45) 73 140 173 256

Valuation and ratio analysisFD normalised P/E (x) 22.8 37.9 26.2 24.0 17.9 FD normalised P/E at price target (x) 24.7 41.0 28.3 25.9 19.3 Reported P/E (x) 22.2 37.8 26.1 21.1 15.7 Dividend yield (%) 5.1 1.6 1.9 2.4 2.9 Price/cashflow (x) na 12.0 20.8 na 69.4 Price/book (x) 2.4 2.3 2.3 2.1 2.0 EV/EBITDA (x) 17.2 24.3 19.5 17.5 13.1 EV/EBIT (x) 17.9 26.0 20.7 18.4 13.6 Gross margin (%) 12.4 5.8 9.6 12.0 12.1 EBITDA margin (%) 13.2 6.6 10.6 12.9 12.7 EBIT margin (%) 12.4 5.8 9.6 12.0 12.1 Net margin (%) 13.5 7.1 11.4 12.1 11.2 Effective tax rate (%) 28.0 27.6 21.8 25.0 25.0 Dividend payout (%) 113.9 62.3 50.0 50.0 45.0 Capex to sales (%) 2.4 1.8 2.0 15.6 1.2 Capex to depreciation (x) 4.7 3.3 2.8 24.2 2.6

ROE (%) 10.8 6.2 8.7 10.4 13.1 ROA (pretax %) 10.5 6.2 7.7 8.4 10.3

Growth (%)Revenue 58.5 13.5 (10.0) 17.3 44.5 EBITDA 95.8 (43.3) 44.9 43.1 42.5

EBIT 104.4 (47.1) 49.4 47.1 45.3



Gamuda Tanuj Shori


Gearing is at comfortable levels

Cashflow (RMmn)

Year-end 31 Jul FY08 FY09 FY10F FY11F FY12F

EBITDA 316 179 260 372 530Change in working capital (600) 443 202 (297) (229)Other operating cashflow (38) (11) (110) (141) (195)Cashflow from operations (321) 611 352 (67) 106Capital expenditure (57) (50) (50) (450) (50)Free cashflow (378) 561 302 (517) 56Reduction in investments 5 (81) (683) - - Net acquisitions - - - - - Reduction in other LT assets (211) 212 71 (57) (72)Addition in other LT liabilities (31) (14) 1 - - Adjustments 171 (18) 801 153 168Cashflow after investing acts (444) 661 492 (421) 152Cash dividends (378) (121) (140) (173) (210)Equity issue 89 36 (2) - - Debt issue (248) (280) 251 - - Convertible debt issue - - - - - Others 845 11 (590) (57) (1)Cashflow from financial acts 309 (353) (481) (230) (210)Net cashflow (135) 308 12 (651) (59)Beginning cash 980 846 1,154 1,166 515Ending cash 846 1,154 1,166 515 456Ending net debt 973 385 624 1,275 1,334Source: Nomura estimates


As at 31 Jul FY08 FY09 FY10F FY11F FY12F

Cash & equivalents 846 1,154 1,166 515 456Marketable securities 20 101 784 784 784Accounts receivable 1,624 1,459 1,608 1,540 2,225Inventories 110 101 80 99 144Other current assets 5 24 15 15 15Total current assets 2,605 2,839 3,652 2,953 3,624LT investments 1 1 1 1 1Fixed assets 615 691 626 1,112 1,142Goodwill - - - - - Other intangible assets 82 89 84 77 69Other LT assets 2,472 2,259 2,188 2,245 2,317Total assets 5,774 5,878 6,551 6,388 7,153Short-term debt 782 328 511 511 511Accounts payable 786 1,084 1,411 1,067 1,545Other current liabilit ies 26 15 8 7 30Total current liabilities 1,594 1,427 1,930 1,585 2,086Long-term debt 1,037 1,211 1,279 1,279 1,279Convertible debt - - - - - Other LT liabilities 46 33 34 34 34Total liabilities 2,677 2,671 3,243 2,898 3,399Minority interest 46 47 50 59 67Preferred stock - - - - - Common stock 2,005 2,009 2,026 2,026 2,026Retained earnings 915 988 1,086 1,260 1,516Proposed dividends - - - - -

Other equity and reserves 132 164 145 145 145Total shareholders' equity 3,052 3,161 3,258 3,431 3,687


Liquidity (x)

Current ratio 1.63 1.99 1.89 1.86 1.74 Interest cover 939.1 8.5 12.3 na 41.7


Net debt/equity (%) 31.9 12.2 19.2 37.2 36.2



Genting Malaysia Bhd GENM MK

GAMING, HOTELS & LEISURE | MALAYSIA


Nishit Jalan (Associate)

US$650mn EBITDA priced at 6x Resilient mass market business

Despite competition from the two newly opened casinos in Singapore, we believe GENM’s core Malaysian gaming business is intact. It chalked up a commendable 2.7% y-y growth in gaming revenue to RM1.2bn in 2Q, bringing 1H to 8.2% y-y growth. Thanks to a better luck factor, its EBITDA margin was unchanged at 39%.

EBITDA expansion in 2011F

Stripping out the effect of poor luck factor and weaker sterling against the Singapore dollar, business volume in its recently acquired UK casino business showed further improvement in 3Q earnings. We reiterate our view that a price tag of 1.2x the written-down book value of the UK assets is a decent price for GENM to gain access to the UK casino market, with over 30% market share. We see scope for positive surprises to consensus and our assumed EBITDA contribution in 2011F. Similarly, we think its new US slot machines business could spring surprises in EBITDA contribution from 2H11F.

Favourable outlook

As the novelty starts to wear off in Singapore, we think growth in visitor arrivals for GENM will pick up in 2011F. GENM at one stage had lost more customers in the southern region, but we believe the trend has stabilised. Longer term, we think affordability could be an issue for Malaysian punters, since it costs more to gamble in Singapore. Malaysia’s casino is highly correlated to GDP growth, and given the relationship between gaming revenue and GDP, we see continued upside surprises in consensus and our gaming revenue assumptions. Despite having a sustainable, growing EBITDA of US$650mn, GENM is priced at a modest-looking 6x FY11F EV/EBITDA, on our estimates.





Norm. EPS growth (%) (5.1) (1.5) 6.2 7.5

Norm. P/E (x) 14.6 14.5 13.6 12.7

EV/EBITDA (x) 7.1 6.8 6.0 5.1

Price/book (x) 1.8 1.7 1.5 1.4

Dividend yield (%) 1.7 1.9 2.0 2.1

ROE (%) 14.3 12.0 11.7 11.6

Net debt/equity (%) net cash net cash net cash net cash

Earnings revisions






1m 3m 6m

(7.7) 7.3 15.0

(9.4) 6.5 20.6

(5.8) 2.6 (2.1)

Hard


6,039

51.7

3.64/2.51

7.99

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)


Genting 48.3

52-week range (RM)



2.32.52.72.93.13.33.53.73.9

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80859095100105110115

Price






Nomura vs consensus We continue to believe GENM’s recent acquisition of the UK business will spring surprises, starting in 2011. EBITDA expansion should lead to street upgrades.

Maintained

BUY


Action Malaysia’s GGR has been resilient in 2010 despite competition from the two newly

opened casinos in Singapore. GENM should comfortably see decent organic growth, with meaningful contributions from the newly acquired UK and US operations seen kicking in from 2H11. Despite its sustainable and growing EBITDA of US$650mn, GENM is at a modest-looking 6x FY11F EV/EBITDA, on our estimates. BUY.

Catalysts We see further street upgrades to reflect the turning around of the UK business and

to take into account the newly acquired US business.

Anchor themes

We believe GENM offers investors good exposure to the strong and rising domestic consumption story. Competition for its mass market business is likely to be short-lived. Its domestic operation should continue to generate strong cashflows.

Genting Malaysia Bhd Wai Kee Choong


We are projecting a decline in FY10F revenue, as we have projected a loss in mass market share




Revenue 4,887 4,992 4,968 5,214 5,449Cost of goods sold (2,904) (3,072) (3,121) (3,269) (3,371)Gross profit 1,983 1,919 1,846 1,945 2,078SG&A (230) (250) (248) (261) (272)Employee share expenseOperating profit 1,753 1,670 1,598 1,684 1,806

EBITDA 2,013 1,940 1,892 2,000 2,143Depreciation (260) (270) (294) (316) (338)Amortisation - - - - - EBIT 1,753 1,670 1,598 1,684 1,806Net interest expense 114 78 101 119 134Associates & JCEs 1 - - - - Other income - (1) - - - Earnings before tax 1,868 1,746 1,699 1,804 1,939Income tax (493) (441) (425) (451) (485)Net profit after tax 1,375 1,305 1,274 1,353 1,454Minority interests 0 0 0 0 0Other items - - - - - Preferred dividends - - - - - Normalised NPAT 1,375 1,305 1,274 1,353 1,455Extraordinary items (741) 18 - - - Reported NPAT 634 1,324 1,274 1,353 1,455

Dividends (280) (323) (343) (363) (385)Transfer to reserves 354 1,000 932 990 1,070


ROE (%) 7.7 14.3 12.0 11.7 11.6 ROA (pretax %) 31.4 30.5 26.3 27.6 29.4

Growth (%)Revenue 12.3 2.2 (0.5) 5.0 4.5 EBITDA 15.6 (3.6) (2.5) 5.7 7.1

EBIT 17.1 (4.7) (4.3) 5.4 7.2

Normalised EPS 24.4 (5.1) (1.5) 6.2 7.5 Normalised FDEPS 19.1 (5.1) 0.8 6.2 7.5


Genting Malaysia Bhd Wai Kee Choong


Cashflow (RMmn)


EBITDA 2,013 1,940 1,892 2,000 2,143Change in working capital 121 51 60 22 21Other operating cashflow (416) (369) (468) (463) (498)Cashflow from operations 1,719 1,622 1,485 1,559 1,667Capital expenditure (262) (130) (357) (357) (357)Free cashflow 1,457 1,492 1,128 1,203 1,310Reduction in investments 1,384 (1,039) - - - Net acquisitions 265 (215) - - - Reduction in other LT assets (1) (310) - - - Addition in other LT liabilities 14 55 - - - Adjustments (1,188) 1,108 101 119 134Cashflow after investing acts 1,931 1,090 1,229 1,322 1,444Cash dividends (280) (300) (331) (351) (372)Equity issue (147) (74) - - - Debt issue - - - - - Convertible debt issue - - - - - Others - - - - - Cashflow from financial acts (428) (374) (331) (351) (372)Net cashflow 1,503 717 898 971 1,072Beginning cash 3,052 4,555 5,272 6,169 7,141Ending cash 4,555 5,272 6,169 7,141 8,212Ending net debt (4,555) (5,272) (6,169) (7,141) (8,212)Source: Nomura estimates



Cash & equivalents 4,555 5,272 6,169 7,141 8,212Marketable securities 5 - - - - Accounts receivable 201 204 141 147 153Inventories 60 62 62 65 68Other current assets - - - - - Total current assets 4,821 5,538 6,372 7,352 8,433LT investments 934 1,977 1,977 1,977 1,977Fixed assets 3,638 3,491 3,553 3,593 3,612Goodwill - - - - - Other intangible assets - - - - - Other LT assets 30 340 340 340 340Total assets 9,423 11,346 12,242 13,263 14,363Short-term debt - - - - - Accounts payable 541 635 632 664 693Other current liabilit ies 238 200 200 200 200Total current liabilities 779 835 832 863 893Long-term debt - - - - - Convertible debt - - - - - Other LT liabilities 312 367 367 367 367Total liabilities 1,091 1,202 1,199 1,230 1,260Minority interest 7 7 7 6 6Preferred stock - - - - - Common stock 590 590 590 590 590Retained earnings 7,384 8,408 9,308 10,298 11,368Proposed dividends - - - - -



Liquidity (x)

Current ratio 6.19 6.63 7.66 8.52 9.44 Interest cover na na na na na

LeverageNet debt/EBITDA (x) net cash net cash net cash net cash net cash

Net debt/equity (%) net cash net cash net cash net cash net cash


After the acquisition of the UK and US casino business, GENM will still have US$500mn cash


IJM Corp IJM MK




Focus shifts to IJM Land In-line 2Q results (up 32% y-y), led by plantations

IJM delivered 2Q earnings of RM88mn (up 32% y-y) and PBT of RM167mn (up 28% y-y), in line with our estimates. The positive results were mainly led by plantation (PBT up 171% y-y), due to higher CPO prices. Construction PBT and margins improved with the clearing of low-margin jobs. Property PBT fell 48% q-q and 10% y-y. The industry segment disappointed due to lower selling prices, while infrastructure was steady at 10% q-q growth.

Launches on track, queuing for awards and CPO upside

IJM’s upcoming launches in Penang and development in the Sebana Cove and Canal City projects are on track. In construction, it is bidding for most mega jobs and should get a decent share of the MRT project, we believe. This should also boost demand for building materials and help IJM’s industrial division sales. We expect next year’s earnings growth to be supported by stronger CPO prices.

IJM Land-MRCB merger; possible upside to valuation

A key catalyst for the stock would be progress on the proposed IJM Land-MRCB merger; the signed MOU was announced on 23 November. The proposed deal values IJM Land (IJMLD MK, RM3.08, not rated) at a 19% premium to its current price and 34% premium to our implied valuation. (The proposal values IJM Land at RM4bn (RM3.65/share)).

IJM remains our preference, given its diversified model

As reflected by results, IJM’s diversified model helped it to deliver strong growth. We expect the industrial and plantation divisions to continue doing well in an inflationary scenario. In our view, IJM is the way to take advantage of improving news flow and momentum across construction in Malaysia & India, given its diversified exposure. We remain NEUTRAL, but prefer IJM to its peers.

Key financials & valuations31 Mar (RMmn) FY10 FY11F FY12F FY13FRevenue 4,014 4,562 5,313 6,479




Norm. EPS growth (%) (5.3) 37.3 26.3 35.7

Norm. P/E (x) 30.8 22.5 17.8 13.2

EV/EBITDA (x) 13.7 9.3 8.0 6.3

Price/book (x) 1.5 1.3 1.2 1.1

Dividend yield (%) 0.9 1.5 1.9 2.5

ROE (%) 6.7 6.8 7.7 9.8

Net debt/equity (%) 52.7 24.4 18.6 17.9

Earnings revisions






1m 3m 6m

5.5 15.8 22.1

3.5 14.9 28.0

7.1 11.0 5.4

Hard


2,484

71.1

5.80/4.30

6.79

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

8.6



52-week range (RM)


Zelan Bhd


4.1

4.6

5.1

5.6

6.1

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus We believe the stock has limited upside given rich valuations. We build in lower IJM Land contribution for FY11, as we believe 1Q was a one-off exceptional quarter for the segment.

Maintained

NEUTRAL


Action Adjusted for one-off gains, IJM’s 2Q earnings of RM88mn were in line with our

estimates. 1H FY11 forms 48% of our full-year estimate. The positive results were mostly led by a sharp pick up in plantation earnings (up 171% y-y). Also in the news was a proposed IJM Land-MRCB merger that values IJM Land at 34% above our implied value. We expect the stock to react positively to these developments and maintain it as our preference in the Malaysian construction sector. NEUTRAL.

Catalysts Positive catalysts include news flow regarding the MRT project and other awards in

Malaysia, India and the Middle East. On the downside, slowdown in property momentum and delay in awards may exert pressure on stock prices.

Anchor themes

The government plans to achieve construction sector growth of 5-6% over the next two years, compared to 2-3% sector growth seen over the past few years.

IJM Corp Tanuj Shori


Margin expansion to pick up in FY11-12F




Revenue 4,601 4,014 4,562 5,313 6,479Cost of goods sold (3,793) (3,276) (3,586) (4,214) (5,099)Gross profit 808 737 976 1,099 1,380SG&A (152) (169) (177) (185) (193)Employee share expenseOperating profit 656 569 799 914 1,187

EBITDA 808 737 976 1,099 1,380Depreciation (85) (101) (110) (118) (126)Amortisation (67) (67) (67) (67) (67)EBIT 656 569 799 914 1,187Net interest expense (147) (135) (127) (75) (65)Associates & JCEs 19 31 22 32 68Other income - 57 - - - Earnings before tax 529 521 694 871 1,190Income tax (127) (155) (173) (218) (298)Net profit after tax 402 366 520 653 893Minority interests (112) (91) (142) (175) (244)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 290 276 378 478 648Extraordinary items - 57 - - - Reported NPAT 290 333 378 478 648


Valuation and ratio analysisFD normalised P/E (x) 26.5 30.8 22.5 17.8 13.2 FD normalised P/E at price target (x) 26.5 30.8 22.5 17.9 13.2 Reported P/E (x) 18.8 16.4 14.4 11.4 8.4 Dividend yield (%) 3.5 0.9 1.5 1.9 2.5 Price/cashflow (x) 12.7 12.4 31.2 12.9 naPrice/book (x) 1.6 1.5 1.3 1.2 1.1 EV/EBITDA (x) 12.8 13.7 9.3 8.0 6.3 EV/EBIT (x) 15.7 17.6 11.3 9.5 7.2 Gross margin (%) 17.6 18.4 21.4 20.7 21.3 EBITDA margin (%) 17.6 18.4 21.4 20.7 21.3 EBIT margin (%) 14.3 14.2 17.5 17.2 18.3 Net margin (%) 6.3 8.3 8.3 9.0 10.0 Effective tax rate (%) 24.0 29.7 25.0 25.0 25.0 Dividend payout (%) 90.8 21.0 30.0 30.0 30.0 Capex to sales (%) 3.3 3.7 3.3 2.8 2.3 Capex to depreciation (x) 1.8 1.5 1.4 1.3 1.2

ROE (%) 6.2 6.7 6.8 7.7 9.8 ROA (pretax %) 6.3 5.4 7.1 8.1 9.9

Growth (%)Revenue (0.8) (12.8) 13.7 16.5 21.9 EBITDA 20.0 (8.8) 32.4 12.6 25.6

EBIT 21.7 (13.3) 40.5 14.4 29.8

Normalised EPS (49.0) (5.3) 37.3 26.3 35.7 Normalised FDEPS (48.6) (13.9) 36.9 26.1 35.5


IJM Corp Tanuj Shori


Gearing at a healthy level

Cashflow (RMmn)


EBITDA 808 737 976 1,099 1,380Change in working capital 190 (285) 449 (184) (673)Other operating cashflow (568) (11) (1,250) (491) (1,083)Cashflow from operations 430 441 175 425 (376)Capital expenditure (153) (150) (150) (150) (150)Free cashflow 277 291 25 275 (526)Reduction in investments (93) (268) - - - Net acquisitions (235) - - - - Reduction in other LT assets (274) (184) (133) (10) (36)Addition in other LT liabilities 17 (70) - - - Adjustments 287 236 848 313 871Cashflow after investing acts (22) 6 740 578 309Cash dividends (263) (70) (114) (143) (195)Equity issue 219 34 656 - - Debt issue 14 1,158 (300) - 150Convertible debt issue - - - - - Others 331 (853) (150) (150) (150)Cashflow from financial acts 301 270 92 (293) (195)Net cashflow 279 276 832 284 115Beginning cash 667 946 1,222 2,054 2,338Ending cash 946 1,222 2,054 2,338 2,453Ending net debt 2,792 2,703 1,473 1,189 1,224Source: Nomura estimates



Cash & equivalents 946 1,222 2,054 2,338 2,453Marketable securities 73 108 108 108 108Accounts receivable 2,082 2,173 1,827 1,631 2,586Inventories 2,090 2,042 2,515 2,566 3,495Other current assets 121 54 53 53 53Total current assets 5,313 5,599 6,557 6,697 8,695LT investments 836 1,069 1,069 1,069 1,069Fixed assets 1,299 1,227 1,376 1,408 1,432Goodwill 83 75 75 75 75Other intangible assets 66 92 92 92 92Other LT assets 4,313 4,497 4,630 4,640 4,676Total assets 11,910 12,558 13,799 13,981 16,039Short-term debt 1,498 959 861 861 861Accounts payable 1,977 1,689 2,264 1,937 3,147Other current liabilit ies 60 37 37 37 37Total current liabilities 3,534 2,685 3,163 2,835 4,045Long-term debt 2,240 2,966 2,666 2,666 2,816Convertible debt - - - - - Other LT liabilities 520 450 450 450 450Total liabilities 6,294 6,101 6,279 5,951 7,311Minority interest 846 1,328 1,470 1,645 1,889Preferred stock - - - - - Common stock 942 1,327 1,327 1,327 1,327Retained earnings 1,714 1,972 2,237 2,572 3,026Proposed dividends - - - - -

Other equity and reserves 2,114 1,830 2,486 2,486 2,486Total shareholders' equity 4,770 5,129 6,050 6,385 6,839


Liquidity (x)



Net debt/equity (%) 58.5 52.7 24.4 18.6 17.9



IOI Corporation IOI MK

CONSUMER RELATED/AGRI-RELATED | MALAYSIA


Lagging in production growth No longer the market favourite; maintain NEUTRAL.

Although we expect CPO prices to remain strong through 2011 (we assume CPO prices of RM2,625/mT in 2010F and RM3,000/mT in 2011F), we are NEUTRAL on the stock given limited growth potential from its plantations division in the near term, coupled with an uncompelling valuation. Our price target of RM6.20 represents potential upside of 7% from current levels at relatively fair valuations of 17x rolling 1-yr forward earnings.

Limited growth in CPO production; property to support

IOI’s mature hectarage growth looks increasingly capped, and we expect it to post a CAGR of only 3.2% over FY10-13F (ex Indonesia). IOI’s FFB yields have generally been one of the strongest in the industry, and would likely have very little room for upside through operational improvements. These would translate to a low CPO volume growth, with a large part (~78%) of the trees already of prime yielding age, leaving less ability for the company to offset any unexpected CPO price decline. Earnings will be buffered by the property business, which is gradually becoming a large part of overall earnings mix, comprising 23% of FY10F earnings vs 12% in FY09.

Downstream division could see weaker margins

We note that earnings at IOI’s resource-based manufacturing division could come under pressure, especially with current high feedstock prices. The division’s operating margin was weak in the most recently reported quarter due lower refining margins and weak end-product prices (e.g., glycerine) at its Oleochemicals division. This may be further exacerbated if Asian currencies continue the same strength seen in 2010 (Nomura has a bullish view on Asian currencies in 2011) given that a considerable amount of sales for the downstream division is done in Europe (i.e., euro-denominated).

Key financials & valuations30 Jun (RMmn) FY10 FY11F FY12F FY13FRevenue 12,543 13,563 14,165 14,327




Norm. EPS growth (%) 9.5 26.4 14.5 9.7

Norm. P/E (x) 22.8 18.0 15.7 14.3

EV/EBITDA (x) 13.4 12.6 11.1 10.1

Price/book (x) 3.5 3.2 2.9 2.7

Dividend yield (%) 2.1 2.0 2.5 2.8

ROE (%) 21.3 18.4 19.2 19.3

Net debt/equity (%) 8.1 6.6 4.4 1.8

Earnings revisions






1m 3m 6m

(0.7) 9.6 17.4

(2.5) 8.8 23.1

1.1 4.9 0.4

Hard


12,329

47.5

5.97/4.69

14.35

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

12.7


Tan Sri Dato' Lee Shin Cheng 39.8

52-week range (RM)




4.54.74.95.15.35.55.75.96.1

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80

85

90

95

100

105

Price






Nomura vs consensus We are more bullish on our FY11-12F forecasts for CPO prices, which translates to higher earnings forecasts for plantation companies under our coverage.

Maintained

NEUTRAL

Action We are Bullish on the regional palm oil sector, as we are positive on palm oil prices

through 2011. IOI has one of the highest betas for large Malaysian planters, offering good leverage to stronger CPO prices. However, IOI Corp’s growth in CPO production will likely lag the industry, in our view, which may make IOI less attractive relative to peers. Maintain NEUTRAL on fair valuation.

Catalysts Sustained high CPO prices, a pick-up in FFB yields and overall improving outlook

for commodities could sustain a further re-rating of the sector.

Anchor themes

Tighter global vegetable oils outlook, stronger crude oil prices and a weaker US$ lead us to expect higher CPO prices for next year – a key driver for upstream earnings and valuations.


IOI Corporation Ken Arieff Wong



Strong CPO prices to support earnings growth


Year-end 30 Jun FY09 FY10 FY11F FY12F FY13F

Revenue 14,600 12,543 13,563 14,165 14,327Cost of goods sold (12,631) (9,907) (10,839) (11,101) (11,008)Gross profit 1,969 2,636 2,723 3,064 3,319SG&AEmployee share expenseOperating profit 1,969 2,636 2,723 3,064 3,319

EBITDA 2,200 2,868 2,974 3,331 3,603Depreciation (231) (232) (250) (267) (283)AmortisationEBIT 1,969 2,636 2,723 3,064 3,319Net interest expense (171) (174) (96) (82) (62)Associates & JCEs (248) 88 175 224 256Other incomeEarnings before tax 1,550 2,551 2,803 3,206 3,514Income tax (487) (486) (701) (801) (878)Net profit after tax 1,063 2,065 2,102 2,404 2,635Minority interests (80) (29) (29) (31) (32)Other items 462 (396)Preferred dividendsNormalised NPAT 1,446 1,640 2,073 2,373 2,603Extraordinary items (462) 396Reported NPAT 984 2,036 2,073 2,373 2,603

Dividends (346) (785) (746) (940) (1,031)Transfer to reserves 638 1,251 1,327 1,433 1,572


ROE (%) 11.8 21.3 18.4 19.2 19.3 ROA (pretax %) 12.3 20.2 20.6 21.5 21.9

Growth (%)Revenue (0.4) (14.1) 8.1 4.4 1.1 EBITDA (35.2) 30.4 3.7 12.0 8.2

EBIT (37.9) 33.9 3.3 12.5 8.3



IOI Corporation Ken Arieff Wong


M&A opportunities with a build-up of its war chest (strong balance sheet)

Cashflow (RMmn)


EBITDA 2,200 2,868 2,974 3,331 3,603Change in working capital 817 210 49 98 39Other operating cashflow (164) (1,153) (593) (453) (477)Cashflow from operations 2,852 1,926 2,430 2,975 3,164Capital expenditure (422) (427) (500) (500) (500)Free cashflow 2,430 1,498 1,930 2,475 2,664Reduction in investments (178) (164) (564) (765) (749)Net acquisitions (196) (88) (79) (102) (102)Reduction in other LT assets 5 24 - - - Addition in other LT liabilities (51) (84) (71) 15 44Adjustments (18) (16) (16) (16) (16)Cashflow after investing acts 1,991 1,171 1,200 1,607 1,841Cash dividends (1,002) (589) (1,037) (1,305) (1,432)Equity issue (611) (11) - - - Debt issue (401) (797) 471 (82) (628)Convertible debt issueOthers (409) 1,644 (50) (50) (49)Cashflow from financial acts (2,423) 247 (616) (1,437) (2,108)Net cashflow (432) 1,418 584 170 (268)Beginning cash 2,896 2,464 3,882 4,454 4,582Ending cash 2,464 3,882 4,466 4,623 4,315Ending net debt 3,090 876 774 564 247Source: Nomura estimates


As at 30 Jun FY09 FY10 FY11F FY12F FY13F

Cash & equivalents 2,464 3,882 4,454 4,582 4,271Marketable securitiesAccounts receivable 1,431 1,346 1,455 1,520 1,537Inventories 1,647 1,575 1,703 1,779 1,799Other current assets 465 357 450 450 450Total current assets 6,007 7,160 8,062 8,331 8,058LT investments 3,101 3,265 3,829 4,594 5,344Fixed assets 6,309 6,378 6,755 6,988 7,205Goodwill 514 514 504 493 484Other intangible assetsOther LT assets 51 27 27 27 27Total assets 15,982 17,343 19,176 20,434 21,117Short-term debt 199 409 450 495 544Accounts payable 958 941 1,017 1,063 1,075Other current liabilit ies 120 83 386 579 643Total current liabilities 1,277 1,433 1,853 2,136 2,262Long-term debt 5,355 4,348 4,778 4,651 3,974Convertible debtOther LT liabilities 577 493 422 437 481Total liabilities 7,210 6,274 7,053 7,224 6,716Minority interest 426 289 307 325 345Preferred stockCommon stock 625 668 668 668 668Retained earnings 6,858 8,415 9,452 10,520 11,691Proposed dividends



Liquidity (x)



Net debt/equity (%) 37.0 8.1 6.6 4.4 1.8



Kossan Rubber Industries KRI MK

HEALTHCARE & PHARMACEUTICALS | MALAYSIA

Jacinda Loh + 60 3 2027 6889 [email protected]

Hey, steady Eddy Most resilient margins amongst glovemakers

Smaller sequential earnings swings during periods of escalating latex prices and RM appreciation have demonstrated Kossan’s relative margin resilience among the three glovemakers we cover. Its technical rubber products arm (although small at 5-10% of revenue) also likely has helped to sustain margins (as the company occupies a niche segment in this country). Visibility is c. two months while it is running at full capacity. Similar to other glovemakers, it also reports double-digit growth (12%) in y-y volumes sold – evident of the structural growth of the industry, which we believe has largely been overshadowed by the cost headwinds at the moment.

On track with its plans to grow its high-margin nitrile business

Management’s value-driven strategy, instead of a capacity-driven one, has also contributed to margin resilience, we believe (as it refines its customer base towards what it deems as the more value-sensitive than price-sensitive customers). Continuous refining of its existing products (improving on its CheMax 7th Sense range, for example) combined with higher output and selling more high-margin nitrile gloves is expected to differentiate its business from its competitors. The margin lift of 10% experienced when it first launched CheMax 7th Sense has reaffirmed management’s value-driven focus.

BUY at a price target of RM4.76

Currently at 7x FY11F P/E, Kossan is also trading below its historical mean of 9.9x. We base our price target to an FY11F P/E of 10x, which is pegged at a historical 30% discount to Top Glove’s FY11F P/E of 14.5x.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FRevenue 837 1,020 1,206 1,268




Norm. EPS growth (%) 42.2 (5.5) 34.0 2.2

Norm. P/E (x) 8.6 9.2 6.8 6.7

EV/EBITDA (x) 6.5 6.0 4.3 3.6

Price/book (x) 2.9 2.3 1.8 1.5

Dividend yield (%) 1.3 2.2 3.0 3.1

ROE (%) 20.4 27.8 29.0 23.8

Net debt/equity (%) 45.1 20.4 net cash net cash

Earnings revisions






1m 3m 6m

3.2 (3.9) (10.0)

1.3 (4.6) (5.6)

4.9 (8.5) (28.3)

Hard


328.5

44.0


Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

4.25/2.46

0.81

52-week range (RM)



Kossan Holdings Sdn Bhd 51.8

2.2

2.7

3.2

3.7

4.2

4.7

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

90100110120130140150160170

Price

Rel MSC I Malaysia


Price target RM4.76(set on 12 Mar 10)



Nomura vs consensus Our FY11F earnings forecast is above consensus, as we expect Kossan’s value-driven strategy to continue to bear fruit despite current persisting cost headwinds.

Maintaining

BUY


Action Among the three glove makers, Kossan showed the lowest sequential earnings

contraction of c9% (3Q10), largely due to its historical strategy of more measured capacity expansion and locking in as much demand from the beginning of the year. Management believes its value-driven strategy (vs a capacity-driven one) is likely to stand it in good stead, especially in the face of cost headwinds. BUY.

Catalysts Better-than-expected demand for its new special purpose glove that captures

market share from the higher-end surgical segments.

Anchor themes

While easy wins are over, we believe value remains as structural demand growth is still evident. Since initiation, the largest glovemakers in the world are our top picks for more resilient margins, diversified revenue base and efficient cost structures.

Kossan Rubber Industries Berhad Jacinda Loh


Forex losses from a structured hedge




Revenue 897 837 1,020 1,206 1,268Cost of goods sold (629) (526) (701) (829) (868)Gross profit 268 311 319 376 400SG&A (160) (162) (169) (178) (198)Employee share expense - - - - - Operating profit 108 150 149 198 202

EBITDA 133 184 187 238 242Depreciation (26) (34) (37) (40) (40)Amortisation - - - - - EBIT 108 150 149 198 202Net interest expense (9) (9) (10) (11) (11)Associates & JCEs - - - - - Other income - - - - - Earnings before tax 99 140 140 187 191Income tax (14) (20) (26) (35) (36)Net profit after tax 85 120 113 152 155Minority interests (1) (0) (0) (0) (0)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 84 120 113 152 155Extraordinary items - (53) - - - Reported NPAT 84 67 113 152 155


Valuation and ratio analysisFD normalised P/E (x) 12.3 8.6 9.2 6.8 6.7 FD normalised P/E at price target (x) 18.1 12.7 13.5 10.0 9.8 Reported P/E (x) 12.3 15.5 9.2 6.8 6.7 Dividend yield (%) 0.8 1.3 2.2 3.0 3.1 Price/cashflow (x) 18.0 19.8 9.6 7.1 6.7 Price/book (x) 3.5 2.9 2.3 1.8 1.5 EV/EBITDA (x) 9.2 6.5 6.0 4.3 3.6 EV/EBIT (x) 11.4 8.0 7.6 5.2 4.3 Gross margin (%) 29.9 37.2 31.2 31.2 31.5 EBITDA margin (%) 14.9 21.9 18.3 19.7 19.1 EBIT margin (%) 12.0 17.9 14.6 16.5 16.0 Net margin (%) 9.4 8.0 11.1 12.6 12.2 Effective tax rate (%) 13.9 14.3 18.8 18.8 18.8 Dividend payout (%) 9.7 20.6 20.4 20.4 20.4 Capex to sales (%) 7.4 3.8 3.9 3.3 - Capex to depreciation (x) 2.6 0.9 1.1 1.0 -

ROE (%) 30.6 20.4 27.8 29.0 23.8 ROA (pretax %) 18.8 22.9 22.2 28.1 28.1

Growth (%)Revenue 27.7 (6.7) 21.9 18.2 5.2 EBITDA 17.8 37.6 1.7 27.5 1.7

EBIT 19.2 38.6 (0.1) 32.8 2.0

Normalised EPS 8.2 42.2 (5.5) 34.0 2.2 Normalised FDEPS 8.2 42.2 (5.5) 34.0 2.2


Kossan Rubber Industries Berhad Jacinda Loh


Cashflow (RMmn)


EBITDA 133 184 187 238 242Change in working capital (6) (45) 3 (23) (11)Other operating cashflow (70) (86) (82) (69) (78)Cashflow from operations 58 52 108 146 154Capital expenditure (66) (32) (40) (40) - Free cashflow (9) 20 68 106 154Reduction in investments 0 - - - - Net acquisitions 0 - - - - Reduction in other LT assets - - - - - Addition in other LT liabilities 6 12 - - - Adjustments (6) (12) - - - Cashflow after investing acts (8) 20 68 106 154Cash dividends (11) (8) (14) (23) (31)Equity issue - - - - - Debt issue 2 (9) 7 20 - Convertible debt issue - - - - - Others 6 4 14 23 31Cashflow from financial acts (3) (13) 7 20 - Net cashflow (11) 7 75 126 154Beginning cash 27 16 23 97 223Ending cash 16 22 97 223 377Ending net debt 190 161 94 (12) (166)Source: Nomura estimates



Cash & equivalents 16 23 97 223 377Marketable securities - - - - - Accounts receivable 161 195 168 198 209Inventories 112 110 116 136 141Other current assets 1 - - - - Total current assets 290 328 381 558 727LT investments - - - - - Fixed assets 361 359 396 396 357Goodwill 1 1 1 1 1Other intangible assets 2 1 - - - Other LT assets 0 0 0 0 0Total assets 654 690 778 955 1,085Short-term debt 151 138 131 131 131Accounts payable 136 117 98 126 131Other current liabilit ies 1 7 7 7 7Total current liabilities 289 262 237 264 269Long-term debt 54 46 60 80 80Convertible debt - - - - - Other LT liabilities 11 23 23 23 23Total liabilities 354 331 319 367 372Minority interest 1 1 1 1 1Preferred stock - - - - - Common stock 80 80 80 80 80Retained earnings 218 276 376 506 631Proposed dividends - - - - -

Other equity and reserves 1 1 1 1 1Total shareholders' equity 299 357 458 587 712

Total equity & liabilities 654 690 778 955 1,085

Liquidity (x)


LeverageNet debt/EBITDA (x) 1.42 0.88 0.50 net cash net cash

Net debt/equity (%) 63.5 45.1 20.4 net cash net cash



Kuala Lumpur Kepong KLK MK



Market favourite but priced-in We like KLK but think current valuations are fair

Following our marketing, it is clear that KLK is the market darling, with most investors very positive. On our Bullish sector outlook, it is hard to fault the fastest growing large-cap planters in Malaysia, but we think valuations are fairly priced after the recent run-up. We value KLK at 18x FY11F EPS, which is already slightly above +1SD its five-year historical average, but justified in our view, given KLK’s strong mature hectarage growth amongst the Malaysian planters. Mature area should grow at >6% pa through to FY12F. Our PT of RM21.70 implies upside of 6%; and we are NEUTRAL on fair valuation of 17x FY11F EPS.

Expect high CPO production growth on newly maturing area

We expect strong CPO production growth of 7.6-7.3% pa over FY11-12F, given our expectations of 10,000ha maturing each year and contributing meaningfully to volumes, and a relatively younger tree age profile ramping up yields, as they reach peak production age. We also see FFB yields steadily improving to 23mT/ha over FY11-12F, after a temporary blip in FY10F, due to weather-related disruptions.

Manufacturing and retail division performance improves

KLK’s downstream division has shown a 19% y-y growth in revenues and earnings of RM112mn in 9M10, from a loss a year ago, due to the improving performance of its oleochemical business boosting margins. The retail division (Crabtree & Evelyn) is also likely to end the year in the black, versus a loss last year, likely due to the closure of its unprofitable stores (mostly in the US, post restructuring). However, we are still cautious on the retail division, and would look for two-three sequential quarters of steady earnings, before building in significant upside to these numbers, given margin improvement headwinds.

Key financials & valuations30 Sep (RMmn) FY09 FY10F FY11F FY12FRevenue 6,658 6,584 7,577 8,293

Reported net profit 613 994 1,287 1,438

Normalised net profit 613 994 1,287 1,438


Norm. EPS growth (%) (41.1) 62.1 29.5 11.7

Norm. P/E (x) 35.8 22.1 17.1 15.3

EV/EBITDA (x) 19.5 13.5 10.9 9.7

Price/book (x) 3.9 3.6 3.4 3.1

Dividend yield (%) 1.9 2.7 3.5 3.9

ROE (%) 11.0 17.0 20.5 21.0

Net debt/equity (%) 8.1 7.8 8.1 6.4

Earnings revisions

Previous norm. net profit 994 1,287 1,438





1m 3m 6m

3.9 21.1 29.3

2.0 20.1 35.6

5.6 16.2 13.0

Hard


6,959

53.6

20.62/15.56

5.32

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

15.8


Batu Kawan 46.5

52-week range (RM)




15

16

17

18

19

20

21

De

c09

Jan1

0

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Se

p10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus We are more bullish on our CPO price outlook, which has led to our higher-than-consensus earnings forecasts for the company.

Maintained

NEUTRAL

Action We believe KLK has the best growth potential within the Malaysian plantation large-

caps and good leverage to the current CPO price strength. We also note solid downstream earnings and an improving outlook at its retail division. However, we believe that KLK’s recent run-up may have priced in our better outlook assumption for the sector. Maintain NEUTRAL on fair valuation.

Catalysts Sustained high CPO prices, a pick-up in FFB yields and an overall improving

outlook for commodities could sustain a further re-rating of the sector.

Anchor themes

Tighter global vegetable oils outlook, stronger crude oil prices and a weaker US$ lead us to expect higher CPO prices for next year – a key driver for upstream earnings and valuations.


Kuala Lumpur Kepong Ken Arieff Wong



EPS growth strong on higher CPO prices and better production


Year-end 30 Sep FY08 FY09 FY10F FY11F FY12F

Revenue 7,855 6,658 6,584 7,577 8,293Cost of goods sold (6,191) (5,546) (4,973) (5,545) (6,034)Gross profit 1,664 1,113 1,611 2,032 2,259SG&A (197) (191) (211) (231) (251)Employee share expenseOperating profit 1,467 922 1,400 1,801 2,007

EBITDA 1,664 1,113 1,611 2,032 2,259Depreciation (197) (191) (211) (231) (251)AmortisationEBIT 1,467 922 1,400 1,801 2,007Net interest expense (64) (69) (77) (82) (87)Associates & JCEs 42 35 44 40 40Other incomeEarnings before tax 1,445 887 1,367 1,759 1,961Income tax (356) (245) (342) (440) (490)Net profit after tax 1,090 643 1,025 1,319 1,470Minority interests (49) (30) (31) (32) (33)Other itemsPreferred dividendsNormalised NPAT 1,041 613 994 1,287 1,438Extraordinary items - - - - Reported NPAT 1,041 613 994 1,287 1,438



ROE (%) 19.9 11.0 17.0 20.5 21.0 ROA (pretax %) 21.8 13.0 19.2 22.9 23.5

Growth (%)Revenue 55.0 (15.2) (1.1) 15.1 9.4 EBITDA 60.6 (33.1) 44.8 26.1 11.2

EBIT 64.8 (37.2) 51.9 28.7 11.5



Kuala Lumpur Kepong Ken Arieff Wong


Strong balance sheet will allow the group to capitalise on M&A opportunities as they arise, in our view

Cashflow (RMmn)

Year-end 30 Sep FY08 FY09 FY10F FY11F FY12F

EBITDA 1,664 1,113 1,611 2,032 2,259Change in working capital (182) 133 70 (184) (133)Other operating cashflow (1,025) (80) (442) (536) (595)Cashflow from operations 456 1,166 1,239 1,312 1,531Capital expenditure (521) (448) (419) (419) (419)Free cashflow (65) 718 820 893 1,112Reduction in investments (137) 92 21 (61) (49)Net acquisitions 282 (161) (169) (165) (165)Reduction in other LT assets 107 (10) (43) - (1)Addition in other LT liabilities 19 48 (44) 1 1Adjustments 79 61 (2) 42 42Cashflow after investing acts 286 748 584 710 940Cash dividends (457) (591) (596) (772) (863)Equity issue 4 15 - - - Debt issue 719 (30) 93 105 118Convertible debt issueOthers 113 (9) - - - Cashflow from financial acts 379 (615) (503) (667) (744)Net cashflow 664 133 81 42 195Beginning cash 496 1,160 1,292 1,374 1,416Ending cash 1,160 1,292 1,374 1,416 1,611Ending net debt 620 458 470 533 455Source: Nomura estimates


As at 30 Sep FY08 FY09 FY10F FY11F FY12F

Cash & equivalents 1,160 1,292 1,374 1,416 1,611Marketable securitiesAccounts receivable 902 929 919 1,057 1,157Inventories 1,220 882 872 1,004 1,099Other current assets 34 85 30 30 31Total current assets 3,316 3,189 3,195 3,507 3,898LT investments 748 656 634 695 745Fixed assets 3,799 4,064 4,526 4,909 5,273GoodwillOther intangible assets 300 338 321 305 290Other LT assets 348 357 400 400 401Total assets 8,510 8,604 9,077 9,817 10,608Short-term debt 859 627 609 590 573Accounts payable 657 574 567 653 714Other current liabilit ies 86 43 43 44 45Total current liabilities 1,602 1,244 1,219 1,287 1,332Long-term debt 921 1,123 1,235 1,358 1,494Convertible debtOther LT liabilities 247 295 251 252 253Total liabilities 2,770 2,662 2,705 2,898 3,080Minority interest 203 309 340 372 405Preferred stockCommon stock 1,068 1,068 1,068 1,069 1,070Retained earningsProposed dividends



Liquidity (x)



Net debt/equity (%) 11.2 8.1 7.8 8.1 6.4



Malayan Banking MAY MK



Banker to the masses Loan growth expected to accelerate next year

We view the 1Q FY11 anaemic loan growth of 1% q-q – attributed to lumpy corporate repayments – as unrepresentative of the full-year loan growth trend. Loan growth in other segments has been strong: 14% y-y growth in domestic consumer segment, 39% y-y growth in Indonesia and a decent 7% y-y growth in Singapore. Excluding the domestic commercial/corporate, loan growth was 11% y-y and within striking distance of our full-year loan growth estimate of 12%. Management guidance is that there was some pick-up in loan drawdown momentum in October, which could continue into 2011.

Net interest margin likely to remain stable

In FY10, Maybank’s NIMs received a 5bps boost from the three Overnight Policy Rate hikes totalling 75bps. For FY11F, we forecast margins will remain flat. Our economics team expects Bank Negara to resume rate hikes next year. This should be positive for Maybank given its high proportion of CASA deposits (37% of total deposits) which do not reprice when interest rates rise. However, given ongoing competition in the domestic consumer, Singapore and Indonesia we conclude that margins will remain relatively flat.

Asset quality: approaching the bottom for FY11F

Post implementation of stricter accounting standards for NPL recognition, there was a 7bps increase in impaired loans ratio to 4.7%. This was largely attributed to asset quality weakness at BII where NPL ratio rose to 3.5% from 2.9%. While worse than expected, we believe it is near the inflexion point because: 1) corporate NPL in the transport sector is not likely to repeat – these are legacy corporate accounts granted prior to Maybank’s entry; 2) SME/commercial loan growth has been reined in to exercise greater control over underwriting quality and 3) seasonal downturn in collections from auto loans given the Lebaran (Eid Al-Fitr) holidays.

Key financials & valuations30 Jun (RMmn) FY10 FY11F FY12F FY13FPPOP 6,460 7,086 8,015 8,825




Norm. EPS growth (%) 43.5 15.7 13.5 11.1

Norm. P/E (x) 15.6 13.5 11.9 10.7

Price/adj. book (x) 2.14 2.02 1.88 1.75

Price/book (x) 2.14 2.02 1.88 1.75

Dividend yield (%) 4.9 4.4 5.0 5.6

ROE (%) 14.5 15.4 16.4 16.9

ROA (%) 1.18 1 .25 1.30 1.36

Earnings revisions






1m 3m 6m

(6.2) (0.6) 14.4

(8.0) (1.4) 19.9

(4.4) (5.3) (2.7)

Hard


18,940

35.0

9.29/6.71

25.38

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

11.8


Skim Amanah Saham Bumiputera 44.9

52-week range (RM)


EPF


6778899

10

De

c09

Jan1

0

Feb

10

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Au

g10

Sep

10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus Consensus is mixed on Maybank’s ability to sustain double-digit profit gains from here.

Maintained

BUY


Action We like Maybank’s visible consumer franchise in Malaysia; it is well positioned to

ride the consumer spending boom. The dividend policy is likely to stay high as there is now greater clarity on Basel III coupled with the dividend reinvestment programme. BUY reaffirmed.

Catalysts Gains in consumer market share in mortgages, auto loans and credit cards will

boost overall loan growth

Anchor themes


Malayan Banking Julian Chua


Dividend payout to stay high at 60%




Interest income 11,570 10,955 13,550 15,750 17,300Interest expense (5,650) (4,184) (6,050) (7,440) (8,350)Net interest income 5,920 6,771 7,500 8,310 8,950Net fees and commissions 2,058 2,607 2,800 3,000 3,250Trading related profits (57) 534 450 500 540Other operating revenue 2,599 2,960 3,145 3,405 3,725Non-interest income 4,600 6,101 6,395 6,905 7,515Operating income 10,519 12,872 13,895 15,215 16,465Depreciation (146) (182) (190) (200) (210)Amortisation - - - - - Operating expenses (5,413) (6,230) (6,619) (7,000) (7,430)Employee share expenseOp. profit before provisions 4,960 6,460 7,086 8,015 8,825Provisions for bad debt (1,896) (1,211) (1,018) (1,134) (1,189)Other provision charges - - - - - Operating profit 3,064 5,249 6,068 6,881 7,636Other non-operating incomeAssociates & JCEs 100 122 154 184 214Pre-tax profit 3,163 5,370 6,222 7,065 7,850Income tax (924) (1,402) (1,680) (1,907) (2,119)Net profit after tax 2,239 3,968 4,542 5,157 5,730Minority interests (59) (150) (126) (143) (159)Other items

Preferred dividendsNormalised NPAT 2,181 3,818 4,416 5,014 5,571Extraordinary items (1,489) 0 0 0 0Reported NPAT 692 3,818 4,416 5,014 5,571Dividends (425) (2,920) (2,649) (3,010) (3,344)Transfer to reserves 267 899 1,767 2,004 2,227


Growth (%)Net interest income 9.1 14.4 10.8 10.8 7.7 Non-interest income 9.4 32.6 4.8 8.0 8.8 Non-interest expenses 33.0 15.1 6.2 5.8 6.1 Pre-provision earnings (7.7) 30.2 9.7 13.1 10.1 Net profit (36.1) 75.1 15.7 13.5 11.1 Normalised EPS (40.1) 43.5 15.7 13.5 11.1 Normalised FDEPS (50.9) 75.1 15.7 13.5 11.1 Source: Nomura estimates

Malayan Banking Julian Chua


Loan growth driven by consumer sector



Cash and equivalents 23,608 28,708 25,000 25,000 25,000Inter-bank lending 6,299 8,915 10,050 9,870 9,870Deposits with central bank 4,051 4,471 4,784 5,121 5,409Total securities 58,074 54,170 67,450 68,104 68,104Other interest earning assets - - - - - Gross loans 193,363 213,258 239,000 265,000 288,000Less provisions (7,580) (7,703) (8,980) (9,582) (8,755)Net loans 185,783 205,555 230,020 255,418 279,245Long-term investments 2,630 2,471 2,950 3,100 3,250Fixed assets 1,422 1,712 1,712 1,712 1,712Goodwill 4,374 4,481 4,600 4,600 4,600Other intangible assetsOther non IEAs 24,498 26,216 24,673 24,549 23,267Total assets 310,739 336,700 371,239 397,473 420,457Customer deposits 212,599 236,910 263,000 285,000 303,000Bank deposits, CDs, debentures 28,782 23,258 28,283 28,283 28,283Other interest bearing liabilities 18,219 20,991 19,481 19,481 19,471Total interest bearing liabilities 259,599 281,159 310,764 332,764 350,754Non interest bearing liabilities 25,372 26,876 30,000 32,000 35,150Total liabilities 284,971 308,035 340,764 364,764 385,904Minority interest 869 788 950 1,000 450Common stock 7,078 7,078 7,078 7,078 7,077Preferred stockRetained earnings 7,988 9,926 11,558 13,742 16,137Proposed dividends




Asset quality & capitalNPAs/gross loans (%) 3.5 2.9 3.5 3.2 3.2 Bad debt charge/gross loans (%) 0.98 0.57 0.43 0.43 0.41 Loss reserves/assets (%)Loss reserves/NPAs (%) 112.9 124.5 107.4 113.0 95.0 Tier 1 capital ratio (%) 11.0 11.1 11.2 11.0 11.1 Total capital ratio (%) 15.0 14.9 15.1 14.8 14.7





Malaysia Airports Holdings Bhd MAHB MK

TRANSPORT/LOGISTICS | MALAYSIA

Muzhafar Mukhtar +60 3 2027 6891 [email protected]

MAHB: “free” option on landbank Capacity expansion and commercialisation focus

With traffic at the LCCT (15mn for 2010F) already close to the critical mass required to support KLIA 2 (~18mn by our estimates), and still growing at double digits, MAHB’s greater capacity post-KLIA 2 and its increasing focus on monetising traffic should allow it to achieve EPS growth of 38% in 2013F following the 12% dip in 2012F (due to the higher depreciation and interest charges from KLIA 2).

Landbank development overlooked, underestimated

MAHB is unlocking its 16,156-acre landbank at KLIA, with the initial development of 2,730 acres by 2015. We believe the market has assigned zero value to this, and that concerns regarding the viability of this initiative are overstated: passenger traffic at KLIA should reach 40-50mn pa by 2015, third-party demand to develop the land is already demonstrably present and actual risk for MAHB is minimal since it is pursuing a landlord/minority partner strategy.

Traffic outlook positive for 2011

We expect domestic (2011F: 5.2%) and regional GDP growth (Asia-Pacific: 6.7%) to continue to drive traffic, which should also be boosted by the increasing liberalisation of ASEAN air transport and growing tourism (Malaysia was the 9th most-visited country in 2009).

Risk-reward looks attractive

With a defensive business model and limited downside risk for passenger traffic (a key earnings driver), we believe the “free” option on the landbank, a big source of potential re-rating, is attractive. On our estimates, the landbank is worth at least RM1.7bn, implying MAHB’s domestic operations are at just 10x FY11F P/E. Including the land in its BVPS also implies a P/B of 1.2x, vs a peer average of 1.6x.

Key financials & valuations31 Dec (RMmn) FY10F FY11F FY12F FY13FRevenue 1,884 2,067 2,511 2,946




Norm. EPS growth (%) 13.0 10.1 (12.4) 38.1

Norm. P/E (x) 16.0 14.5 16.5 12.0

EV/EBITDA (x) 10.6 11.8 9.8 7.8

Price/book (x) 2.0 1.9 1.8 1.6

Dividend yield (%) 3.7 3.3 3.2 3.7

ROE (%) 11.6 13.4 11.1 14.3

Net debt/equity (%) 19.2 69.2 74.1 62.6

Earnings revisions






1m 3m 6m

2.5 14.1 25.7

0.6 13.2 31.8

4.2 9.3 9.1

Hard


52-week range (RM)


EPF


9.3


Khazanah 60.0

Absolute (RM)

Absolute (US$)

Relative to Index



40.0

6.22/3.71

0.97

3.4

3.9

4.4

4.9

5.4

5.9

6.4

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

90

100

110

120

130

140

150

Price






Nomura vs consensus We believe the landbank potential at KLIA is grossly undervalued, if valued at all.

Maintained

BUY

Action With a defensive business model and a positive outlook for MAHB’s key earnings

driver (passenger traffic growth), the downside risk for core earnings appears limited, making the “free” option on its 16,156-acre landbank especially attractive. On our estimates, the landbank is worth at least RM1.7bn, implying the market is valuing MAHB’s core operations at 10x FY11F P/E, versus a peer average of 22x, or a P/B of 1.2x versus a peer average of 1.6x.

Catalysts Unlocking of land bank value in KLIA, progress on KLIA 2 construction, ASEAN air

transport liberalisation (Open Skies), profitability of foreign airports.

Anchor themes

Air traffic growth is closely correlated with GDP. Above average growth rates in ASEAN and the rest of Asia, as well as growing tourism, should result in strong airport passenger throughput growth in Malaysia.


Malaysia Airports Holdings Bhd Muzhafar Mukhtar




Year-end 31 Dec FY09 FY10F FY11F FY12F FY13F

Revenue 1,637 1,884 2,067 2,511 2,946Cost of goods sold (1,183) (1,326) (1,435) (1,820) (2,052)Gross profit 454 558 632 691 894SG&A (18) (13) (14) (17) (18)Employee share expense - - - - - Operating profit 436 545 618 674 876

EBITDA 586 707 793 988 1,203Depreciation (150) (162) (174) (314) (328)AmortisationEBIT 436 545 618 674 876Net interest expense (4) (6) (17) (142) (126)Associates & JCEs 3 - - - - Other income 45 11 11 12 12Earnings before tax 480 549 613 544 761Income tax (100) (121) (141) (131) (190)Net profit after tax 380 429 472 413 571Minority interests (1) - - - - Other items - - - - - Preferred dividends - - - - - Normalised NPAT 379 429 472 413 571Extraordinary items (1) (42) - - - Reported NPAT 378 386 472 413 571


Valuation and ratio analysisFD normalised P/E (x) 18.0 16.0 14.5 16.5 12.0 FD normalised P/E at price target (x) 24.8 21.9 19.9 22.7 16.4 Reported P/E (x) 18.1 17.7 14.5 16.5 12.0 Dividend yield (%) 2.7 3.7 3.3 3.2 3.7 Price/cashflow (x) na 17.5 16.8 9.3 8.8 Price/book (x) 2.1 2.0 1.9 1.8 1.6 EV/EBITDA (x) 12.0 10.6 11.8 9.8 7.8 EV/EBIT (x) 16.2 13.8 15.1 14.4 10.8 Gross margin (%) 27.7 29.6 30.6 27.5 30.3 EBITDA margin (%) 35.8 37.5 38.4 39.3 40.9 EBIT margin (%) 26.6 28.9 29.9 26.8 29.7 Net margin (%) 23.1 20.5 22.8 16.5 19.4 Effective tax rate (%) 20.9 22.0 23.0 24.0 25.0 Dividend payout (%) 49.2 65.1 48.2 52.8 44.5 Capex to sales (%) 19.9 28.8 94.9 28.4 5.1 Capex to depreciation (x) 2.2 3.3 11.2 2.3 0.5

ROE (%) 11.7 11.6 13.4 11.1 14.3 ROA (pretax %) 9.6 10.8 9.9 8.8 11.0


EBIT 18.2 25.0 13.5 9.0 29.9

Normalised EPS 27.1 13.0 10.1 (12.4) 38.1 Normalised FDEPS 27.1 13.0 10.1 (12.4) 38.1


Malaysia Airports Holdings Bhd Muzhafar Mukhtar


Cashflow (RMmn)

Year-end 31 Dec FY09 FY10F FY11F FY12F FY13F

EBITDA 586 707 793 988 1,203Change in working capital (684) (198) (87) (80) (105)Other operating cashflow (208) (118) (299) (172) (323)Cashflow from operations (306) 391 407 736 776Capital expenditure (326) (542) (1,962) (712) (150)Free cashflow (633) (150) (1,555) 24 626Reduction in investments 18 13 - - - Net acquisitionsReduction in other LT assets 9 29 - - - Addition in other LT liabilities 219 (4) (128) (42) (144)Adjustments (339) (28) 134 50 167Cashflow after investing acts (726) (141) (1,549) 32 649Cash dividends (177) (264) (227) (218) (254)Equity issue - - - - - Debt issue 505 504 1,700 400 - Convertible debt issue - - - - - Others (10) (8) (87) (140) (150)Cashflow from financial acts 317 232 1,386 42 (404)Net cashflow (409) 91 (164) 74 245Beginning cash 677 268 360 196 270Ending cash 268 360 196 270 514Ending net debt 240 652 2,515 2,840 2,594Source: Nomura estimates


As at 31 Dec FY09 FY10F FY11F FY12F FY13F

Cash & equivalents 268 360 196 270 514Marketable securities - - - - - Accounts receivable 314 367 408 503 598Inventories 60 74 87 117 146Other current assets 319 350 462 582 635Total current assets 961 1,151 1,152 1,471 1,893LT investments 35 22 22 22 22Fixed assets 1,998 2,425 4,360 4,806 4,678Goodwill - - - - - Other intangible assets 1,720 1,681 1,637 1,589 1,540Other LT assets 358 329 329 329 329Total assets 5,073 5,607 7,501 8,218 8,462Short-term debt 0 - - - - Accounts payable 110 122 131 165 181Other current liabilit ies 541 429 499 631 687Total current liabilities 651 551 630 795 868Long-term debt 508 1,012 2,711 3,110 3,109Convertible debt - - - - - Other LT liabilities 653 649 521 478 334Total liabilities 1,812 2,212 3,861 4,383 4,310Minority interest 5 5 5 5 5Preferred stock - - - - - Common stock 1,100 1,100 1,100 1,100 1,100Retained earnings 1,335 1,470 1,714 1,909 2,226Proposed dividends - - - - -



Liquidity (x)



Net debt/equity (%) 7.4 19.2 69.2 74.1 62.6



Malaysian Airline System MAS MK

AIRLINES | MALAYSIA


MAS fly more Operational statistics — best since 15 years

September 2010 operating statistics saw load factors at their best levels in 15 years, mainly driven by the international sector, where the full-year passenger number looks set to return to the 2006-07 peaks of around 8.5mn. Admittedly, yield growth has been slow (7% y-y), but the company’s recently instituted price hikes should have an impact in coming quarters, in our view.

FY10F breakeven – exponential upside from FY11F Given solid, consistent operating statistics during its non-peak quarters, MAS recorded a profit turnaround for 3Q10 (from a 2Q10 loss of RM250mn due to redelivery provisions), which we believe will continue in the coming quarter. Continued new fleet delivery in FY11F, announcement of a new eastern hub in Kota Kinabalu (to benefit from East Malaysia travel), expansion of its 30-plane budget airline Firefly and our stronger in-house ringgit assumptions (+7-9% from our previous forecast) point to exponential earnings upside for FY11F.

Easing earnings uncertainty in FY11F MAS has restructured its fuel hedge, reducing the hedging proportion to 33% for FY11F at US$93/bbl, from 40% at US$100/bbl previously, alleviating one of the most-cited concerns on the name. MAS was also excluded from the list of airlines found to have breached EU competition laws on cargo price-fixing and fined a total of €799mn. It has also provided the bulk of one-off redelivery provisions for FY10F (27 planes at around RM200mn), leaving only four planes to provide for in FY11F.

Maintain BUY and PT of RM2.65 We reaffirm our BUY rating on MAS in anticipation of a solid earnings recovery. We value MAS at the average of FY11-12F P/BV of 1.8x (unchanged), as we believe mid-FY11F to FY12F will be a defining period for MAS.


Reported net profit 496 49 690 1,051

Normalised net profit (667) 49 690 1,051

Normalised EPS (RM) (0.32) 0.01 0.21 0.31

Norm. EPS growth (%) (370.1) na 1,314.4 52.3

Norm. P/E (x) na 145.3 10.3 6.7

EV/EBITDA (x) na 13.8 6.3 4.1

Price/book (x) 5.9 2.1 1.6 1.3

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 20.2 2.3 17.6 21.5

Net debt/equity (%) net cash 8.1 77.8 76.5

Earnings revisions

Previous norm. net profit 49 690 1,051





1m 3m 6m

(3.6) 0.5 7.1

(5.4) (0.3) 12.3

(1.8) (4.2) (10.4)

Hard


52-week range (RM)




13.0


Khazanah Nasional 69.0

Absolute (RM)

Absolute (US$)

Relative to Index



14.0

2.59/1.80

1.57

1.7

1.9

2.1

2.3

2.5

2.7

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

60

70

80

90

100

110

Price





FY11F net profit (RMmn) 690Difference from consensus 84.3%Source: Nomura

Maintained

BUY

Action MAS shares have lagged other airline shares, despite positive data points, such as

loads continuing to hit 15-year highs and gradual yield improvements. We see the 3Q10 profit turnaround continuing into FY11F coupled with a new fleet arrival. Moreover, with our conducive ringgit appreciation outlook (+7-9% from our previous estimates), we expect a material incremental earnings jump in FY11-12F. Maintain BUY, with PT of RM2.65.

Catalysts Catalysts include a better-than-expected rebound in passenger numbers and

substantive yield improvement continuing even in a seasonally weak 1Q11F.

Anchor themes

With Asian economies expected to recover at a much faster pace, airlines with Asian hubs should see an earlier recovery than global peers. Malaysian players stand to benefit from the consumption boom and RM appreciation theme in FY11F.


Nomura vs consensus

Consensus NPAT is wide-ranging. We expect the fleet turnaround to gather momentum and generate a leg up on yield, plus MAS to benefit from ringgit appreciation and the consumption boom.

Malaysian Airline System Jacinda Loh





Revenue 15,504 11,574 13,417 14,906 16,994Cost of goods sold (13,026) (10,135) (11,122) (11,648) (12,965)Gross profit 2,477 1,440 2,295 3,258 4,028SG&A (2,172) (2,068) (2,150) (2,300) (2,555)Employee share expense - - - - - Operating profit 305 (628) 145 957 1,473

EBITDA 633 (312) 522 1,662 2,745Depreciation (328) (316) (377) (705) (1,272)Amortisation - - - - - EBIT 305 (628) 145 957 1,473Net interest expense (61) (85) (102) (240) (390)Associates & JCEs 20 12 12 12 12Other income - - - - - Earnings before tax 265 (701) 55 729 1,094Income tax (19) 31 (3) (36) (40)Net profit after tax 246 (670) 52 693 1,054Minority interests 1 3 (3) (3) (3)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 247 (667) 49 690 1,051Extraordinary items 1,163 - Reported NPAT 247 496 49 690 1,051

Dividends - - - - - Transfer to reserves 247 496 49 690 1,051

Valuation and ratio analysisFD normalised P/E (x) 18.5 na 145.3 10.3 6.7 FD normalised P/E at price target (x) 23.1 na 181.6 12.8 8.4 Reported P/E (x) 17.6 8.8 145.3 10.3 6.7 Dividend yield (%) - - - - - Price/cashflow (x) na na 139.1 4.0 2.3 Price/book (x) 1.0 5.9 2.1 1.6 1.3 EV/EBITDA (x) 7.4 na 13.8 6.3 4.1 EV/EBIT (x) 14.8 na 47.0 10.8 7.6 Gross margin (%) 16.0 12.4 17.1 21.9 23.7 EBITDA margin (%) 4.1 (2.7) 3.9 11.2 16.2 EBIT margin (%) 2.0 (5.4) 1.1 6.4 8.7 Net margin (%) 1.6 4.3 0.4 4.6 6.2 Effective tax rate (%) 7.2 na 6.0 5.0 3.7 Dividend payout (%) - - - - - Capex to sales (%) 4.9 7.9 17.6 29.2 16.4 Capex to depreciation (x) 2.3 2.9 6.3 6.2 2.2

ROE (%) 6.1 20.2 2.3 17.6 21.5 ROA (pretax %) 5.4 (10.0) 2.2 8.9 10.5

Growth (%)Revenue 1.8 (25.3) 15.9 11.1 14.0 EBITDA (48.1) (149.3) na 218.4 65.1

EBIT (65.1) (305.7) na 560.0 53.8

Normalised EPS (69.6) (370.1) na 1,314.4 52.3 Normalised FDEPS (69.6) (370.1) na 1,314.4 52.3

Per shareReported EPS (RM) 0.12 0.24 0.01 0.21 0.31Norm EPS (RM) 0.12 (0.32) 0.01 0.21 0.31Fully diluted norm EPS (RM) 0.11 (0.31) 0.01 0.21 0.31Book value per share (RM) 2.04 0.36 1.03 1.31 1.62DPS (RM) - - - - - Source: Nomura estimates

Cost-cutting to continue in FY10F-12F, resulting in costs rising at a slower pace, while the top line rebounds on improving yields

Malaysian Airline System Jacinda Loh


Cashflow (RMmn)


EBITDA 633 (312) 522 1,662 2,745Change in working capital (1,328) 1,822 (922) (433) (216)Other operating cashflow 71 (3,158) 451 563 502Cashflow from operations (624) (1,648) 51 1,792 3,030Capital expenditure (764) (914) (2,361) (4,348) (2,779)Free cashflow (1,387) (2,561) (2,310) (2,557) 252Reduction in investments (15) (8) - - - Net acquisitionsReduction in other LT assets 81 195 (120) - - Addition in other LT liabilities 114 613 (727) - - Adjustments (200) (12) - (21) (69)Cashflow after investing acts (1,408) (1,772) (3,158) (2,578) 183Cash dividendsEquity issue 0 - 1,671 - - Debt issue 546 865 2,788 2,936 1,098Convertible debt issueOthersCashflow from financial acts 546 865 4,459 2,936 1,098Net cashflow (862) (907) 1,301 358 1,280Beginning cash 4,434 3,572 2,665 3,966 4,324Ending cash 3,572 2,665 3,966 4,324 5,605Ending net debt (2,273) (832) 278 3,415 4,127Source: Nomura estimates



Cash & equivalents 3,572 2,665 3,966 4,324 5,604Marketable securities - - - - - Accounts receivable 2,020 1,447 1,969 2,236 2,549Inventories 380 385 525 1,043 1,359Other current assets 795 287 287 287 287Total current assets 6,767 4,785 6,748 7,891 9,800LT investments 73 81 81 81 81Fixed assets 2,465 3,044 5,096 8,740 10,246Goodwill 106 110 110 110 110Other intangible assets 1 34 34 34 34Other LT assets 659 464 584 584 584Total assets 10,072 8,518 12,653 17,440 20,856Short-term debt 425 288 434 603 469Accounts payable 2,409 2,236 2,596 2,947 3,360Other current liabilit ies 2,054 2,973 2,354 2,354 2,354Total current liabilities 4,887 5,497 5,383 5,904 6,183Long-term debt 873 1,545 3,810 7,137 9,262Convertible debt - - - - - Other LT liabilities 114 727 - - - Total liabilities 5,875 7,770 9,193 13,040 15,446Minority interest 11 12 12 12 12Preferred stock - - - - - Common stock 1,671 1,671 3,342 3,342 3,342Retained earnings (2,129) (5,590) (5,542) (4,852) (4,091)Proposed dividends - - - - -

Other equity and reserves 4,643 4,655 5,647 5,897 6,147Total shareholders' equity 4,186 736 3,448 4,388 5,398


Liquidity (x)

Current ratio 1.38 0.87 1.25 1.34 1.59 Interest cover 5.0 (7.4) 1.4 4.0 3.8

LeverageNet debt/EBITDA (x) net cash na 0.53 2.05 1.50

Net debt/equity (%) net cash net cash 8.1 77.8 76.5


Gearing to climb on the back of new fleet expansion


Maxis Communications MAXIS MK

TELECOMS | MALAYSIA




Potential for operational uplift? Can it improve its operational trends?

Since 4Q08, Maxis has lost about 4% revenue market share to its cellular peers, reaching 42% (2Q10) from 46%. Its recent trends have not been encouraging either – 2% y-y revenue growth in 1H10 has lagged peers and so has its 2% EBITDA decline.

However, Maxis’ RM1.4bn investment plan in FY10 is ahead of peers (RM700mn to RM1.0bn) and this could improve its network quality and support a more robust subscriber growth. In broadband, Maxis could get more active – drive higher network coverage and offer more aggressive price plans. Also, it could gain more traction with its integrated services – fixed line telephony and broadband, which currently generate only 2% of total revenue.

In order to tap these opportunities, effective execution will be a key necessity, as we expect the market to be relatively more competitive, driven by incumbents and the recent service launch by YTL.

Ordinary dividend may not be incrementally attractive

Maxis’ 6% ordinary dividend remains appealing, but may not be incrementally attractive, in our view. As such, we expect the company to be more active with capital management over the next 12 months. This remains feasible, as even with a RM50¢/share total dividend (8-9% yield) for FY10, Maxis’ FY11F gearing will remain reasonable i.e. ~1.3x net-debt / EBITDA, below its stated 1.75-2.0x target.

Valuation remains expensive at 17x FY11PE

Maxis’ 17x FY11F PE is at a 23% premium to regional telcos, which are trading at 13-14x. Its 9.6x FY11F EV/EBITDA remains expensive too and in the absence of any near-term catalysts, we maintain our NEUTRAL rating.





Norm. EPS growth (%) (3.7) (0.5) 3.1 1.8

Norm. P/E (x) 17.2 17.3 16.8 16.5

EV/EBITD A (x) 10.1 9.8 9.6 9.3

Price/book (x) 4.4 4.5 4.5 4.5

Dividend yield (%) 2.8 6.0 6.0 6.0

ROE (%) 42.6 25.8 26.8 27.3

Net debt/equity (%) 43.5 53.2 56.1 56.3

Earnings revisions






1m 3m 6m

0.4 (1.5) 1.9

(1.5) (2.3) 6.9

2.1 (6.1) (15.8)

Hard


12,603

30.0

52-week range (RM)


Absolute (RM)

Absolute (US$)

Relat ive to Index


Market cap (U S$mn)

5.52/5.12

Vanguard

Stock borrowability

0.6


MCB 70.0

7.48

5.0

5.1

5.2

5.3

5.4

5.5

5.6

De

c09

Jan

10

Feb

10

Ma

r10

Apr

10

May

10

Jun

10

Jul1

0

Au

g10

Sep

10

Oct

10

Nov

10

80

85

90

95

100

105

Price



Price target RM5.45(set on 25 Aug 10)



Nomura vs consensus Our NPAT estimates are below consensus, as we believe the risk to Maxis’ margins are to the downside.

Maintained

NEUTRAL

Action We believe Maxis could get more aggressive to gain higher market share in FY11F

even at the cost of margins. With its planned RM1.4bn capex in FY10 (higher than peers) and initiatives in delivering demand-based fixed line services, driving y-y subscriber growth could be relatively easier, in our view. However, execution will be a challenge in the face of competition from incumbents, as well new (WiMAX) entrants. We see Maxis’ 6% ordinary yield as reasonable, but potential capital management (with 8-9% yield) should drive incremental interest.

Catalysts Capital management; operational improvement in cellular and broadband metrics.

Anchor themes

With a saturated cellular market, incremental subscriber growth is limited. Maxis’ focus will be to drive data usage and take leadership in Broadband.


Maxis Communications B Roshan Raj





Revenue 8,450 8,611 9,139 9,633 10,021Cost of goods sold (2,651) (2,797) (2,981) (3,159) (3,271)Gross profit 5,799 5,814 6,158 6,473 6,751SG&A (2,592) (2,759) (2,709) (2,971) (3,211)Employee share expenseOperating profit 3,207 3,055 3,449 3,503 3,540

EBITDA 4,402 4,337 4,524 4,671 4,793Depreciation (1,149) (1,224) (1,019) (1,112) (1,197)Amortisation (46) (59) (56) (56) (56)EBIT 3,207 3,055 3,449 3,503 3,540Net interest expense 18 (48) (355) (312) (293)Associates & JCEs - - - - - Other income - - - - - Earnings before tax 3,225 3,007 3,094 3,191 3,247Income tax (827) (775) (797) (822) (837)Net profit after tax 2,398 2,232 2,297 2,368 2,410Minority interests - - - - - Other items - 77 - - - Preferred dividends - - - - - Normalised NPAT 2,398 2,309 2,297 2,368 2,410Extraordinary items - (77) - - - Reported NPAT 2,398 2,232 2,297 2,368 2,410

Dividends (720) (1,125) (2,400) (2,400) (2,400)Transfer to reserves 1,678 1,107 (103) (32) 10


ROE (%) 213.6 42.6 25.8 26.8 27.3 ROA (pretax %) 330.1 32.9 20.5 20.5 20.6

Growth (%)Revenue na 1.9 6.1 5.4 4.0 EBITDA na (1.5) 4.3 3.2 2.6

EBIT na (4.7) 12.9 1.6 1.1

Normalised EPS na (3.7) (0.5) 3.1 1.8 Normalised FDEPS na (3.7) (0.5) 3.1 1.8


Expect mid- to low-single digit revenue growth

Maxis Communications B Roshan Raj


Cashflow (RMmn)


EBITDA 4,402 4,337 4,524 4,671 4,793Change in working capital (1,249) 1,712 (457) (197) (40)Other operating cashflow 69 (2,924) (1,159) (1,052) (1,088)Cashflow from operations 3,222 3,125 2,908 3,422 3,665Capital expenditure (796) (1,222) (1,398) (1,263) (1,287)Free cashflow 2,426 1,903 1,510 2,159 2,378Reduction in investments - - - - - Net acquisitions - - - - - Reduction in other LT assets 1 1,023 - - - Addition in other LT liabili ties (8) (13) - - - Adjustments - - - - - Cashflow after investing acts 2,419 2,913 1,510 2,159 2,378Cash dividends - (2,555) (2,325) (2,400) (2,400)Equity issue - (1) - - - Debt issue - 704 2,008 (750) (500)Convertible debt issue - - - - - Others (1,943) (1,067) - - - Cashflow from financial acts (1,943) (2,919) (317) (3,150) (2,900)Net cashflow 476 (5) 1,193 (991) (522)Beginning cash 721 1,197 1,192 2,385 1,393Ending cash 1,197 1,192 2,385 1,393 871Ending net debt (529) 3,889 4,704 4,946 4,968Source: Nomura estimates



Cash & equivalents 1,197 1,192 2,385 1,393 871Marketable securities - - - - - Accounts receivable 473 796 757 798 830Inventories 21 134 134 134 134Other current assets 33 10 10 10 10Total current assets 1,724 2,132 3,286 2,335 1,845LT investments - - - - - Fixed assets 186 4,555 4,912 5,063 5,153Goodwill 35 11,019 11,111 11,055 10,999Other intangible assets - - - - - Other LT assets 1,195 92 92 92 92Total assets 3,140 17,798 19,401 18,546 18,089Short-term debt 238 89 89 89 89Accounts payable 934 3,166 2,670 2,514 2,505Other current liabilities 14 56 56 56 56Total current liabilities 1,186 3,311 2,815 2,659 2,650Long-term debt 430 4,992 7,000 6,250 5,750Convertible debt - - - - - Other LT liabilities - 550 745 827 869Total liabilities 1,616 8,853 10,560 9,735 9,269Minority interest - - - - - Preferred stock - - - - - Common stock 1,294 750 750 750 750Retained earnings - - - - - Proposed dividends - - - - -



Liquidity (x)

Current ratio 1.45 0.64 1.17 0.88 0.70 Interest cover na 63.6 9.7 11.2 12.1

LeverageNet debt/EBITDA (x) net cash 0.90 1.04 1.06 1.04

Net debt/equity (%) net cash 43.5 53.2 56.1 56.3


Strong balance sheet with room for incremental gearing


Media Prima MPR MK

MEDIA & INTERNET/MEDIA | MALAYSIA


Watch this space TV adex gaining further market share

Excluding Astro, overall TV adex jumped 21% to RM2.1bn y-y in 9M2010, outpacing newspaper adex increase of 15%. TV adspend now accounts for 37% this year from 36% in 2009 and 30% back in 2005. By comparison, GDP growth was 7.6% over the same period. For FY11F, we expect TV adex increase of 10% to continue to outpace print’s adex growth of 5%.

Print segment: adex growth offset by rising costs

Media Prima’s top selling newspaper, Harian Metro, has seen its circulation rise nearly 20% y-y to ~415K/day. However, we estimate a mere 3% growth in pretax earnings for the print segment given the rising newsprint costs, now at US$720/tonne from <US$600/tonne a year ago.

Potential increase in the dividend payout

Management has raised the upper limit of its dividend policy to 75% from 50%. Media Prima’s free cash flow is expected to be higher than its net profit while net gearing is forecast to fall to 0.2x by end 2011. Thus, the group can certainly afford to raise its payout ratio to 75%, which would offer a yield of 5% next year.

Target price of RM2.90 implies 21% upside

Our DCF-based price target of RM2.90 is based on a discount rate of 10.3% (risk free rate 3.75%, beta of 1.3x and a terminal growth rate of 2%). Media Prima is at an FY11F EV/EBITDA of 7.4x, compared with the regional average of 7.7x. On a P/E basis, it is also attractively valued at 15.1x FY11F P/E compared with the regional average of 18x, in our view.





Norm. EPS growth (%) (75.5) 259.4 17.9 16.1

Norm. P/E (x) 65.8 18.3 15.5 13.4

EV/EBITDA (x) 21.2 8.6 7.6 6.6

Price/book (x) 2.5 2.3 2.1 2.0

Dividend yield (%) 3.8 2.7 3.2 3.7

ROE (%) 25.8 18.8 14.2 15.3

Net debt/equity (%) 45.9 27.4 19.6 12.2

Earnings revisions






1m 3m 6m

8.6 15.5 12.2

6.6 14.5 17.7

10.2 10.7 (5.0)

Hard


759

55.0

2.40/1.60

0.67

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

12.5


Employees Provident Fund Board 23.4

52-week range (RM)


Amanah Raya Bhd


1.5

1.7

1.9

2.1

2.3

2.5

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80

90

100

110

120

130

Price

Rel MSCI Malays ia(RM)


Price target RM2.90(set on 24 Aug 10)



Nomura vs consensus Our FY11F net profit is 4% higher than consensus primarily on the back of stronger top line growth.

Maintained

BUY


Action We think the TV division will precipitate 18% growth in Media Prima’s net earnings

for FY11F, while the print segment grapples with rising newsprint costs. Dividends could surprise on the upside given the group’s strong free cash flow and low net gearing.

Catalysts Continued high utilisation of ad space by top-tier advertisers should improve overall

margins and potential ad rate hikes in the TV segment.

Anchor themes

Malaysia’s strong population growth rate is feeding into the consumption boom. Coupled with healthy economic growth, adex spend is expected to remain strong into 2011. We expect to see TV gaining adex market share at the expense of print.

Media Prima Julian Chua


Could be revised to 75% based on new dividend policy




Revenue 815 754 1,501 1,607 1,739Cost of goods soldGross profit 815 754 1,501 1,607 1,739SG&A (657) (687) (1,268) (1,347) (1,444)Employee share expenseOperating profit 158 67 234 261 294

EBITDA 197 117 317 348 387Depreciation (39) (51) (84) (88) (92)Amortisation - - - - - EBIT 158 67 234 261 294Net interest expense (20) (24) (37) (29) (25)Associates & JCEs 21 17 - - - Other income 1 1 2 3 3Earnings before tax 159 60 199 235 272Income tax (42) (24) (50) (59) (68)Net profit after tax 118 36 149 176 204Minority interests 14 - (2) (2) (2)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 131 36 148 174 202Extraordinary items (45) 159 53 - - Reported NPAT 86 195 201 174 202



ROE (%) 15.5 25.8 18.8 14.2 15.3 ROA (pretax %) 16.1 5.5 12.0 13.1 14.5

Growth (%)Revenue 11.7 (7.4) 99.1 7.0 8.2 EBITDA 1.1 (40.4) 170.2 9.8 11.0

EBIT 0.4 (57.6) 249.8 11.6 13.0



Media Prima Julian Chua


Net debt forecast to fall to 0.2x in FY11F

Cashflow (RMmn)


EBITDA 197 117 317 348 387Change in working capital (81) (19) (7) (4) (7)Other operating cashflow (80) 136 (33) (86) (92)Cashflow from operations 36 235 277 258 288Capital expenditure (51) (61) (58) (64) (71)Free cashflow (15) 173 219 193 217Reduction in investments (14) 120 9 (6) (6)Net acquisitionsReduction in other LT assets (10) (60) - - - Addition in other LT liabilities 3 51 - - - Adjustments 27 (799) (27) (28) (29)Cashflow after investing acts (9) (515) 201 160 182Cash dividends (41) (90) (74) (87) (101)Equity issue 12 92 49 - - Debt issue 28 207 48 (130) (60)Convertible debt issueOthers (67) 406 (60) 2 2Cashflow from financial acts (68) 614 (37) (215) (159)Net cashflow (77) 99 164 (55) 23Beginning cash 128 51 150 314 258Ending cash 51 150 314 258 281Ending net debt 332 440 324 249 167Source: Nomura estimates



Cash & equivalents 51 150 314 258 281Marketable securities - - - - - Accounts receivable 280 325 366 392 424Inventories 0 123 126 129 134Other current assets 47 2 2 2 2Total current assets 378 600 807 781 841LT investments 362 242 233 239 245Fixed assets 213 748 750 754 762GoodwillOther intangible assets 179 403 403 403 403Other LT assets 33 93 93 93 93Total assets 1,165 2,086 2,286 2,270 2,343Short-term debt 154 196 145 135 125Accounts payable 191 306 343 368 399Other current liabilit ies 31 20 20 20 20Total current liabilities 376 522 507 522 543Long-term debt 229 394 493 373 323Convertible debtOther LT liabilities 20 71 71 71 71Total liabilities 625 986 1,071 966 936Minority interest (12) 141 33 34 36Preferred stockCommon stock 854 945 994 994 994Retained earnings (525) (410) (283) (196) (95)Proposed dividends

Other equity and reserves 222 423 471 471 471Total shareholders' equity 551 958 1,182 1,269 1,371


Liquidity (x)



Net debt/equity (%) 60.1 45.9 27.4 19.6 12.2

Activity (days)Days receivable 120.1 146.5 84.1 86.2 85.9 Days inventory na na na na naDays payable na na na na naCash cycle na na na na naSource: Nomura estimates


Public Bank PBKF MK



Few upside catalysts Better value found in Maybank and CIMB

Public historically enjoyed very strong quality growth coupled with highly efficient operations. It has the lowest cost-income ratio (~33%) of any bank. This, however, comes at a steep premium – the stock trades at a FY11F P/BV of 3.2x. While we like the bank’s ability to execute, we think its historical advantages over its peers are narrowing. For example, both Maybank and CIMB now expect mid-teens level consumer loan growth, which is similar to Public’s current domestic run-rate of about 16%. In terms of asset quality, Maybank and CIMB’s credit costs (at 47bps and 44bps respectively for FY11F) are also trending nearer to Public at ~40bps.

Basel III compliance: a non-issue for the near term

Although the long lead-time to comply means that there is unlikely to be near-term capital raising, the level of countercyclical buffer and additional capital for systemically important banks is unknown. Public’s core Tier 1 ratio at 7.1% currently is just above the 7% minimum excluding the countercyclical buffer. This means Public Bank will retain its dividend payout levels of 50-55% to support a loan/asset growth of about 15%. Management has highlighted the possibility of a fresh cash call in 2015-2016 if Bank Negara imposes a higher-than-expected countercyclical buffer.

Bank aiming for a loan growth target of 15% for FY11F

Management remains bullish on the domestic consumer business, which will continue to drive the group loan growth next year. However, due to the stiffening competition in the mortgage and auto space, the bank expects NIMs to compress by 10-15bps. Our FY11F loan growth forecast of 13% is lower than management’s target of 15%, as we believe competition in the mortgage market is intensifying.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FPPOP 4,015 4,595 5,120 5,650




Norm. EPS growth (%) 4.2 15.5 10.1 9.9

Norm. P/E (x) 17.5 15.1 13.6 12.4

Price/adj. book (x) 4.10 3.63 3.22 2.89

Price/book (x) 4.10 3.63 3.22 2.89

Dividend yield (%) 3.1 3.6 4.0 4.8

ROE (%) 24.5 25.3 24.9 24.4

ROA (%) 1.22 1 .28 1.29 1.30

Earnings revisions






1m 3m 6m

0.5 4.6 11.7

(1.4) 3.7 17.1

2.2 (0.1) (5.5)

Hard


52-week range (RM)


EPF


14.8


Tan Sri Teh Hong Piow 24.1

Absolute (RM)

Absolute (US$)

Relative to Index



75.0

12.86/10.74

5.29

1011111212131314

De

c09

Jan1

0

Feb

10

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Au

g10

Sep

10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus While the Street likes Public’s strong operating metrics (high loan growth, low credit costs, efficient business), we consider this largely priced-in.

Maintained

NEUTRAL


Action On a YTD basis, Public Bank has lagged its large bank peers, Maybank and CIMB.

While earlier concerns of near-term capital raising have abated with the long lead-time to comply with Basel III, we do not foresee major changes to the bank’s dividend policy just yet. Maintain NEUTRAL.

Catalysts Favourable developments on the Basel III front, including a more modest counter-

cyclical buffer, could lead to an upward re-rating of the stock.

Anchor themes


Public Bank Julian Chua


Forecast dividend payout at the upper end of management’s guidance




Interest income 8,290 7,353 9,150 11,530 13,100Interest expense (4,562) (3,317) (4,510) (6,380) (7,380)Net interest income 3,727 4,036 4,640 5,150 5,720Net fees and commissions 975 1,023 1,120 1,180 1,280Trading related profits 22 68 50 70 - Other operating revenue 815 997 1,105 1,200 1,320Non-interest income 1,812 2,089 2,275 2,450 2,600Operating income 5,539 6,125 6,915 7,600 8,320Depreciation (119) (133) (140) (140) (150)Amortisation 0 0 0 0 0Operating expenses (1,672) (1,976) (2,180) (2,340) (2,520)Employee share expenseOp. profit before provisions 3,748 4,015 4,595 5,120 5,650Provisions for bad debt (581) (706) (577) (656) (737)Other provision chargesOperating profit 3,167 3,309 4,018 4,464 4,913Other non-operating incomeAssociates & JCEs 12 12 10 10 10Pre-tax profit 3,179 3,321 4,028 4,474 4,923Income tax (757) (770) (1,007) (1,119) (1,231)Net profit after tax 2,423 2,552 3,021 3,356 3,692Minority interests (41) (34) (50) (60) (70)Other items

Preferred dividendsNormalised NPAT 2,381 2,517 2,971 3,296 3,622Extraordinary items 200 0 0 0 0Reported NPAT 2,581 2,517 2,971 3,296 3,622Dividends (1,366) (1,424) (1,629) (1,812) (2,180)Transfer to reserves 1,215 1,094 1,343 1,483 1,442


Growth (%)Net interest income 14.9 8.3 15.0 11.0 11.1 Non-interest income (3.0) 15.3 8.9 7.7 6.1 Non-interest expenses 5.1 18.2 10.3 7.3 7.7 Pre-provision earnings 9.7 7.1 14.4 11.4 10.4 Net profit 12.1 5.7 18.0 10.9 9.9 Normalised EPS 12.0 4.2 15.5 10.1 9.9 Normalised FDEPS 12.8 2.8 16.3 10.9 9.9 Source: Nomura estimates

Public Bank Julian Chua


Excluding hybrids, core equity Tier 1 at just above 7%



Cash and equivalents 36,597 43,480 40,000 41,000 41,000Inter-bank lending 1,941 3,183 6,870 6,870 6,870Deposits with central bank 2,637 1,022 1,165 1,265 1,366Total securities 30,405 27,944 32,000 32,000 38,000Other interest earning assetsGross loans 120,319 137,610 158,200 178,000 200,000Less provisions (1,932) (2,275) (2,659) (2,974) (3,592)Net loans 118,386 135,336 155,541 175,026 196,408Long-term investments 128 128 75 75 75Fixed assets 1,369 1,410 1,350 1,350 1,350Goodwill 2,072 2,058 2,058 2,058 2,058Other intangible assetsOther non IEAs 2,628 2,575 6,379 7,429 1,643Total assets 196,163 217,136 245,438 267,073 288,769Customer deposits 151,185 170,892 202,000 222,000 242,000Bank deposits, CDs, debentures 16,684 22,614 10,000 10,000 10,000Other interest bearing liabilities 13,902 8,667 16,704 16,704 16,704Total interest bearing liabilities 181,772 202,173 228,704 248,704 268,704Non interest bearing liabilities 4,163 3,248 3,526 3,526 3,526Total liabilities 185,934 205,421 232,230 252,230 272,230Minority interest 692 692 740 800 870Common stock 3,532 3,532 3,532 3,532 3,532Preferred stockRetained earnings 1,903 2,870 4,528 6,103 7,729Proposed dividends









Sime Darby SIME MK



Love the unloved BUY on CPO outlook and restructuring

We are Bullish on Sime Darby with a BUY rating on an improved outlook for the palm oil sector (we recently upgraded CPO prices by 5-12%) as well as improving sentiment surrounding the group’s restructuring. Sime Darby’s strong liquidity and large index-weighting could be also seen as a good proxy to improving sentiment on Malaysia. Risks to the group include poor execution of its restructuring and a sharp fall in CPO prices.

Writedown woes behind us – look to the future

The new group CEO at the FY10 results briefing had come out to reassure investors that there would be no more write-downs stemming from the four infamous projects (where write-downs amounted to close to RM2.1bn in FY10/June). Other businesses within the group, including plantations, heavy industrials, autos and property remain unaffected operationally, and as the group moves away from the issues, we believe that the market will re-focus itself on the growth drivers of the company.

Focus on low hanging fruit, but execution will be key

Recently appointed CEO Dato’ Bakke Salleh has management experience across various industries. Focus for the group will be in four steps: to turnaround the Energy & Utilities business, maximise potential across businesses, improve corporate culture and review the group’s portfolio mix. With the E&U turnaround underway, we believe that the next focus will be enhancing the business. Dato’ Bakke identified low-hanging fruit, such as improving Sime’s low CPO oil extraction rates, where a 1% increase could improve plantation EBIT by 1.7% on our estimates.

Key financials & valuations30 Jun (RMmn) FY10 FY11F FY12F FY13FRevenue 32,952 36,945 41,427 46,125

Reported net profit 727 3,266 3,744 4,011

Normalised net profit 727 3,266 3,744 4,011


Norm. EPS growth (%) (68.1) 349.4 14.6 7.1

Norm. P/E (x) 71.4 15.9 13.9 12.9

EV/EBITDA (x) 18.9 9.0 8.0 7.5

Price/book (x) 2.5 2.3 2.2 2.0

Dividend yield (%) 0.7 3.1 4.0 4.3

ROE (%) 3.5 15.4 16.3 16.3

Net debt/equity (%) 12.5 15.7 17.2 17.2

Earnings revisions






1m 3m 6m

(2.7) 2.7 11.8

(4.5) 1.9 17.2

(0.9) (2.0) (5.4)

Hard


16,443

28.6

9.10/7.50

17.84

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

15.3


Permodalan Nasional Bhd 56.1

52-week range (RM)




7

8

8

9

9

De

c09

Jan

10

Fe

b10

Mar

10

Ap

r10

May

10

Jun1

0

Jul1

0

Au

g10

Se

p10

Oct

10

No

v10

707580859095100105

Price






Nomura vs consensus We think the street may be under-estimating the restructuring potential of the group post its large write-downs last year.

Maintained

BUY

Action We are bullish on Sime Darby on the back of our improved outlook for CPO prices

and compelling valuations. We believe that the company provides a compelling re-rating story post its Oil & Gas issues last fiscal year, as the new management gets underway with its plans. Further, Sime Darby’s non-plantations business enjoys a healthy outlook from exposure to strong Asian economic performance.

Catalysts Proof of the new management’s ability to improve performance and drive efficiency,

as well as sustained high CPO prices will likely support a re-rating.

Anchor themes

Tighter global vegetable oils outlook, stronger crude oil prices and a weaker US$ lead us to expect higher CPO prices for FY11 – a key positive driver for upstream earnings and valuations.


Sime Darby Ken Arieff Wong


Sharp drop from more than RM2bn in the energy division writedowns, which should no longer recur.




Revenue 31,014 32,952 36,945 41,427 46,125Cost of goods sold (27,045) (29,709) (30,884) (34,559) (38,755)Gross profit 3,969 3,243 6,060 6,868 7,370SG&A (818) (967) (1,256) (1,386) (1,516)Employee share expenseOperating profit 3,151 2,276 4,804 5,481 5,854

EBITDA 3,969 3,243 6,060 6,868 7,370Depreciation (818) (967) (1,256) (1,386) (1,516)AmortisationEBIT 3,151 2,276 4,804 5,481 5,854Net interest expense (94) (170) (194) (193) (191)Associates & JCEs 15 (364) 106 113 121Other incomeEarnings before tax 3,072 1,742 4,715 5,401 5,784Income tax (731) (887) (1,179) (1,350) (1,446)Net profit after tax 2,341 855 3,536 4,051 4,338Minority interests (61) (128) (270) (308) (329)Other items - - - 1 2Preferred dividendsNormalised NPAT 2,280 727 3,266 3,744 4,011Extraordinary itemsReported NPAT 2,280 727 3,266 3,744 4,011

Dividends (1,145) (363) (1,633) (2,059) (2,206)Transfer to reserves 1,135 363 1,633 1,685 1,805


ROE (%) 10.6 3.5 15.4 16.3 16.3 ROA (pretax %) 10.3 5.9 14.1 14.5 14.1

Growth (%)Revenue (8.9) 6.2 12.1 12.1 11.3 EBITDA (32.9) (18.3) 86.9 13.3 7.3

EBIT (38.3) (27.8) 111.1 14.1 6.8



Sime Darby Ken Arieff Wong


Increasing net debt to ~20% has been a target set by the previous management

Cashflow (RMmn)


EBITDA 3,969 3,243 6,060 6,868 7,370Change in working capital (1,735) 1,786 (662) (763) (514)Other operating cashflow (1,288) (1,398) (2,635) (1,665) (1,602)Cashflow from operations 946 3,631 2,763 4,440 5,254Capital expenditure (2,123) (2,993) (3,000) (3,000) (3,000)Free cashflow (1,178) 637 (237) 1,440 2,254Reduction in investments (201) 124 (138) (142) (146)Net acquisitions 87 162 (101) (101) (101)Reduction in other LT assets 125 (273) (359) (395) (435)Addition in other LT liabilities (457) 5 62 (20) (54)Adjustments 645 603 922 922 922Cashflow after investing acts (979) 1,258 149 1,704 2,440Cash dividends (2,366) (1,145) (363) (1,633) (2,059)Equity issue - - 1 2 3Debt issue 778 1,983 251 261 271Convertible debt issueOthers (270) (700) (700) (700) (699)Cashflow from financial acts (1,858) 138 (812) (2,070) (2,484)Net cashflow (2,836) 1,396 (662) (366) (43)Beginning cash 6,474 3,638 5,033 4,371 4,005Ending cash 3,638 5,033 4,371 4,005 3,961Ending net debt 1,970 2,556 3,470 4,097 4,411Source: Nomura estimates



Cash & equivalents 3,638 5,033 4,371 4,005 3,961Marketable securities - - - - - Accounts receivable 5,875 5,263 5,901 6,617 7,367Inventories 5,627 5,217 5,849 6,558 7,302Other current assets 2,665 3,275 3,655 4,099 4,285Total current assets 17,804 18,787 19,775 21,278 22,915LT investments 4,718 4,595 4,732 4,874 5,021Fixed assets 9,470 10,844 12,564 13,864 15,164Goodwill 129 109 109 109 109Other intangible assets - - - - - Other LT assets 3,318 3,591 3,950 4,345 4,780Total assets 35,440 37,926 41,130 44,470 47,988Short-term debt 3,594 3,302 3,467 3,641 3,823Accounts payable 6,421 7,056 7,911 8,871 9,876Other current liabilit ies 593 1,331 1,464 1,610 1,771Total current liabilities 10,607 11,689 12,842 14,122 15,471Long-term debt 2,013 4,287 4,373 4,461 4,550Convertible debt - - - - - Other LT liabilities 814 819 881 861 807Total liabilities 13,434 16,795 18,096 19,443 20,827Minority interest 621 681 951 1,259 1,589Preferred stock - - - - - Common stock 3,005 3,005 3,005 3,005 3,005Retained earnings 10,683 10,060 11,693 13,378 15,183Proposed dividends - - - - -



Liquidity (x)



Net debt/equity (%) 9.2 12.5 15.7 17.2 17.2



SP Setia SPSB MK

PROPERTY | MALAYSIA


Hitting the right notes Well ahead of RM2bn sales target

SP Setia reported YTD sales of RM2.1bn as of end-September, exceeding its October year-end target of RM2bn. The icing on the cake came in early October, when SP Setia took the top spot in the Edge Malaysia’s Property Developers Awards 2010, regaining the lead it had commanded between 2005 and 2008. Sustainable core sales of at least RM2.5bn may be expected, according to management, with a potential for RM3bn if macro conditions remain favourable (core sales have not included overseas projects). Based on this sales target, we think at least 20% pa EPS growth is achievable for FY11F-12F.

New launches to continue driving sales

Despite having already hit its FY10F target, SP Setia continued to push on with the official launch on 21 October of its RM5bn GDV Setia City commercial/retail/hotel development within Setia Alam, which saw well over 1,000 people queue up to bid for 48 shophouse units. Sales here should reaffirm SP Setia’s execution capability for large-scale mixed developments, especially ones located outside of the city centre, boding well for the upcoming KL Eco City launch. At the recent KL Property Fair, the company saw its newly launched 102 terrace housing units hit a 90% take-up in two days. We believe that the September acquisition of 259 acres of land in Johor suggests the company is confident in the Johor market.

Maintain BUY, with PT of RM6.11

We believe the upcoming KL Eco City launch and news on plans for the recently acquired Johor landbank (SP Setia targets completion of the acquisition by FY11F) remain key catalysts for P/BV expansion. Given its diversified exposure with arguably the best execution track record amid the property up-cycle and strong demand, we believe the stock will trade closer to the implied P/BV of 2.8x (versus levels as high as 3x in previous up-cycles).

Key financials & valuations31 Oct (RMmn) FY09 FY10F FY11F FY12FRevenue 1,408 1,569 1,826 2,128




Norm. EPS growth (%) (8.6) 16.8 20.7 22.3

Norm. P/E (x) 31.1 26.6 22.0 18.0

EV/EBITDA (x) 30.3 22.7 17.8 14.6

Price/book (x) 2.6 2.5 2.4 2.3

Dividend yield (%) 2.0 2.3 2.7 3.3

ROE (%) 8.5 9.6 11.1 12.9

Gearing (%) 0.0 0.0 0.0 0.0

Earnings revisions






1m 3m 6m

3.1 14.4 34.7

1.2 13.5 41.3

4.8 9.6 18.6

Hard


52-week range (RM)

EPF


14.8


PNB 27.9

1,689

46.2


Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

5.27/3.53

3.40

3.3

3.8

4.3

4.8

5.3

5.8

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

9095100105110115120125130

Price






Nomura vs consensus With its diversified exposure, continued launches and recent Johor land acquisition, we think SP Setia is the best all-round play into the Malaysian consumption boom.

Maintained

BUY


Action SP Setia’s 11-month sales of RM2.1bn exceeded its full year target of RM2bn,

while sustainable core sales target of RM2.5bn can be expected, according to management (potentially RM3bn if macro conditions remain favourable). Based on this target, we think at least 20% EPS growth for FY11F-12F is achievable. Our PT implies a P/BV of 2.7x, which we think is fair given our Bullish view on Malaysia residential and the company’s record sales and healthy pipeline. The shares have traded as high as 3x in past up-cycles.

Catalysts The launch of KL Eco City, continued momentum from Setia City and Setia Alam,

and announcement of plans for the newly acquired Johor land in FY11F.

Anchor themes

Compelling demographics and improving affordability are driving a consumption boom in Malaysia which is likely to fuel property demand for the next decade.

SP Setia Jacinda Loh




Year-end 31 Oct FY08 FY09 FY10F FY11F FY12F

Investment propertiesProperty developmentHotels/serviced apartmentsOther RevenueRevenue 1,328 1,408 1,569 1,826 2,128EBIT contributionsInvestment propertiesProperty developmentHotels/serviced apartmentsOther incomeManagement expensesEBITDA 210 195 250 328 389Depreciation and amortisation (11) (14) (16) (19) (23)EBIT 199 181 234 309 366Net interest expense 10 (3) (3) (3) (3)Associates & JCEs 15 (0) 11 8 28Other income 40 54 54 54 54Earnings before tax 264 231 296 368 444Income tax (78) (60) (78) (96) (116)Net profit after tax 187 171 218 272 328Minority interests 0 (0) (18) (30) (32)Other items - - - - - Preferred dividends - - - - - Normalised NPAT 187 171 200 242 296Extraordinary items 27 - - - - Reported NPAT 213 171 200 242 296Dividends (129) (107) (120) (145) (177)Transfer to reserves 85 64 80 97 118

Valuation and ratio analysisFD normalised P/E (x) 28.4 31.1 26.6 22.0 18.0 FD normalised P/E at price target (x) 33.1 36.2 31.0 25.7 21.0 Reported P/E (x) 24.8 31.1 26.6 22.0 18.0 Dividend yield (%) 2.4 2.0 2.3 2.7 3.3 Price/cashflow (x) 13.2 8.9 20.3 18.1 16.1 Price/book (x) 2.7 2.6 2.5 2.4 2.3 EV/EBITDA (x) 25.3 30.3 22.7 17.8 14.6 EV/EBIT (x) 26.6 32.6 24.2 18.9 15.5 EBIT margin (%) 15.0 12.8 14.9 16.9 17.2 Effective tax rate (%) 29.4 25.9 26.3 26.1 26.2 Dividend payout (%) 60.4 62.3 60.0 60.0 60.0 ROA (pretax %) 8.2 6.2 7.8 9.4 10.6

Growth (%)Revenue 15.1 6.0 11.4 16.4 16.6 EBITDA (22.1) (7.1) 28.3 31.4 18.4 EBIT (24.1) (9.2) 29.4 32.2 18.3 Normalised EPS (26.0) (8.6) 16.8 20.7 22.3 Normalised FDEPS (25.4) (8.6) 16.8 20.7 22.3


New launches like KL Eco City and Setia City to drive further revenue in addition to solid contributors like Setia Alam

SP Setia Jacinda Loh


Cashflow (RMmn)

Year-end 31 Oct FY08 FY09 FY10F FY11F FY12F

EBITDA 210 195 250 328 389Change in working capital 85 (150) (108) (213) (238)Other operating cashflow 107 550 120 179 180Cashflow from operations 401 595 262 294 331Capital expenditure (109) (60) (53) (55) (58)Free cashflow 293 535 210 239 273Reduction in investmentsNet acquisitionsReduction in other LT assetsAddition in other LT liabilitiesAdjustments 27 (150) (114) (185) (219)Cashflow after investing acts (34) 277 96 54 54Cash dividends (166) - (129) (133) (161)Equity issue 85 (114) - - - Debt issue 287 130 (219) - - Convertible debt issueOthers 16 - - - - Cashflow from financial acts 223 16 (348) (133) (161)Net cashflow 188 293 (251) (79) (107)Beginning cash 405 593 886 634 555Ending cash 593 886 634 555 448Ending net debt 368 552 585 664 770Source: Nomura estimates


As at 31 Oct FY08 FY09 FY10F FY11F FY12FCash & equivalents 593 886 634 555 449Properties held for saleAccounts receivable 241 327 369 436 516Other current assets 942 1,097 1,207 1,419 1,669Total current assets 1,805 2,337 2,239 2,444 2,673Investment propertiesOther fixed assets (net) 80 146 153 150 157AssociatesOther LT assets 129 60 71 79 107Total assets 3,316 3,952 3,873 4,082 4,346Short-term debt 74 331 331 331 331Accounts payable 221 307 336 381 444Other current liabilit ies 156 160 177 202 236Total current liabilities 451 797 844 914 1,011Long-term debt 886 1,107 888 888 888Convertible debtOther LT liabilities 3 2 1 1 1Total liabilities 1,340 1,907 1,733 1,803 1,901Minority interest 0 - 18 48 81Preferred stockShareholders' EquityOther equity and reserves 267 280 284 284 284Total shareholders' equity 1,975 2,045 2,121 2,230 2,365Total equity & liabilities 3,316 3,952 3,873 4,082 4,346

LeverageInterest cover na 57.9 73.9 113.0 115.9 Gross debt/property assets (%)Net debt/EBITDA (x) 1.75 2.84 2.34 2.02 1.98 Net debt/equity (%) 18.6 27.0 27.6 29.8 32.6

Dupont decompositionNet margin (%) 16.1 12.2 12.8 13.2 13.9 Asset utilisation (x)ROA (%) 8.2 5.9 6.4 7.1 8.0 Leverage (Assets/Equity x)ROE (%) 11.2 8.5 9.6 11.1 12.9 Source: Nomura estimates

Expanding ROE from rebounding net margin moving away from 2009


Supermax Corporation BerhadSUCB MK

HEALTHCARE & PHARMACEUTICALS | MALAYSIA


Turnaround continues Demand rebound seen for FY11F

Visibility remains for three months ahead and we expect a strong rebound in 1Q11F as some of its products are oversold until Jan-Mar 2011. Prices have also been raised overall by 8-10% to offset the escalating latex price and RM appreciation (both appreciating 4% in 3Q10). A rebound in demand, especially from European customers, should propel margin rebounds moving forward; average volumes (measured in pieces of gloves sold) in the past few quarters rose 20% y-y with no sequential contraction seen. Utilisation rates remain at 80-90%, as industry headwinds in the form of cost and revenue pressures of latex appreciation and RM appreciation have seen most other players delaying expansion plans.

Diverse product mix and brand strategy

Management expects to beef up its nitrile powder-free production to attain a more diversified product mix (from the current 21% to 30% of its total capacity) given the continued volatility of natural rubber prices. However, natural rubber latex production will continue to be a focus should cost headwinds reverse, returning the price premiums of nitrile gloves to historical levels (currently c. on par with natural rubber latex now). It is the only manufacturer to pursue an own-brand manufacturing strategy, with 6 distribution centres in the US, Brazil and Europe.

BUY opportunity at 7x FY11F P/E for second largest glovemaker

At 7x FY11F P/E currently, Supermax’s valuation is + 1SD from its historical mean. However, we see a 3-year EPS CAGR of 17% and more improved operations arising from its write-off of an ailing investment in APLI driving a continued re-rating of the stock, and we believe that current single digit P/E multiples are attractive entry points for the world’s second largest glovemaker.





Norm. EPS growth (%) 44.5 25.0 20.7 5.6

Norm. P/E (x) 10.7 8.6 7.1 6.7

EV/EBITDA (x) 8.0 6.5 5.2 4.7

Price/book (x) 2.6 2.1 1.7 1.4

Dividend yield (%) 1.8 2.3 2.8 3.0

ROE (%) 26.5 26.8 25.8 22.4

Net debt/equity (%) 31.5 18.1 8.1 0.6

Earnings revisions






1m 3m 6m

(4.6) (15.5) (15.8)

(6.4) (16.2) (11.7)

(2.8) (20.0) (34.4)

Hard


52-week range (RM)

Datin Seri Cheryl Tan


15.3


Dato Seri Stanley Thai 20.7

464.7

58.0


Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

6.55/3.11

3.88

2.7

3.7

4.7

5.7

6.7

7.7

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80100120140160180200220

Price

Rel MSCI Malaysia


Price target RM7.00(set on 17 Jun 10)



Nomura vs consensus We believe its pricing ability should remain intact into FY11F, which should help it deliver on its earnings guidance of 15-20% growth.

Maintained

BUY


Action Supermax is experiencing a demand rebound moving into early FY11F delivery and

at its recent 3Q10 results it introduced an earnings growth target of 15-20% for FY11F despite current RM appreciation and latex price headwinds. Its niche in producing dental gloves and its own-brand manufacturing presence is likely to ensure a stable earnings outlook. A 7x P/E for FY11F and a 3-year EPS CAGR of 17% remain compelling for the world’s second largest glovemaker. Maintain BUY.

Catalysts Catalysts for this stock are better-than-expected growth from its distribution arms

and positive demand uptake following US healthcare reforms.

Anchor themes

While easy wins are over, we believe value remains as structural demand growth is still evident. Since initiation, the world’s largest glovemaker is our top picks for more resilient margins, diversified revenue base and efficient cost structures.

Supermax Corporation Berhad Jacinda Loh





Revenue 812 815 1,061 1,172 1,373Cost of goods sold (604) (572) (785) (855) (1,049)Gross profit 208 243 277 317 324SG&A (109) (110) (114) (120) (126)Employee share expense - - - - - Operating profit 99 132 162 197 198

EBITDA 128 164 196 234 236Depreciation (29) (31) (34) (37) (38)Amortisation - - - - - EBIT 99 132 162 197 198Net interest expense (20) (17) (13) (12) (12)Associates & JCEs 19 42 50 60 78Other income - - - - - Earnings before tax 97 158 200 246 265Income tax (5) (22) (31) (42) (49)Net profit after tax 92 135 169 204 215Minority interests - - - - - Other items - - - - - Preferred dividends - - - - - Normalised NPAT 92 135 169 204 215Extraordinary items (17) (5) - - - Reported NPAT 76 130 169 204 215



ROE (%) 18.8 26.5 26.8 25.8 22.4 ROA (pretax %) 13.4 20.1 23.3 24.0 22.8


EBIT 32.0 34.0 22.6 21.6 0.4

Normalised EPS 21.9 44.5 25.0 20.7 5.6 Normalised FDEPS 21.9 44.5 25.0 20.7 5.6


Low tax rate due to reinvestment and investment tax allowances

Supermax Corporation Berhad Jacinda Loh


Cashflow (RMmn)


EBITDA 128 164 196 234 236Change in working capital (38) 91 (38) (31) (39)Other operating cashflow (37) (19) (60) (43) (51)Cashflow from operations 53 236 97 159 147Capital expenditure (39) (23) (43) (58) (30)Free cashflow 15 213 55 102 117Reduction in investments (20) (39) (50) (60) (78)Net acquisitions (19) - - - - Reduction in other LT assets 5 (0) (1) (1) (1)Addition in other LT liabilities (7) 1 - - - Adjustments 23 39 52 63 81Cashflow after investing acts (4) 213 56 103 118Cash dividends (9) (19) (26) (34) (41)Equity issue 0 4 - - - Debt issue 35 - - - - Convertible debt issue - - - - - Others (20) (110) (13) (13) (13)Cashflow from financial acts 6 (125) (39) (46) (54)Net cashflow 2 88 16 57 65Beginning cash 29 31 119 135 192Ending cash 31 119 135 192 257Ending net debt 375 176 128 71 6Source: Nomura estimates



Cash & equivalents 31 119 135 192 257Marketable securities - - - - - Accounts receivable 241 140 218 241 282Inventories 136 106 161 187 220Other current assets - - - - - Total current assets 407 365 514 620 759LT investments 116 155 205 265 344Fixed assets 383 374 384 405 396Goodwill 29 29 29 29 29Other intangible assets - - - - - Other LT assets 11 11 12 13 15Total assets 947 934 1,144 1,333 1,543Short-term debt 231 129 129 129 129Accounts payable 109 61 164 182 217Other current liabilit ies 4 12 4 4 4Total current liabilities 343 202 296 314 350Long-term debt 175 165 134 134 134Convertible debt - - - - - Other LT liabilities 8 9 9 9 9Total liabilities 526 376 439 457 493Minority interest - - - - - Preferred stock - - - - - Common stock 133 134 134 134 134Retained earnings 203 317 460 630 805Proposed dividends 4 - 4 4 4

Other equity and reserves 81 107 107 107 107Total shareholders' equity 420 558 705 875 1,050

Total equity & liabilities 947 934 1,144 1,333 1,543

Liquidity (x)



Net debt/equity (%) 89.1 31.5 18.1 8.1 0.6



Telekom Malaysia T MK

TELECOMS | MALAYSIA




Another step ahead with HSBB

Expect HSBB’s traction to improve

With bulk of the fibre being rolled out this year end i.e.750k premises, reaching 1.1mn premises (our estimate) by FY11 remains achievable, and this should improve HSBB’s addressable market and a pick-up in subscriber net-adds appears likely, in our view. Also, altering HSBB’s price and content strategy to stimulate higher HSBB take-up rates could be explored, in our view. In turn, this could provide upside to our modest 1% (FY11) and 3% (FY12) revenue contribution forecasts.

Separately, TM's legacy DSL service (Streamyx) is likely to be expanded to interior areas and could see continued subscriber growth despite DSL to fibre migration in the most urban areas. In areas where Streamyx to HSBB migration is limited or HSBB does not exist, we expect TM to re-work its Streamyx pricing, bundling and service quality issues to fend off competition from wireless alternatives.

Voice expected to decline; data offers opportunity

Although the pace of voice revenue decline has slowed to 6% y-y decline in 1H10, the risk remains to the downside, as voice usage and fixed line subs are expected to decline, in our view. Hence, data and internet growth is likely to be the key focus area on both the copper and the newly rolled out HSBB network. We forecast 10-12% growth in data and internet traffic during FY11-12F — higher growth will be a positive in our view.

Room for medium-term capital management

With an estimated >7% FCF yield in FY11F versus a 6% dividend yield (implied by RM700mn dividend) and strong balance sheet at 1.1x net-debt/EBITDA, we see room for capital management over the medium term. We believe the risk to TM’s capex remains to the downside and a higher than ordinary payout remains feasible.





Norm. EPS growth (%) (64.2) 6.5 15.0 6.8

Norm. P/E (x) 26.0 24.4 21.2 19.9

EV/EBITD A (x) 5.0 5.5 5.2 5.0

Price/book (x) 1.7 1.8 1.8 1.8

Dividend yield (%) 5.8 5.7 5.7 5.7

ROE (%) 7.5 9.2 8.4 9.1

Net debt/equity (%) 46.1 48.5 46.8 43.3

Earnings revisions






1m 3m 6m

1.5 (2.8) 3.6

(0.4) (3.6) 8.7

3.2 (7.5) (14.0)

Hard


3,864

36.8

52-week range (RM)


Absolute (RM)

Absolute (US$)

Relat ive to Index


Market cap (U S$mn)

3.58/2.99

Employees Provident Fund Board

Stock borrowability

11.1


Khazanah Nasional Berhad 41.8

6.52

2.93.03.13.23.33.43.53.63.7

De

c09

Jan

10

Feb

10

Ma

r10

Apr

10

May

10

Jun

10

Jul1

0

Au

g10

Sep

10

Oct

10

Nov

10

90

95

100

105

110

115

Price



Price target RM4.00(set on 28 Apr 10)


FY11F net profit (RMmn) 574Difference from consensus 0.0%Source: Nomura

Nomura vs consensus Our price target is above consensus, as we expect TM’s revenue and earnings to benefit from growth in data, while capex levels are likely to decline.

Maintained

BUY


Action In FY11, with the expected expansion in TM’s fibre (HSBB) build out to 1.1mn

premises, a pick-up in HSBB’s take-up rates appears likely. We also expect TM to review its HSBB price-content mix (lower price and higher content) to make it more appealing vis-à-vis the wireless alternatives. Also, we remain positive on HSBB’s wholesale agreements being worked out in 1H11 and see upside to our HSBB net-adds and revenue over FY11-12. TM’s gearing remains reasonable at 1.0x and capex is likely to decline – we see room for capital management. Maintain BUY.

Catalysts Solid HSBB net adds and payout of a special dividend could be positive catalysts.

Anchor themes

We expect data and non-voice growth to offset the decline in voice revenue. Low broadband penetration implies solid growth potential – both fixed and wireless.

Telekom Malaysia B Roshan Raj





Revenue 8,675 8,608 8,739 8,994 9,277Cost of goods sold (3,830) (3,805) (3,941) (4,034) (4,161)Gross profit 4,845 4,803 4,797 4,960 5,116SG&A (4,115) (3,739) (3,711) (3,973) (4,096)Employee share expenseOperating profit 729 1,065 1,087 987 1,020

EBITDA 2,917 3,103 2,900 3,004 3,081Depreciation (2,188) (2,038) (1,814) (2,017) (2,061)AmortisationEBIT 729 1,065 1,087 987 1,020Net interest expense (205) (184) (195) (182) (163)Associates & JCEs (0) 1 1 1 1Other income (170) 41 - - - Earnings before tax 354 922 892 805 858Income tax (78) (248) (223) (201) (214)Net profit after tax 276 673 669 604 643Minority interests (109) (30) (30) (30) (30)Other items 1,106 (175) (140) - - Preferred dividendsNormalised NPAT 1,272 468 499 574 613Extraordinary items (481) 175 140 - - Reported NPAT 792 643 639 574 613

Dividends (700) (707) (700) (700) (700)Transfer to reserves 92 (63) (61) (126) (87)


ROE (%) 5.3 7.5 9.2 8.4 9.1 ROA (pretax %) 2.4 5.8 6.4 5.6 5.7

Growth (%)Revenue 4.6 (0.8) 1.5 2.9 3.1 EBITDA (9.9) 6.4 (6.5) 3.6 2.6

EBIT (21.3) 46.0 2.1 (9.2) 3.4



Reasonable revenue growth for an incumbent fixed-line operator

Telekom Malaysia B Roshan Raj


We expect balance sheet gearing to decline

Cashflow (RMmn)


EBITDA 2,917 3,103 2,900 3,004 3,081Change in working capital (7,221) 4,733 60 2 22Other operating cashflow 7,795 (4,612) (418) (383) (378)Cashflow from operations 3,492 3,224 2,542 2,623 2,726Capital expenditure (1,839) (2,516) (2,233) (1,742) (1,749)Free cashflow 1,653 707 309 881 976Reduction in investments - - - - - Net acquisitionsReduction in other LT assets - - - - - Addition in other LT liabili ties - - - - - Adjustments (298) 4,895 252 - - Cashflow after investing acts 1,355 5,602 561 881 976Cash dividends (2,521) (731) (700) (700) (700)Equity issueDebt issue (112) (272) (1,000) (750) (500)Convertible debt issueOthers (799) (3,203) - - - Cashflow from financial acts (3,431) (4,207) (1,700) (1,450) (1,200)Net cashflow (2,077) 1,396 (1,139) (569) (224)Beginning cash 4,172 2,095 3,491 2,351 1,782Ending cash 2,095 3,491 2,351 1,782 1,559Ending net debt 4,905 3,223 3,362 3,181 2,905Source: Nomura estimates



Cash & equivalents 2,095 3,491 2,351 1,782 1,559Marketable securitiesAccounts receivable 2,891 2,284 2,319 2,386 2,462Inventories 123 111 111 111 111Other current assets 4,303 295 183 183 183Total current assets 9,412 6,180 4,963 4,462 4,313LT investmentsFixed assets 11,772 12,330 13,610 13,808 13,497GoodwillOther intangible assets 2 313 313 313 313Other LT assets 1,347 1,119 1,120 1,120 1,121Total assets 22,533 19,943 20,006 19,704 19,244Short-term debt 35 917 917 917 917Accounts payable 2,848 2,949 3,043 3,113 3,211Other current liabilities 589 576 576 576 576Total current liabilities 3,471 4,441 4,536 4,606 4,703Long-term debt 6,965 5,797 4,797 4,047 3,547Convertible debtOther LT liabilities 1,622 2,575 3,575 4,048 4,048Total liabilities 12,059 12,813 12,907 12,700 12,298Minority interest 227 143 173 203 233Preferred stockCommon stock 7,761 4,555 4,555 4,555 4,555Retained earnings 2,487 2,432 2,371 2,245 2,158Proposed dividends

Other equity and reservesTotal shareholders' equity 10,248 6,988 6,926 6,800 6,713


Liquidity (x)



Net debt/equity (%) 47.9 46.1 48.5 46.8 43.3



Tenaga Nasional TNB MK

POWER & UTILITIES | MALAYSIA

Daniel Raats +852 2252 2197 [email protected]

Ivan Lee, CFA +852 2252 6213 [email protected]

Lack of credible catalysts Approaching another capex cycle

On the back of a rebound in power demand in 2010 (+9%y-y) and with Bakun no longer destined to serve Peninsular Malaysia, the focus has once again turned to adding capacity. TNB is expected to add a further 1600MW to its capacity base over FY10/16F, with scope for an additional 1,000MW by 2016 should it successfully bid for the government’s second coal-fired capacity allocation in FY11F.

Cost pressure looming

With Malaysia’s generation mix increasingly tilted towards coal-fired capacity and management’s coal cost guidance for FY11F raised to US$100/MT-US$102/MT (US$88.2/MT in FY10), notwithstanding the partially alleviating impact of a strengthening ringgit, we expect increased margin pressure in the coming financial year should tariffs remain unchanged.

Tariff outlook uncertain, ROICs lagging

With Malaysia’s election looming we believe the implementation of structural reforms to natural gas prices and TNB’s tariff setting mechanism, both in our view prerequisites for a sustainable re-rating of this name, is an increasingly remote upside risk. An escalating fixed cost base and a diminishing contribution margin led by higher coal costs and disproportionate volume growth in the low margin industrial consumer segment does not bode well for a narrowing spread between TNB’s ROIC (~6%) and WACC (~8.4%) in FY11F.

Lack of credible catalysts; Maintain NEUTRAL

Despite our continued positive stance on TNB’s undemanding valuations (12.8x/1.1x FY12F PER/PB) and its leverage to an appreciating ringgit, we see no credible near-term catalyst to support a sustainable re-rating. Maintain NEUTRAL.

Key financials & valuations31 Aug (RMmn) FY10 FY11F FY12F FY13FRevenue 30,320 32,013 33,121 34,431Reported net profit 3,202 3,190 3,053 3,100


Normalised EPS (RM) 0.59 0.64 0.66 0.71Norm. EPS growth (%) 19.0 8.8 2.8 7.9 Norm. P/E (x) 14.3 13.1 12.8 11.8EV/EBITDA (x) 6.4 6.0 5.6 5.3

Price/book (x) 1.3 1.2 1.1 1.0

Dividend yield (%) 2.9 1.8 2.5 2.0ROE (%) 11.7 10.7 9.4 8.8

Net debt/equity (%) 44.9 41.7 32.5 28.0

Earnings revisionsPrevious norm. net profit 2,796 2,874 3,100

Change from previous (%) - - - Previous norm. EPS (RM) 0.64 0.66 0.71



1m 3m 6m (3.6) (5.9) 2.0 (5.4) (6.6) 7.0

(1.8) (10.5) (15.6)

Hard


14.8

Major shareholders (%)Khazanah Nasional 35.6

52-week range (RM)3-mth avg daily turnover (US$mn)


Stock borrowability

11,647

40.1

9.24/7.8120.07

Absolute (RM)Absolute (US$)

Relative to Index


Market cap (US$mn)

8

8

9

9

10

Dec

09

Jan1

0

Feb

10

Ma

r10

Apr

10

Ma

y10

Jun

10

Jul1

0

Au

g10

Se

p10

Oct

10

No

v10

80

85

90

95

100

105

Price

Rel MSCI Malaysia





Nomura vs consensus Our above consensus FY11F profit reflect anticipated paper-revaluations gain on TNB’s yen and US$ debts; on a normalised basis our forecasts modestly below consensus.

Maintained

NEUTRAL

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

Action While TNB will likely benefit from an appreciating ringgit through its US$ and yen

debt and the containment of internationally sourced coal costs, with elections looming we believe the implementation of structural reforms to natural gas prices and TNB’s tariff setting mechanism – a precondition to a sustainable rerating of this name – are unlikely over the near term. We maintain our NEUTRAL stance.

Catalysts Although unlikely over the near-term given looming elections, we believe reform to

Malaysia’s tariff setting mechanism would underpin a sharp re-rating of TNB.

Anchor themes

We are broadly more positive on Indonesian and Philippine power markets given tight supply, robust medium-term consumption growth expectations and, for the latter, an unregulated generation sector and pro-investment regulatory regime.

Tenaga Nasional Daniel Raats


…even factoring unflattering return metrics

Valuations are in very attractive risk-reward territory, in our view



Year-end 31 Aug FY09 FY10 FY11F FY12F FY13F

Revenue 28,786 30,320 32,013 33,121 34,431Cost of goods sold (16,974) (17,379) (18,675) (19,416) (20,127)Gross profit 11,811 12,941 13,338 13,704 14,304SG&A (8,470) (9,141) (9,198) (9,621) (10,042)Employee share expenseOperating profit 3,342 3,800 4,140 4,084 4,262

EBITDA 6,903 7,751 8,282 8,450 8,859Depreciation (3,538) (3,926) (4,118) (4,343) (4,572)Amortisation (24) (24) (24) (24) (24)EBIT 3,342 3,800 4,140 4,084 4,262Net interest expense (950) (861) (759) (616) (510)Associates & JCEs 33 45 36 37 38Other income 357 382 360 375 392Earnings before tax 2,782 3,366 3,777 3,880 4,182Income tax (690) (802) (965) (990) (1,066)Net profit after tax 2,092 2,564 2,812 2,889 3,116Minority interests 65 5 (16) (15) (16)Other itemsPreferred dividendsNormalised NPAT 2,157 2,569 2,796 2,874 3,100Extraordinary items (1,239) 633 394 179 - Reported NPAT 918 3,202 3,190 3,053 3,100

Dividends (577) (1,067) (665) (928) (740)Transfer to reserves 341 2,135 2,525 2,124 2,360


ROE (%) 3.6 11.7 10.7 9.4 8.8 ROA (pretax %) 5.2 5.9 6.3 6.0 6.1


EBIT 2.9 13.7 8.9 (1.4) 4.4



Tenaga Nasional Daniel Raats


Modest gearing

Cashflow (RMmn)

Year-end 31 Aug FY09 FY10 FY11F FY12F FY13F

EBITDA 6,903 7,751 8,282 8,450 8,859Change in working capital 479 (162) 531 (45) (72)Other operating cashflow (983) 619 (1,651) (1,085) (982)Cashflow from operations 6,399 8,207 7,162 7,320 7,805Capital expenditure (4,128) (3,776) (5,500) (5,000) (6,000)Free cashflow 2,271 4,431 1,662 2,320 1,805Reduction in investments 18 - 37 (37) (38)Net acquisit ions (3) - - - - Reduction in other LT assets 11 5 78 24 24Addition in other LT liabilities 865 - (493) 186 202Adjustments (776) (5) 378 (174) (188)Cashflow after investing acts 2,385 4,431 1,662 2,320 1,805Cash dividends (477) (621) (946) (744) (872)Equity issue 15 98 - - - Debt issue (1,205) (703) (3,241) (1,354) (1,149)Convertible debt issueOthers 61 (1,025) (1,184) - - Cashflow from financial acts (1,605) (2,250) (5,371) (2,098) (2,021)Net cashflow 780 2,181 (3,709) 222 (216)Beginning cash 5,384 6,164 8,345 4,636 4,858Ending cash 6,164 8,345 4,636 4,858 4,642Ending net debt 16,452 12,919 12,835 11,080 10,147Source: Nomura estimates


As at 31 Aug FY09 FY10 FY11F FY12F FY13F

Cash & equivalents 6,164 8,345 4,636 4,858 4,642Marketable securities 21 81 21 21 21Accounts receivable 3,774 3,881 4,201 4,348 4,522Inventories 1,956 2,451 2,105 2,277 2,453Other current assets 44 37 47 49 50Total current assets 11,959 14,796 11,010 11,553 11,688LT investments 343 390 413 450 488Fixed assets 58,227 58,032 60,160 61,818 63,246GoodwillOther intangible assetsOther LT assets 834 864 786 762 738Total assets 71,363 74,081 72,369 74,582 76,159Short-term debt 1,158 3,163 1,595 1,390 1,254Accounts payable 5,604 5,597 6,407 6,661 6,905Other current liabilities 501 941 645 667 703Total current liabilities 7,263 9,701 8,647 8,718 8,862Long-term debt 21,458 18,101 15,876 14,548 13,535Convertible debt - - - - - Other LT liabilities 16,596 17,465 16,972 17,158 17,360Total liabilities 45,317 45,267 41,495 40,424 39,756Minority interest 40 36 73 88 104Preferred stockCommon stock 4,337 4,353 4,337 4,337 4,337Retained earnings 15,480 18,389 19,854 23,403 25,448Proposed dividends 325 425 747 465 650



Liquidity (x)



Net debt/equity (%) 63.3 44.9 41.7 32.5 28.0



UEM Land Holdings Berhad ULHB MK

PROPERTY | MALAYSIA


“Free” lunch ahead Undervalued landbank, beneficiary of warming Mal-Sing

relations

UEM Land’s 8,379-acre landbank can be monetised for anywhere between RM12psf and RM180psf, according to our estimates. Strategic land sales have historically contributed 16-79% of the top-line. While management emphasises its commitment to three avenues of earnings, namely property, residential development and construction, we believe the absence of a long-standing track record versus peers is likely to ensure that the most credible form of valuation in the near- to mid-term will be in bulk based on its landbank value. Budget 2011 announcements increasing home affordability for houses priced < RM350,000 are likely to benefit the Johor market and UEM Land’s new projects in that price range, in our view.

Potential upside from land swap, landbank purchase, Sunrise deal

Recent newsworthy deals between the governments of Malaysia and Singapore (ie, railway land swap, wellness project development) have been cited as the biggest breakthroughs in Sing-Malay bilateral relations in four decades with expected record Singapore investments in the Iskandar Development Region this year. This, we believe, bodes well for UEM Land’s landbank capital appreciation and proposed residential developments in the long term. We estimate that full acceptance and consolidation of Sunrise’s projects could lift RNAV / PT by 8% to RM3.11. We also expect consolidated earnings to double while FY11F P/E halves.

BUY and RNAV-based PT of RM2.88

Our RNAV-based valuation is based on recently transacted land values in the area, as well as the NPV of on-going projects. Our PT of RM2.88 implies a price tag of RM28psf in the Johor market, where land sales range from RM12psf (for raw land) to RM180psf (for prime commercial land) of late.

Key financials & valuations31 Dec (RMmn) FY09 FY10F FY11F FY12FRevenue 468 239 542 807




Norm. EPS growth (%) 54.9 (55.9) 59.5 30.6

Norm. P/E (x) 46.3 105.1 65.9 50.5

EV/EBITDA (x) 72.8 108.3 63.5 46.2

Price/book (x) 3.4 3.0 2.9 2.7

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 8.0 3.6 4.5 5.6

Gearing (%) 19.8 8.0 9.9 11.4

Earnings revisions






1m 3m 6m

(5.3) 24.6 55.5

(7.1) 23.6 63.0

(3.5) 19.7 40.4

Hard


52-week range (RM)




Khazanah Nasional 77.0

Absolute (RM)

Absolute (US$)

Relative to Index



23.0

2.49/1.15

6.05

1.01.21.41.61.82.02.22.42.6

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

80

100

120

140

160

180

Price






Nomura vs consensus Consensus is split. We are positive on the unlocking of landbank value on political breakthroughs and the Johor market, which is a key beneficiary of the Budget 2011 home ownership measures.

Maintained

BUY


Action Our BUY call is premised on an undervalued landbank, which we think will re-rate

on warming Sing-Malay relations. Our PT of RM2.88 implies a RM28psf price tag on its 8,379-acre landbank in Johor, where land sales range from RM12psf to RM180psf of late. As Khazanah’s flagship development arm, it stands to benefit from development of the land swap parcels, which we estimate to be worth 16% more than UEM Land’s current market cap. Implied upside of 35% to our PT exists on a potential full incorporation of Sunrise’s projects into UEM’s RNAV.

Catalysts Continued news flow on catalytic developments, land sales and further JV tie-ups,

plus positive outcomes of further warming of Sing-Malay relations.

Anchor themes

Compelling demographics and improving affordability are driving a consumption boom in Malaysia, which is likely to fuel property demand for the next decade.

UEM Land Holdings Berhad Jacinda Loh





Investment properties - - - - - Property development 506 399 239 542 807Hotels/serviced apartments - - - - - Other Revenue 101 69 - - - Revenue 607 468 239 542 807EBIT contributionsInvestment propertiesProperty development 66 83 38 90 134Hotels/serviced apartmentsOther incomeManagement expensesEBITDA 68 86 43 96 141Depreciation and amortisation (2) (3) (5) (7) (8)EBIT 66 83 38 90 134Net interest expense (6) (8) (7) (6) (7)Associates & JCEs 11 29 29 29 29Other income 3 23 23 23 23Earnings before tax 74 127 82 135 178Income tax (1) (14) (7) (15) (21)Net profit after tax 73 113 75 120 157Minority interests (1) (1) (1) (2) (3)Other itemsPreferred dividendsNormalised NPAT 72 112 74 118 154Extraordinary itemsReported NPAT 72 112 74 118 154DividendsTransfer to reserves 72 112 74 118 154

Valuation and ratio analysisFD normalised P/E (x) 71.8 46.3 105.1 65.9 50.5 FD normalised P/E at price target (x) 97.1 62.7 142.1 89.1 68.3 Reported P/E (x) 71.8 46.3 105.1 65.9 50.5 Dividend yield (%) - - - - - Price/cashflow (x) na na na 50.7 41.9 Price/book (x) 4.1 3.4 3.0 2.9 2.7 EV/EBITDA (x) 104.9 72.8 108.3 63.5 46.2 EV/EBIT (x) 107.9 74.8 117.1 67.0 48.4 EBIT margin (%) 10.9 17.7 15.9 16.5 16.5 Effective tax rate (%) 0.9 11.0 8.8 11.2 11.7 Dividend payout (%) - - - - - ROA (pretax %) 2.7 3.5 1.9 3.1 4.0

Growth (%)Revenue (67.6) (22.9) (49.0) 127.0 49.0 EBITDA (84.0) 26.2 (49.7) 122.0 47.1 EBIT (84.5) 25.6 (54.4) 136.7 49.0 Normalised EPS (88.0) 54.9 (55.9) 59.5 30.6 Normalised FDEPS (88.0) 54.9 (55.9) 59.5 30.6

Per shareReported EPS (RM) 0.03 0.05 0.02 0.03 0.04Norm EPS (RM) 0.03 0.05 0.02 0.03 0.04Fully diluted norm EPS (RM) 0.03 0.05 0.02 0.03 0.04Book value per share (RM) 0.51 0.63 0.70 0.74 0.78DPS (RM) - - - - - Source: Nomura estimates

Look beyond FY10F (where property development is still in gestation period) to a pick-up in sales / launches as well as continued landbank monetizing via strategic tie-ups and outright sales

UEM Land Holdings Berhad Jacinda Loh


Cashflow (RMmn)


EBITDA 68 86 43 96 141Change in working capital (80) 142 (437) (226) (47)Other operating cashflow (20) (250) 164 283 91Cashflow from operations (32) (22) (229) 153 185Capital expenditure (27) (23) (16) (16) (17)Free cashflow (59) (44) (245) 137 168Reduction in investmentsNet acquisitionsReduction in other LT assets 5 (329) - - - Addition in other LT liabilities (11) 31 (1) - - Adjustments (53) 282 (185) (275) (91)Cashflow after investing acts (118) (61) (431) (139) 77Cash dividends - - - - - Equity issue 85 (114) 965 - - Debt issue (161) 130 1 2 3Convertible debt issue - - - - - Others 193 134 (361) 100 100Cashflow from financial acts 117 150 605 102 103Net cashflow (1) 89 174 (37) 179Beginning cash 27 27 116 290 254Ending cash 27 116 290 254 433Ending net debt 572 585 21 160 83Source: Nomura estimates


As at 31 Dec FY08 FY09 FY10F FY11F FY12FCash & equivalents 27 116 290 254 433Properties held for sale 29 36 - - - Accounts receivable 447 499 499 499 499Other current assets 855 718 894 1,189 1,297Total current assets 1,358 1,369 1,684 1,942 2,229Investment properties - 29 29 29 29Other fixed assets (net) 12 57 67 77 87Associates 40 99 128 156 185Other LT assets 1,650 1,979 1,979 1,979 1,979Total assets 3,061 3,533 3,887 4,184 4,509Short-term debt 9 9 11 13 16Accounts payable 390 333 37 106 166Other current liabilit ies 224 345 345 345 345Total current liabilities 622 687 392 464 527Long-term debt 591 691 300 400 500Convertible debt - - - - - Other LT liabilities 145 176 175 175 175Total liabilities 1,358 1,554 868 1,039 1,202Minority interest 452 453 454 456 460Preferred stock - - - - - Shareholders' Equity 1,214 1,216 1,821 1,821 1,821Other equity and reserves 36 310 744 867 1,026Total shareholders' equity 1,250 1,526 2,565 2,688 2,847Total equity & liabilities 3,061 3,533 3,887 4,184 4,509

LeverageInterest cover 10.4 11.0 5.4 15.4 20.1 Gross debt/property assets (%) 19.6 19.8 8.0 9.9 11.4 Net debt/EBITDA (x) 8.40 6.80 0.48 1.66 0.59 Net debt/equity (%) 45.8 38.3 0.8 5.9 2.9

Dupont decompositionNet margin (%) 11.9 23.9 30.9 21.7 19.0 Asset utilisation (x) 0.2 0.1 0.1 0.1 0.2 ROA (%) 2.5 3.4 2.0 2.9 3.5 Leverage (Assets/Equity x) 2.4 2.4 1.8 1.5 1.6 ROE (%) 5.9 8.0 3.6 4.5 5.6 Source: Nomura estimates

Fluctuations due to y-y changes in capitalized development costs as its property development projects are carried out


WCT Bhd WCT MK




Has run its course, time to pause 3Q FY10 below expectations; construction disappointed

WCT reported 3Q earnings of RM31mn (down 8% y-y and 10% q-q). 9M FY10 earnings were 10% below Street expectations. Construction disappointed with a 16% drop y-y and 3% drop q-q in op profit. Property development op income was up y-y and q-q and margins improved. 9M formed only 67% of full-year consensus estimates and could lead to possible earnings downgrades.

Property development & management to grow over time

Property development op income improved 204% y-y and 79% q-q to RM29mn in 3Q and operating margins improved sequentially by 4ppt to 34%. WCT is gearing up for new launches and targeting new landbank as its existing property projects mature. WCT’s venture into high-margin luxury and commercial property development should provide margin uptick in the property segment, in our view. WCT is also trying to increase its property management earnings, but significant inflection in these earnings will take some time, in our view.

One of the few companies with healthy accretion to OB

Construction disappointed in 3Q with reduced earnings. Margins improved which could be due to strong JV contribution as reflected by a sharp rise in minority interest income. However, WCT has won sufficient projects over the past year. With recent project wins worth RM1.48bn, WCT looks on track to deliver RM2bn in inflows, as guided for initially. WCT may also get a good share in LRT packages, Pahang Selangor piping works and Iskandar shopping mall tenders, to be announced soon. We believe healthy accretion in the order book should ensure strong construction earnings growth medium term.

We see limited upside, maintain NEUTRAL

Valuations at 18x CY11PE, (at 0.4 SD above historical mean) look expensive, trading close to upcycle range. Maintain NEUTRAL. IJM remains our top pick among local players due to its diversified model.





Norm. EPS growth (%) 43.0 3.5 25.4 24.7

Norm. P/E (x) 15.8 18.3 17.4 14.0

EV/EBITDA (x) 7.5 5.9 3.1 2.2

Price/book (x) 1.9 1.3 0.9 0.9

Dividend yield (%) 2.4 2.3 2.9 3.6

ROE (%) 12.1 10.1 8.9 9.2

Net debt/equity (%) 22.7 net cash net cash net cash

Earnings revisions






1m 3m 6m

(4.2) 4.2 11.7

(6.0) 3.4 17.1

(2.4) (0.5) (5.5)

Hard


738

48.2

3.27/2.48

2.76

Absolute (RM)

Absolute (US$)

Relative to Index


Market cap (US$mn)

20.7



52-week range (RM)


WCT Capital


2.4

2.6

2.8

3.0

3.2

3.4

De

c09

Jan

10

Feb1

0

Mar

10

Apr

10

May

10

Jun1

0

Jul1

0

Aug

10

Sep

10

Oct

10

No

v10

90

95

100

105

110

115

Price






Nomura vs consensus We believe the stock has limited upside on rich valuations. We have already built in strong earnings growth for FY11 and FY12, and we believe risks are on the downside.

Maintained

NEUTRAL


Action WCT reported weak 3Q FY10 earnings with 9M at 10% below Street expectations.

Construction disappointed with reduced earnings. WCT is looking to increase its exposure and earnings stream from property development and investment assets, but that will take some time, in our view. Trading at 18x CY11 P/E, close to its upcycle range, WCT looks expensive to us. Considering possible Street earnings downgrades post results, we maintain NEUTRAL on WCT.

Catalysts Positive catalysts including newsflow regarding the MRT project and other awards

in Malaysia, India and the Middle East. On the downside, slowdown in property momentum and delay in awards may pressure the stock.

Anchor themes

Malaysia plans to achieve construction sector growth of 5-6% over the next two years, compared to 2-3% growth delivered by the sector over the past few years.

WCT Bhd Tanuj Shori


Margin expansion to pick up in FY10-11F




Revenue 3,795 4,667 2,208 2,591 3,049Cost of goods sold (3,613) (4,422) (1,936) (2,257) (2,644)Gross profit 182 244 272 334 405SG&AEmployee share expenseOperating profit 182 244 272 334 405

EBITDA 256 331 367 429 500Depreciation (74) (87) (95) (95) (95)Amortisation - - - - - EBIT 182 244 272 334 405Net interest expense (44) (50) (51) (54) (54)Associates & JCEs 21 17 13 15 16Other incomeEarnings before tax 159 211 235 295 368Income tax (13) 5 (66) (83) (103)Net profit after tax 146 216 169 212 265Minority interests (44) (69) (17) (21) (26)Other items (0) (0) 0 0 0Preferred dividendsNormalised NPAT 102 147 152 191 238Extraordinary items - - - - - Reported NPAT 102 147 152 191 238


Valuation and ratio analysisFD normalised P/E (x) 22.8 15.8 18.3 17.4 14.0 FD normalised P/E at price target (x) 26.9 18.7 21.6 20.6 16.5 Reported P/E (x) 22.6 15.8 15.2 12.2 9.7 Dividend yield (%) 2.4 2.4 2.3 2.9 3.6 Price/cashflow (x) na 9.4 11.9 8.3 7.1 Price/book (x) 1.9 1.9 1.3 0.9 0.9 EV/EBITDA (x) 9.9 7.5 5.9 3.1 2.2 EV/EBIT (x) 13.5 10.0 7.8 4.0 2.7 Gross margin (%) 4.8 5.2 12.3 12.9 13.3 EBITDA margin (%) 6.7 7.1 16.6 16.6 16.4 EBIT margin (%) 4.8 5.2 12.3 12.9 13.3 Net margin (%) 2.7 3.2 6.9 7.4 7.8 Effective tax rate (%) 8.2 (2.3) 28.0 28.0 28.0 Dividend payout (%) 54.2 38.0 35.0 35.0 35.0 Capex to sales (%) 3.2 1.0 - - - Capex to depreciation (x) 1.7 0.5 - - -

ROE (%) 9.9 12.1 10.1 8.9 9.2 ROA (pretax %) 6.2 6.9 8.0 10.2 11.9

Growth (%)Revenue 36.4 23.0 (52.7) 17.3 17.7 EBITDA (27.5) 29.6 10.8 16.8 16.6

EBIT (39.5) 34.1 11.6 22.7 21.3

Normalised EPS (43.0) 43.0 3.5 25.4 24.7 Normalised FDEPS (42.0) 43.6 (13.4) 5.2 24.7


WCT Bhd Tanuj Shori


Net cash due to warrant conversion

Building in potential warrant dilution

Cashflow (RMmn)


EBITDA 256 331 367 429 500Change in working capital (96) 152 (56) (13) (15)Other operating cashflow (225) (236) (116) (137) (157)Cashflow from operations (65) 247 195 279 329Capital expenditure (122) (48) - - - Free cashflow (187) 200 195 279 329Reduction in investments (65) 8 (133) (15) (16)Net acquisitions 5 - - - - Reduction in other LT assets (587) 35 (50) - - Addition in other LT liabilities 524 (208) (28) - - Adjustments 68 163 28 15 16Cashflow after investing acts (242) 198 11 279 329Cash dividends (55) (56) (53) (67) (83)Equity issue 47 2 418 634 - Debt issue 258 (151) 153 - - Convertible debt issue - - - - - Others 1 0 0 - - Cashflow from financial acts 251 (204) 518 567 (83)Net cashflow 9 (6) 528 846 245Beginning cash 711 719 714 1,242 2,088Ending cash 719 714 1,242 2,088 2,333Ending net debt 414 285 (90) (936) (1,181)Source: Nomura estimates



Cash & equivalents 719 714 1,242 2,088 2,333Marketable securitiesAccounts receivable 1,451 1,478 1,016 1,191 1,401Inventories 151 114 85 99 116Other current assets 180 248 255 255 255Total current assets 2,500 2,553 2,598 3,633 4,105LT investments 625 617 750 765 781Fixed assets 627 603 500 405 311Goodwill - - - - - Other intangible assets 6 19 12 12 12Other LT assets 722 687 737 737 737Total assets 4,480 4,478 4,598 5,552 5,946Short-term debt 302 207 570 570 570Accounts payable 1,390 1,600 1,061 1,237 1,449Other current liabilit ies 0 1 1 1 1Total current liabilities 1,692 1,808 1,632 1,807 2,019Long-term debt 831 792 581 581 581Convertible debtOther LT liabilities 600 392 364 364 364Total liabilities 3,123 2,992 2,577 2,753 2,965Minority interest 169 233 250 271 298Preferred stock 6 4 4 4 4Common stock 368 369 787 1,421 1,421Retained earnings 372 465 564 688 843Proposed dividends



Liquidity (x)


LeverageNet debt/EBITDA (x) 1.62 0.86 net cash net cash net cash

Net debt/equity (%) 34.8 22.7 net cash net cash net cash

Activity (days)Days receivable 129.3 114.5 206.2 155.5 155.6 Days inventory 12.4 10.9 18.7 14.9 14.9 Days payable 135.5 123.4 250.9 185.8 185.9 Cash cycle 6.2 2.1 (26.0) (15.4) (15.4) Source: Nomura estimates



Other Team Members:

Pankaj Suri, Nishit Jalan, Raashi Gupta, (Associates) — all enquiries arising from this note should be directed to Wai Kee Choong.

Any Authors named on this report are Research Analysts unless otherwise indicated

ANALYST CERTIFICATIONS

We, Wai Kee Choong, Julian Chua, Jacinda Loh, Ken Wong, Muzhafar Mukhtar, Daniel Raats, B. Roshan Raj, Andrew Kam Wing Lee and Tanuj Shori, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Conflict-of-interest disclosures Important disclosures may be accessed through the following website: http://www.nomura.com/research/pages/disclosures/disclosures.aspx . If you have difficulty with this site or you do not have a password, please contact your Nomura Securities International, Inc. salesperson (1-877-865-5752) or email [email protected] for assistance. Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Industry Specialists identified in some Nomura research reports are senior employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research report in which their names appear. Distribution of ratings (Global) Nomura Global Equity Research has 1878 companies under coverage. 48% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with this rating are investment banking clients of the Nomura Group*. 37% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with this rating are investment banking clients of the Nomura Group*. 13% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2010. *The Nomura Group as defined in the Disclaimer section at the end of this report. Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'RS-Rating Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.



Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target - Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'RS' or 'Rating Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.



Price targets Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates. DISCLAIMERS This publication contains material that has been prepared by the Nomura entity identified on the banner at the top or the bottom of page 1 herein and, if applicable, with the contributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or elsewhere identified in the publication. Affiliates and subsidiaries of Nomura Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc, United Kingdom; Nomura Securities International, Inc. ('NSI'), New York, NY; Nomura International (Hong Kong) Ltd., Hong Kong; Nomura Financial Investment (Korea) Co., Ltd., Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr ); Nomura Singapore Ltd., Singapore (Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Securities Singapore Pte Ltd., Singapore (Registration number 198702521E, regulated by the Monetary Authority of Singapore); Capital Nomura Securities Public Company Limited; Nomura Australia Ltd., Australia (ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia, Indonesia; Nomura Securities Malaysia Sdn. Bhd., Malaysia; Nomura International (Hong Kong) Ltd., Taipei Branch, Taiwan; Nomura Financial Advisory and Securities (India) Private Limited, Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034). THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION THAT WE CONSIDER RELIABLE. NOMURA GROUP DOES NOT WARRANT OR REPRESENT THAT THE PUBLICATION IS ACCURATE, COMPLETE, RELIABLE, FIT FOR ANY PARTICULAR PURPOSE OR MERCHANTABLE AND DOES NOT ACCEPT LIABILITY FOR ANY ACT (OR DECISION NOT TO ACT) RESULTING FROM USE OF THIS PUBLICATION AND RELATED DATA. TO THE MAXIMUM EXTENT PERMISSIBLE ALL WARRANTIES AND OTHER ASSURANCES BY NOMURA GROUP ARE HEREBY EXCLUDED AND NOMURA GROUP SHALL HAVE NO LIABILITY FOR THE USE, MISUSE, OR DISTRIBUTION OF THIS INFORMATION. Opinions expressed are current opinions as of the original publication date appearing on this material only and the information, including the opinions contained herein, are subject to change without notice. Nomura is under no duty to update this publication. If and as applicable, NSI's investment banking relationships, investment banking and non-investment banking compensation and securities ownership (identified in this report as 'Disclosures Required in the United States'), if any, are specified in disclaimers and related disclosures in this report. In addition, other members of the Nomura Group may from time to time perform investment banking or other services (including acting as advisor, manager or lender) for, or solicit investment banking or other business from, companies mentioned herein. Further, the Nomura Group, and/or its officers, directors and employees, including persons, without limitation, involved in the preparation or issuance of this material may, to the extent permitted by applicable law and/or regulation, have long or short positions in, and buy or sell, the securities (including ownership by NSI, referenced above), or derivatives (including options) thereof, of companies mentioned herein, or related securities or derivatives. In addition, the Nomura Group, excluding NSI, may act as a market maker and principal, willing to buy and sell certain of the securities of companies mentioned herein. Further, the Nomura Group may buy and sell certain of the securities of companies mentioned herein, as agent for its clients. Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Please see the further disclaimers in the disclosure information on companies covered by Nomura analysts available at www.nomura.com/research under the 'Disclosure' tab. Nomura Group produces a number of different types of research product including, among others, fundamental analysis, quantitative analysis and short term trading ideas; recommendations contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of differing time horizons, methodologies or otherwise; it is possible that individual employees of Nomura may have different perspectives to this publication. NSC and other non-US members of the Nomura Group (i.e. excluding NSI), their officers, directors and employees may, to the extent it relates to non-US issuers and is permitted by applicable law, have acted upon or used this material prior to, or immediately following, its publication. Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived from, the investment. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. The securities described herein may not have been registered under the US Securities Act of 1933, and, in such case, may not be offered or sold in the United States or to US persons unless they have been registered under such Act, or except in compliance with an exemption from the registration requirements of such Act. Unless governing law permits otherwise, you must contact a Nomura entity in your home jurisdiction if you want to use our services in effecting a transaction in the securities mentioned in this material.



This publication has been approved for distribution in the United Kingdom and European Union as investment research by Nomura International plc ('NIPlc'), which is authorized and regulated by the UK Financial Services Authority ('FSA') and is a member of the London Stock Exchange. It does not constitute a personal recommendation, as defined by the FSA, or take into account the particular investment objectives, financial situations, or needs of individual investors. It is intended only for investors who are 'eligible counterparties' or 'professional clients' as defined by the FSA, and may not, therefore, be redistributed to retail clients as defined by the FSA. This publication may be distributed in Germany via Nomura Bank (Deutschland) GmbH, which is authorized and regulated in Germany by the Federal Financial Supervisory Authority ('BaFin'). This publication has been approved by Nomura International (Hong Kong) Ltd. ('NIHK'), which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This publication has been approved for distribution in Australia by Nomura Australia Ltd, which is authorized and regulated in Australia by the Australian Securities and Investment Commission ('ASIC'). This publication has also been approved for distribution in Malaysia by Nomura Securities Malaysia Sdn Bhd. In Singapore, this publication has been distributed by Nomura Singapore Limited ('NSL') and/or Nomura Securities Singapore Pte Ltd ('NSS'). NSL and NSS accepts legal responsibility for the content of this publication, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this publication should contact NSL or NSS (as the case may be) in respect of matters arising from, or in connection with, this publication. Unless prohibited by the provisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States, by Nomura Securities International, Inc., a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. This publication has not been approved for distribution in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United Arab Emirates by Nomura Saudi Arabia, Nomura International plc or any other member of the Nomura Group, as the case may be. Neither this publication nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than those authorised to do so into the Kingdom of Saudi Arabia or in the United Arab Emirates or to any person located in the Kingdom of Saudi Arabia or to clients other than 'professional clients' in the United Arab Emirates. By accepting to receive this publication, you represent that you are not located in the Kingdom of Saudi Arabia or that you are a 'professional client' in the United Arab Emirates and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the Kingdom of Saudi Arabia or the United Arab Emirates. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means; or (ii) redistributed without the prior written consent of the Nomura Group member identified in the banner on page 1 of this report. Further information on any of the securities mentioned herein may be obtained upon request. If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version. Additional information available upon request NIPlc and other Nomura Group entities manage conflicts identified through the following: their Chinese Wall, confidentiality and independence policies, maintenance of a Restricted List and a Watch List, personal account dealing rules, policies and procedures for managing conflicts of interest arising from the allocation and pricing of securities and impartial investment research and disclosure to clients via client documentation. Disclosure information is available at the Nomura Disclosure web page: http://www.nomura.com/research/pages/disclosures/disclosures.aspx

MK80-90

Nomura Asian Equity Research Group

Hong Kong Nomura International (Hong Kong) Limited 30/F Two International Finance Centre, 8 Finance Street, Central, Hong Kong Tel: +852 2536 1111 Fax: +852 2536 1820

Singapore

Nomura Singapore Limited 5 Temasek Boulevard #11-01, Suntec Tower Five, Singapore 038985, Singapore Tel: +65 6433 6288 Fax: +65 6433 6169

Taipei Nomura International (Hong Kong) Limited, Taipei Branch 17th Floor, Walsin Lihwa Xinyi Building, No.1, Songzhi Road, Taipei 11047, Taiwan, R.O.C. Tel: +886 2 2176 9999 Fax: +886 2 2176 9900

Seoul Nomura Financial Investment (Korea) Co., Ltd. 17th floor, Seoul Finance Center, 84 Taepyeongno 1-ga, Jung-gu, Seoul 100-768, Korea Tel: +82 2 3783 2000 Fax: +82 2 3783 2500

Kuala Lumpur Nomura Securities Malaysia Sdn. Bhd. Suite No 16.5, Level 16, Menara IMC, 8 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Tel: +60 3 2027 6811 Fax: +60 3 2027 6888

India Nomura Financial Advisory and Securities (India) Private Limited Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India Tel: +91 22 4037 4037 Fax: +91 22 4037 4111

Indonesia PT. Nomura Indonesia Suite 209A, 9th Floor, Sentral Senayan II Building Jl. Asia Afrika No. 8, Gelora Bung Karno, Jakarta 10270, Indonesia Tel: +62 21 2991 3300 Fax: +62 21 2991 3333

Sydney Nomura Australia Ltd. Level 25, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000 Tel: +61 2 8062 8000 Fax: +61 2 8062 8362

Tokyo Equity Research Department Financial & Economic Research Center Nomura Securities Co., Ltd. 17/F Urbannet Building, 2-2, Otemachi 2-chome Chiyoda-ku, Tokyo 100-8130, Japan Tel: +81 3 5255 1658 Fax: +81 3 5255 1747, 3272 0869

Caring for the environment: to receive only the electronic versions of our research, please contact your sales representative.

00a -- malaysia strat cover kn - nomura holdings...alliance financial group bhd 25 ammb holdings 28...

Documents