banking : 4qcy09 report card – record breaking streak - 04/03/2010

8/14/2019 Banking : 4QCY09 Report Card Record Breaking Streak - 04/03/2010

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Table 1. Sector Comparison

Bank Price FV PER (x) CAGR P/ Book (x) ROE (% )

(RM/ s) (RM/ s) Rec CY08 CY09 CY10 (%) CY08 CY09 CY10 FY08 FY09 FY10

Public Bank - F 11.14 13.12 OP 14.5 14.8 13.0 10.6 3.9 3.4 2.9 27.3 24.5 24.2Public Bank - L 11.16 13.12 OP 14.5 14.9 13.0 10.6 3.9 3.4 2.9 27.3 24.5 24.2Maybank 6.98 8.96 OP 15.9 15.3 12.5 21.7 2.0 1.7 1.8 9.9 12.1 12.8CIMB Grp 13.60 16.24 OP 24.9 17.3 14.4 18.1 2.8 2.4 2.2 11.9 15.0 16.1AMMB 5.00 6.13 OP 15.8 13.2 11.1 13.7 1.6 1.4 1.2 11.6 11.8 12.1EON Capital 6.93 8.07 OP 35.9 14.1 12.9 11.2 1.5 1.4 1.2 4.2 10.1 10.0Affin Holdings 2.79 3.03 MP 13.7 10.8 9.8 8.4 0.9 0.8 0.8 6.8 8.1 8.6Hong Leong Bank 8.57 8.48 UP 16.4 15.1 15.2 1.5 2.5 2.2 2.0 16.7 14.8 13.4AFG 2.78 3.27 OP 16.1 17.1 12.7 21.5 1.6 1.5 1.4 16.8 8.6 9.1RHB Capital * 5.56 NR NR 11.4 10.0 9.5 7.8 1.5 1.4 1.3 13.3 12.3 13.0Sector Wt. Avg. ^

Sector Wt. Avg. (Ex-Maybank)Sector W t. Avg. (Ex-Maybank & PBB)

Source : RHB Research Institute, I/B/E/S Estimates * Not under our coverage

4QCY09 reporting season above expectations, albeit at lowermagnitude. Among the eight banks in our universe, three were above and

five in line (vs. six above and one in line previously). Against consensus,

two were above and six were in line (vs. six above and one below

previously). This is the first time (since 1QCY04) the sector reported three

consecutive quarters of results that exceeded expectations.

4QCY09 net profit at record on the back of record net interest income(continued loan growth, stable NIM and higher Islamic income), second

highest level of non-interest income and lower LLP (lower credit charge and

GP write back). These were more than sufficient to offset record overheads(CIR higher qoq but below 50% mark for the third consecutive quarter).

Asset quality and annualised gross and net NPL formationimproved. Net NPL ratio resumed its improvement for the third

consecutive quarter after the spike in 1QCY09. Aggregate net NPL ratio

was lower than industry due to the significantly strong asset quality of HL

Bank, Maybank and Public Bank. Annualised gross and net NPL formation

also improved sequentially.

Raised Forecasts. Immediately after the results, RHBRI raised itsforecasts for most banks except Affin, AFG and HL Bank which were

largely unchanged. The most significant increase was Maybank.

Consensus also raised its forecasts with the exception of HL Bank (FY11-12 forecasts were cut). Given our more aggressive upgrades, our

forecasts are now largely in line with consensus.

Investment case. The sector will lead the market to higher ground,underpinned by earnings growth gaining momentum (from rising net

interest income and non-interest income as well as lower LLP), potential

M&As would excite investors, more aggressive capital management or

higher dividend (barring Basel III), both PER and P/B valuations are still

below their recent peaks and foreign shareholdings are still relatively low

and well below peaks. Moreover, most banks have their unique story to

sustain investors interests. Thus, we are maintaining our Overweight

rating on the sector. Top pick is Maybank. We also like CIMB, AMMB

and Public Bank for big cap exposure. AFG, EON Cap and RCE Cap

are also rated as Outperform while Affin is Market Perform and HL Bank is

rated Underperform.

Corpora te H igh l ights

Sec to r Upda te

Banking4QCY09 Report Card Record Breaking Streak

M

alaysia

4 March 2010

Recom : Overweight(Maintained)

Chart 1. Industry NPL

24,000.0

29,000.0

34,000.0

39,000.0

44,000.0

49,000.0

54,000.0

59,000.0

64,000.0

69,000.0

Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun- 09

(RMm)

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

(%)Gross NPL (LHS) Gro ss NPL rat io (RHS) Net NPL rat io (RHS)

Chart 2. Industry LLC

35

40

45

50

55

60

65

70

75

80

85

90

95

J an -9 9 J an -0 0 J an -0 1 J an -0 2 J an -0 3 J an -0 4 J an -0 5 J an -0 6 J an -0 7 J an -0 8 J an -0 9 J an -10

(%)

Low Yee Huap, CFA

(603) [email protected]

Please read important disclosures at the end of this report.

MARK

ET

DATELINE

PP

7767/09/2010(025354)

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M


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4QCY09 RESULTS REVIEW

Above expectations but lower magnitude. Of the eight bank stocks in our universe, three came in above ourexpectations and five were in line (see Chart 3). This is the third consecutive quarter where the reporting

season has exceeded expectations, albeit at a smaller magnitude. When compared with consensus, the just

concluded reporting season was also above expectations with two exceeded consensus estimates and six in line

(see Chart 4). This is also the first time (since we track quarterly earnings performance from 1QCY04) the

sector reported three consecutive quarters of results that far exceeded everybodys expectations.

Overall, the 4QCY09 reporting season shows that the domestic banking system is in a very healthy conditionwith improving NPLs and record profits. With the economic recovery on track as well as continued loan growth,

stable NIM, sustained non-interest income and improving NPLs, banking earnings are well on its path of

sustained growth. For our comments on each individual bank in our universe, please refer to Table 2 below.

Chart 3. Relative to RHBRI s forecasts: Three above & five inline

Chart 4. Against consensus forecasts: Two above & six inline

Source: RHBRI Source: I/B/E/S Estimates

Table 2 : Banking industrys health check : Three above and five in line

Banking Group Rating

Vs. RHBRIs

Forecasts

Vs.

Consensus RHBRI Result Comments

Affin Holdings Market Perform In Line In Line 4QFY12/09 results in line;

No dividend, it already declared interim dividend of 5 sen and a

special dividend of 3.5 sen in 3Q;

Loan base up 11.4% yoy and 3.8% qoq mainly for working capital

purpose for contract and supply projects but backed by direct

payments from government agencies;

five consecutive quarters of consistent and elevated earnings;

Asset quality improved sharply, more than reversing the jump in

3Q;

Annualised net NPL formation declined qoq;

FY10-11 forecasts fine-tuned post final results; and

Fair value raised from RM3.00 to RM3.03 (unchanged 11x CY10

EPS).

AFG Outperform In Line In Line 3QFY03/10 results in line;

2nd interim dividend of 5.1 sen. YTD is 6.4 sen tax exempt;

Loan base up 8% yoy and 2% qoq mainly from mortgage,

personnel use and credit cards;

NIM finally stabilised for two consecutive quarters;

Results show glimpse of whats to come in FY11 i.e. strong

growth from organic, absence of CLOs impairment and potential

write back;

Asset quality improved;

Although annualised net NPL formation increased qoq, it washalved from recent peak;

No changes to forecasts; and

-6

-4

-2

0

2

4

6

8

10

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09

No Above In Line Below

-6

-4

-2

0

2

4

6

8

10

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09

No Above In Line Below


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Fair value maintained at RM3.27 (unchanged 15x CY10 EPS).

AMMB Holdings Outperform Above Above 3QFY03/10 results above our and consensus expectations due to

better-than-expected loan growth and non-interest income;

Loan growth accelerated (for two consecutive quarters) to +5.6%

qoq and +12.9% yoy, bulk came from CIB and business

segments; Non-interest income near record;

NIM improved and a 50bps hike in OPR would only cut NIM by less

than 10bps;

Raised FY10 KPIs for 2nd consecutive quarter;

Still have room for capital management despite Basel III;

Asset quality improved and annualised net NPL formation was

sharply lower. It expects some spike in 4QFY10 NPLs from

seasonal factor but should not be significant;

FY10-12 forecasts raised by 6-7% to factor in the better-than-

expected loan growth and operating income; and


EPS).

CIMB Group Outperform In Line In Line 4QFY12/09 results in line with our and consensus expectations;

Interim dividend of 18.5 sen tax exempt, same as last year;

Strong consumer bank loan growth of +4% qoq and +13.2% yoy

and CIB loan growth of -3.5% qoq and +5.5% yoy as well as

CIMB Niaga loan growth of +14.9% qoq and +29.4% yoy. CIMB

Thai loan base expanded by 4.7% qoq post transformation and

recapitalisation;

Record quarterly earnings with consumer bank, CIMB Niaga and

treasury the stars. Only setback was CIB which was impacted by

provision for FRS139 and non-Asean loans;

Asset quality improved and annualised net NPL formation eased

sequentially;

FY10 KPIs of 16% ROE without additional capital management,

pending Basel II IRB approach (circa 100-150bps hit on capital

ratios), FRS 139 (neutral) and Basel III (does not need equity

capital);

Proposed 1-for-1 bonus issue to prepare for listing in Thailand;

10 key priorities for FY10 to drive domestic growth in certain

domestic areas and overseas operations;

Possible sale of bad bank in FY10 plus injection of NPLs from CIMB

Thai;

FY10-11 forecasts raised by 9-14% to factor in more robust loangrowth and capital market prospects as well as positive

adjustment to end FY09 NPLs; and


EPS).

EON Capital Outperform In Line In Line 4QFY12/09 results in line with our and consensus expectations;

First and final dividend of 10 sen tax exempt vs. 7.7 sen

previously;

Loan growth picking up momentum (accelerated for three

consecutive quarters) to +3% qoq and +7.3% yoy vs. +2.6% qoq

and +5.1% yoy in 3Q. Main drivers were mortgage, personal use,

credit cards and SME;

Loan approvals increased 105.4% yoy and undrawn commitment


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(same as previous year) plus treasury shares distribution of 1

for-68;

Loan growth remained very strong at +3% qoq and +14% yoy,

mainly from mortgage, HP and SME;

Strong loan growth, higher NIM (both qoq and yoy), higher

Islamic income and strong non-interest income partly offset by

higher LLP;

Asset quality intact while annualised net NPL formation was also

flat qoq;

Introduced new 3-year KPIs with ROE of 30%, pending finalisation

of Basel III;

Premature to assess impact of Basel III but if the extremely

stringent standards are adopted, only need cash call of circa 10-

15% of market capitalisation in 2012-14;

FRS139 worst case scenario is neutral with potential positive

impact;

Dividend guidance lowered from 70% to 50-55% payout in view

of Basel III;

FY10-11 forecasts raised by 6-8% to reflect higher loan growth;

and

Fair value raised from RM12.57 to RM13.12 (16x CY10 EPS).

Source : RHBRI

Net profit at record. Aggregate 4QCY09 net profit for our universe (plus RHB Cap) came in at RM3,549.9m(+7% qoq; +36.1% yoy see Chart 5) or record level for two consecutive quarters. Overall, the sequential

expansion was supported by record net interest income (continued loan growth, higher Islamic income and

stable NIM), sustained non-interest income (near record) and lower LLP (flattish credit charge) but partly offset

by record overheads. Individually, only Affin (higher LLP), EON Cap (higher overheads) and HL Bank (higher

overheads and tax as well as lower associate contributions) reported weaker sequential net profit while others

reported expansion. AFG reported the most impressive sequential improvement on the back of organic growthand absence of CLOs impairment). AMMB raised KPIs for second consecutive quarter, Maybank significantly

exceeded expectations for second consecutive quarter and CIMB reported record earnings. See Chart 6 for

individual banks performances.

Asset quality improved while credit charge flat. Asset quality continued to improve for three consecutivequarters. Both annualised gross and net NPL formation was lower sequentially. As a result, LLP was

significantly lower qoq as credit charge was flattish despite continued loan growth. With Jan 10 asset quality

continued to improve (despite school reopening and ahead of Chinese New Year festival), we believe any

seasonal stress from festive holidays will be well absorbed and industry asset quality should embark on a clearer

improving trend from Mar/Apr 10 onwards. This augurs well for 2010 earnings. Moreover, with improving asset

quality, there is also potential additional boost to 2010 earnings from write back of pre-emptive provisions made

in 2009.

Chart 5. Quarterly net profit at record Chart 6. Net profit Only Affin, EON Cap and HL Banksequentially lower

Source: Companies Source: Companies

1.0

1.5

2.0

2.5

3.0

3.5

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-30

-10

10

30

50

70

(%)

Net profit (RMbn - LHS)

qoq (%) (RHS)

-100

100

300

500

700

900

Affin

Alliance

AMMB

CIMB

Grp

E

ON

Cap

HLBank

M

aybank

Public

R

HB

Cap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09


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LINE ITEM REVIEW

Yet another record quarter of net interest income continued loan growth, strong Islamic incomeand stable NIM. As shown in Chart 7, aggregate net interest income in 4QCY09 hit another record (on a seven

consecutive quarters winning streak) and was higher qoq (+3.6%) and yoy (+14.2%) mainly from continued

loan growth (see Charts 9 & 10) and stable NIM (adjusted to include Islamic income - see Chart 11) given that

the liabilities re-pricing is catching up after the OPR cuts in late 08 / early 09. In terms of individual banks, all of

them reported qoq improvement (see Chart 12).

Aggregate loan grow th outpaced industry. Aggregate loan base of RM739.8bn (see Chart 9 - +3.2% qoq;+11.6% yoy) was faster than the industrys +2.6% qoq and +7.8% yoy. This was because of above-industry

domestic loan growth from Affin, AFG, AMMB, CIMB Group and Public Bank as well as CIMB Niagas loan growth

contribution to CIMB Group. Maybanks strong loan growth from BII boosted overall expansion. Individually,

loan base of all banks continued to be on an upward trajectory (see Chart 10). HL Bank managed to continue its

up trend for the third consecutive quarter after suffering two consecutive quarters of sequential loan contraction,

albeit the yoy growth is well below peers and industry.

Adjusted NIM stable qoq mainly from I slamic income and liabilities re-pricing. Adjusted NIM (includingIslamic income) was largely flattish or +1bp qoq and +8bps yoy (see Chart 11). It was boosted significantly by

the +6.2% qoq and +32.4% yoy increase in Islamic income as well as 12bps qoq and 79bps yoy decline in cost

of funds (vs. 10bps qoq and 92bps yoy decline in yield) (see Charts 13 & 15). Individually, only CIMB Grp, EONCap, Maybank and RHB Cap recorded qoq decline in adjusted NIM (see Chart 12). Yields and cost of funds of

individual banks are shown in Charts 14 and 16. In general, banks with sequential improvement in NIM

recorded sharper decline in costs of funds vis--vis yields and higher Islamic income.

Chart 7. Net interest income at record Chart 8. Net interest income all banks wer e higher qoq


Chart 9. Aggregate loan growth in our universe faster thanindustry, partly boosted by overseas growth

Chart 10. Loan growth only EON Cap, HL Bank andMaybank below industry


330

380

430

480

530

580

630

680

730

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0(%)Gross loan (RMbn - LHS)

qoq (% - RHS)

-40

10

60

110

160

210

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(RMbn) 4Q08 1Q09 2Q09 3Q09 4Q09

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-3

-1

1

3

5

7

9

(%)Net interest income (RMbn - LHS)

qoq (% - RHS)

-300

200

700

1,200

1,700

2,200

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09


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Chart 11. Adjusted NIM stable Chart 12. Adjusted NIM - Only CIMB Grp, EON Cap,Maybank and RHB Cap lower qoq


Chart 13. Yield on assets lower qoq Chart 14. Only Affin, AMMB, HL Bank and Publi c Bankreported qoq improvement in yields


Chart 15. Cost of funds significantly lower qoq Chart 16. Only Affin registered higher qoq cost of funds


Non-interest income sustained at near peak. Aggregate non-interest income came in at RM3,377.5m(+5.3% qoq and +36.9% yoy). With the sequential growth, non-interest income was sustained at near peak

and was the second highest level on record (see Chart 17). Generally, the reason for the sequentially higher

level of income was the sustained activities in the capital markets and rising economic activities. Bulk of the qoq

increase came from AFG (due to absence of impairment on CLOs) and Maybank (due to across-the-board

increase). Excluding CIMB Grp (lower qoq mainly due absence of profit from sale of insurance arm in Indonesia)

and Public bank, all other banks reported sequentially higher non-interest income (see Chart 18).

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(%)

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(%) 4Q08 1Q09 2Q09 3Q09 4Q09

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(%)

3.2

3.7

4.2

4.7

5.2

5.7

6.2

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(%) 4Q08 1Q09 2Q09 3Q09 4Q09

2.55

2.65

2.75

2.85

2.95

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(%)

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(%) 4Q08 1Q09 2Q09 3Q09 4Q09


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Chart 17. Non-interest income grew qoq and sustained atnear peak second highest on record

Chart 18. Only CIMB Grp and Public Bank reportedsequentially lower non-interest income


Operating income another record. With the record net interest income (from loan foundation, stable NIM andhigher Islamic income) and the second highest level of non-interest income, operating income ballooned to

another record level for the third consecutive quarter, easily surpassing the previous peak recorded in 2QCY08

(see Chart 19). Individually, only CIMB Grp reported lower operating income qoq mainly due to the above

mentioned absence of profit from sale of insurance arm in Indonesia (see Chart 20).Chart 19. Operating income ballooned to new record for thethird consecutive quarter

Chart 20. Only operating income of CIMB Grp suffered qoqdecline due to absence of profit from sale


Overhead expenses at record. Overheads continued to hit record level (see Chart 21) partly due to variablecosts related to the capital markets and partly due to rising costs. We reiterate that rising cost is a necessary

evil given the variable costs (remuneration/bonus/incentives/commission) related to the capital market as well

as the need to continuously invest in infrastructure to improve efficiency. Individually, banks registered higher

sequential overheads (see Chart 22).

CIR higher but below 50% . In line with theincrease in overheads, aggregate cost to income ratio (CIR) alsorose but was below the 50% mark for the third consecutive quarter (see Chart 23). Only Affin and AFG reported

qoq and yoy lower CIR while CIMB Grp and Maybank was only lower on a yoy basis (see Chart 24). The sharp

decrease in CIR of AFG was due to the absence of impairment loss on CLOs.

Chart 21. Overhead expenses at record Chart 22. Overheads of all banks consistently higher


1.0

1.5

2.0

2.5

3.0

3.5

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-50

-40

-30

-20

-10

0

10

20

30

40

50(%)Non-interest income (RMbn - LHS)

qoq (% - RHS)

-190

10

210

410

610

810

1,010

1,210

1,410

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-20

-15

-10

-5

0

5

10

15

20(%)Operating income (RMbn - LHS)

qoq (% - RHS)

-400

100

600

1,100

1,600

2,100

2,600

3,100

3,600

Affin

Alliance

A

MMB

CIMB

Grp

EON

Cap

HL

Bank

Maybank

P

ublic

RHB

Cap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-5

-3

-1

1

3

5

7

9

11

13

15(%)Overheads (RMbn - LHS)

qoq (% - RHS)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Affin

A

lliance

AMMB

CIMBGrp

EO

N

Cap

HLBank

Ma

ybank

Public

RH

B

Cap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09


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Chart 23. CIR below 50% for three consecutive quarters Chart 24. Only Affin and AFG reported lower CIR qoq & yoywhile CIMB Grp and Maybank w ere only lower yoy


Pre-provision profit new record. Despite the higher overheads and CIR, record operating was able to morethan offset the higher costs, resulting in pre-provision profit increased marginally by 0.3% qoq to a new record

(see Chart 25). Individually, CIMB Grp (absence of profit from sale and year-end bonus), EON Cap (higher cost

from year-end bonus and higher admin costs), HL Bank (higher personnel and admin costs) and RHB Cap

(higher personnel and admin costs) recorded qoq decline (see Chart 26).

Chart 25. Pre-provision profit second highest in history Chart 26. Pre-provision profit of CIMB Grp, EON Cap, HLBank and RHB Cap lower qoq


LLP and credit charge lower qoq. Aggregate loan loss provision (LLP) declined 33% qoq and 12.9% yoy (seeChart 27). The sharp sequential improvement was mainly due to significantly lower GP as well as lower qoq

credit charge. The lower GP, in turn, can be attributed to the GP write back at CIMB Grp and RHB Cap (ahead of

the implementation of FRS139) as well as at Maybanks lower SP and GP plus higher recovery. It was also

helped by CIMB Grps write back on other receivables as well as commitments and contingencies. Credit charge

decreased by 0.9bps qoq and 1.9bps yoy (see Chart 29). On a yoy basis, the decrease in credit charge reflects

the improving asset quality. As mentioned above, bulk of the qoq decline in LLP was attributed to CIMB Grp,

Maybank and RHB Cap (see Chart 28). Credit charge was higher for Affin (jump in SP), AFG (lower SP write

back) and CIMB Grp (higher SP).

Chart 27. LLP sharply lower qoq Chart 28. LLP of Affin, AFG and AMMB higher qoq


40

42

44

46

48

50

52

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(%)

-10

-5

0

5

10

15

20

25(%)Cost/income ratio (% - LHS)

qoq (% - RHS)

28

38

48

58

68

78

88

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(%)4Q08 1Q09 2Q09 3Q09 4Q09

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-40

-30

-20

-10

0

10

20

30(%)Pre-provision profit (RMbn - LHS)

qoq (% - RHS)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Affin

Allianc

e

AMM

B

CIMBGrp

EON

Ca

p

HLBan

k

Mayban

k

Public

RHB

Ca

p

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09

0.6

0.70.8

0.91.01.1

1.21.31.4

1.51.6

1.7

1.81.92.0

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(RMbn)

-60

-40

-20

0

20

40

60

80

100(%)Loan loss provision (RMbn - LHS)

qoq (% - RHS)

-200-100

0

100

200

300

400

500

600

700

800

900

Affin

Allian

ce

AMM

B

CIMBG

rp

EONCap

HLBa

nk

Maybank

Public

RHBC

ap

(RMm) 4Q08 1Q09 2Q09 3Q09 4Q09


10/16

4 March 2010

Page 10 of 16



Chart 29. Credit charge slightly lower qoq Chart 30. Credit charge of Affin, AFG and CIMB Grp higherqoq


Asset quality strengthened. Aggregate net NPL ratio resumed its downtrend for the third consecutive quarterwith a qoq decrease of 27bps (see Chart 31). Both the absolute gross NPL and gross NPL ratio also declined

during the same period. Subsequent statistics released by BNM for the month of Jan 10 showed that asset

quality continues to improve despite entering into the holiday/festive season. Net NPL ratios of all banks were

lower qoq except RHB Cap which was flattish at -0.4bp (see Chart 32). All banks recorded double-digit bps

decline in net NPL ratio except Public Bank at -6.5bps. Aggregate net NPL ratio of 1.51% in our universe (plus

RHB Cap) was better than the industrys 1.81% (as at Dec 09) given the much stronger net NPL ratios (vs.

industry average) of HL Bank, Maybank and Public Bank as well as AMMB and CIMB Grp which have slightly

better ratios.

Annualised gross and net NPL formation declined 46bps and 41bps qoq respectively (see Charts 33 & 35). Thisis because absolute NPL formation was lower qoq while NPL that turned performing was higher qoq.

Individually, only CIMB Grp and EON Cap reported increases in annualised gross NPL formation while AFG, EON

Cap and RHB Cap reported sequentially higher annualised net NPL formation (see Charts 34 & 36).

Chart 31. Aggregate net NPL ratio on downtrend for third

consecutive quarter

Chart 32. Net NPL ratio of all banks improved qoq and yoy


Chart 33. Annualised gross NPL formation improved qoq Chart 34. Only CIMB Grp and EON Cap reported qoqdeterioration in annualised gross NP L formation


0

5

10

15

20

25

30

35

40

45

50

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(bps)

-25

-20

-15

-10

-5

05

10

15

20

25

30bpsCredit c harge (bps - LHS)

bps change (RHS)

-22

-12

-2

8

18

28

38

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(bps)4Q08 1Q09 2Q09 3Q09 4Q09

280

330

380

430

480

530

580

630

680

730

1Q06 1Q07 1Q08 1Q09

(bps)

(300)

(250)

(200)

(150)

(100)

(50)

0

50

100

150(bps)Annualised gross NPL formation (bps)

Qoq bps change (RHS)

0

200

400

600

800

1000

1200

1400

1600

1800

A

ffin

Allia

nce

AM

MB

CIMB

Grp

EON

Cap

HLB

ank

Mayb

ank

Pu

blic

RHB

Cap

(bps) 4Q08 1Q09 2Q09 3Q09 4Q09

1

2

3

4

5

6

7

8

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

(%)

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8(%-Point)Net NPL (% - LHS)

%-Point change (RHS)

0

1

1

2

2

3

3

4

4

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(%)

4Q08 1Q09 2Q09 3Q09 4Q09


11/16

4 March 2010

Page 11 of 16



Chart 35. Annualised net NPL formation also improved qoq Chart 36. AFG, EON Cap and R HB Cap recorded qoqdeterioration in annualised net NP L formation


Chart 37. PBT improved qoq Chart 38. Only HL Bank reported lower PBT qoq


CHANGES TO RHBRI & CONSENSUS ESTIMATES

Changes to RHBRIs forecasts. Table 3 shows the changes made to our earnings forecasts of stocks in ouruniverse immediately after their respective results. Generally, our earnings forecasts were raised by 0.7-23.3%resulting in aggregate earnings forecasts raised by 7-13%. The most significant upward adjustments were

Maybank as it managed to significantly surprise our and consensus expectations for two consecutive quarters.

Forecasts for Affin, AFG and HL Bank were largely unchanged.

Table 3. RHBRIs forecasts changes (immediately after results): higher

Before (RMm) After (RMm) % Change

FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

Affin 373.5 408.0 443.3 371.8 411.0 442.1 (0.5) 0.7 (0.3)AFG* 259.3 364.2 411.4 259.3 364.2 411.4 0.0 0.0 0.0AMMB* 942.0 1,131.7 1,279.5 1,010.0 1,202.1 1,377.3 7.2 6.2 7.6CIMB Group 2,686.4 3,094.5 3,494.4 2,806.8 3,373.2 3,976.6 4.5 9.0 13.8EON Cap 354.0 336.0 370.2 341.1 373.1 422.4 (3.6) 11.0 14.1

HL Bank* 869.9 894.2 945.9 892.7 894.2 945.9 2.6 0.0 0.0Maybank* 3,112.7 3,505.7 3,911.4 3,634.4 4,292.7 4,823.4 16.8 22.5 23.3Public 2,459.2 2,679.2 2,931.8 2,517.3 2,872.0 3,211.7 2.4 7.2 9.5Total 11,056.9 12,413.4 13,787.9 11,833.4 13,782.4 15,610.8 7.0 11.0 13.2

Source: RHBRI * For FY10-FY12

Changes to consensus. Aggregate consensus FY09-11 net profit was raised by an average of 1.1-3.3% (seeTable 4). Earnings for most banks were raised with the highest increase seen for AMMB and Maybank. There

were two exceptions. Firstly, Affins forecasts were largely unchanged. Secondly, HL Banks FY11-12 forecasts

were cut by 12-14%, probably due to its continued below-industry loan growth.

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09(CY)

RMbn

-60

-40

-20

0

20

40

60

80

100

120

140(%)PBT (RMbn - LHS)qoq (%) (RHS)

-100

100

300

500

700

900

1100

1300

1500

Affin

Alliance

AMMB

CIMBGrp

EON

Cap

HLBank

Maybank

Public

RHBCap

(RMm) 4 08 1 09 2 09 3 09 4 09

0

50

100

150

200

250

300

1Q06 1Q07 1Q08 1Q09

(bps)

(150)

(100)

(50)

0

50

100

150(bps)Annualised net NPL formation (bps)

Qoq bps change (RHS)

0

50

100150

200

250

300

350

400

450

500

Affin

Alliance

AMMB

CIMB

Grp

EON

Cap

HLBank

Maybank

Public

RHB

Cap

(bps) 4Q08 1Q09 2Q09 3Q09 4Q09


12/16

4 March 2010

Page 12 of 16



Table 4. Consensus changes (immed iately after results): higher

Before (RMm) After (RMm) % Change

FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

Affin 368.0 408.9 466.6 371.8 408.9 466.6 1.0 0.0 0.0AFG* 260.3 348.5 424.2 272.6 352.6 428.2 4.7 1.2 1.0AMMB* 972.6 1,177.6 1,414.1 991.3 1,226.8 1,459.0 1.9 4.2 3.2CIMB Group 2,675.4 3,375.1 3,973.3 2,806.8 3,429.2 4,026.7 4.9 1.6 1.3EON Cap 344.9 374.7 429.6 341.1 384.7 434.1 (1.1) 2.7 1.1HL Bank* 930.8 1,198.0 1,366.5 933.8 1,050.8 1,172.5 0.3 (12.3) (14.2)

Maybank* 3,132.1 3,655.3 4,273.7 3,287.5 3,810.7 4,418.9 5.0 4.3 3.4Public 2,468.2 2,802.8 3,160.1 2,517.3 2,878.3 3,274.4 2.0 2.7 3.6Total 11,152.4 13,340.8 15,508.0 11,522.2 13,541.9 15,680.5 3.3 1.5 1.1

Source: I/B/E/S Estimates * For FY10-FY12

RHBRI vs. consensus. Given our more aggressive upward revisions vis--vis consensus, our aggregateearnings forecasts for FY10 or FY11 (depending on the financial year end) is now higher than consensus by 1.8%

but FY11 or FY12 is now only slightly below consensus. Given the marginal difference (except HL Bank which

were significantly more conservative), our forecasts are now largely in line with consensus on both aggregate

and individual stocks basis (see Table 5).

Table 5. Forecasts: RHBRI vs. consensus

RHBRI (RMm) Consensus (RMm) % Diff (RHBRI / Consensus)

FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11Affin 371.8 411.0 442.1 371.8 408.9 466.6 0.0 0.5 (5.3)AFG* 259.3 364.2 411.4 272.6 352.6 428.2 (4.9) 3.3 (3.9)AMMB* 1,010.0 1,202.1 1,377.3 991.3 1,226.8 1,459.0 1.9 (2.0) (5.6)CIMB Group 2,806.8 3,373.2 3,976.6 2,806.8 3,429.2 4,026.7 0.0 (1.6) (1.2)EON Cap 341.1 373.1 422.4 341.1 384.7 434.1 0.0 (3.0) (2.7)HL Bank* 892.7 894.2 945.9 933.8 1,050.8 1,172.5 (4.4) (14.9) (19.3)Maybank* 3,634.4 4,292.7 4,823.4 3,287.5 3,810.7 4,418.9 10.6 12.6 9.2Public 2,517.3 2,872.0 3,211.7 2,517.3 2,878.3 3,274.4 0.0 (0.2) (1.9)Total 11,833.4 13,782.4 15,610.8 11,522.2 13,541.9 15,680.5 2.7 1.8 (0.4)

Source: RHBRI & I/B/E/S Estimates * For FY10-FY12

RISKS

The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and 3) changes inmarket conditions that adversely affect investments portfolio.

VALUATIONS AND RECOMMENDATION

Overall, we continue to believe that the sector (being the lynchpin of the economy) will take the lead in takingthe market to higher ground. This will be underpinned by: 1) earnings growth gaining momentum from net

interest income (loan growth, stable to potential expansion in NIM and growing Islamic income), non-interest

income (from higher transactional income and the revival of the capital markets) and lower LLP (from improving

asset quality); 2) potential M&As would excite the market given that most banks are trading at below our

estimated M&A fair valuations of 2.3-2.5x P/B; 3) more aggressive capital management or higher dividend given

the excess capital positions, barring Basel III; 4) both PER and P/B valuations are still below their recent peaks

and/or less than one standard deviation above post-Asian financial crisis mean; and 5) foreign shareholdings are

still relatively low and well below peaks.

Moreover, most banks have their unique story: 1) AFG organic growth plus absence of impairment on CLOs aswell as potential write back of impairment and LLP; 2) AMMB ANZ value proposition gradually enhancing

profitability; 3) CIMB Group growing regional universal bank with strong growth from Indonesia; 4) EON Cap

consistent and improvement in earnings and asset quality, the positive impact from the potential internal

restructuring and a takeover target; 5) Maybank sharp improvement in earnings post regional acquisitions

with ROE returning to pre-acquisition levels but valuations still well below pre-acquisition levels; and 6) Public

Bank above industry loan growth and asset quality with relatively higher dividend yield. Thus, we are

maintaining our Overweight rating on the sector. Top pick is now Maybank due to its relatively cheap

valuations vis--vis historical levels. For exposure to big cap and highly liquid stocks, we also like CIMB, AMMB

and Public Bank. Affin, AFG, EON Cap and RCE Cap are also rated as Outperform while Affin is Market Perform

and HL Bank is rated Underperform.


13/16

4 March 2010

Page 13 of 16



Table 6. Valuation Bases

CompanyFair Value

(RM/ share) Valuation Methodology

Affin 3.03 11x CY10 EPS, 5x discount to reflect its low profitability and market capitalisationAFG 3.27 15x CY10 EPS, 1x discount to reflect relatively lower liquidity and market capitalisationAMMB 6.13 Benchmark 16x CY10 EPSCIMB Group 16.24 17x CY10 EPS, 1x premium to benchmark to reflect its growing status as a regional

universal bank and in position to benefit from the current window of opportunities arisingfrom western banks pulling back their resources in the region

EON Cap 8.07 15x CY10 EPS, 1x discount to benchmark to reflect its relatively small market capitalisationand lower liquidity

HL Bank 8.48 15x CY10 EPS, 1x discount to benchmark to reflect its relatively lower liquidityMaybank 8.96 Benchmark 16x FY11 EPSPublic 13.12 Benchmark 16x CY10 EPSRCE 1.08 11x CY10 EPS, 5x discount to reflect its non-deposit taking status and small market

capitalisationSource: RHBRI

Chart 39. Sector prospective PER comparison Chart 40. Sector prospective P/ NTA comparison

Source: RHBRI Source: RHBRI

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

CIMB

Grp

A F G M a yb an k H LB P B B -L P B B -F E ON C S ec to r

(ex-May)

Sector

(ex-May

& PBB)

AMMB Af f in RHBC

(x) CY09 CY10

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

PBB-L PBB-F C IMB

Grp

HLB Sec tor

(ex-May)

Maybank Sector

(ex-May

& PBB)

A FG R HB C A M M B E ON C A f fi n

(x) CY09 CY10


14/16

4 March 2010

Page 14 of 16



Table 7 : Key Earnings Data

Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG

Pre-provision Profit (RM m)

FY09F 4,762.4 4,875.1 4,000.0 1,960.7 1,189.5 585.4 669.7 443.8

FY10F 6,276.3 5,862.3 4,465.3 2,172.0 1,205.2 672.5 719.6 611.2

FY11F 6,713.3 6,648.0 4,871.2 2,358.7 1,260.9 728.5 752.2 666.5

Net Profit (RMm)FY09F 2,180.6 2,806.8 2,517.3 1,010.0 905.3 341.1 371.8 259.3

FY10F 3,634.4 3,373.2 2,872.0 1,202.1 892.7 373.1 411.0 364.3

FY11F 4,292.7 3,976.6 3,211.7 1,377.3 894.2 422.4 442.1 411.6

Net Profit Growth (% )

FY09F -36.1 43.8 -2.5 17.3 22.0 155.0 27.0 13.2

FY10F 66.7 20.2 14.1 19.0 -1.4 9.4 10.5 40.5

FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 13.0

Adjusted Net Interest Margins (% )

FY09F 2.8 3.4 2.4 3.0 2.0 2.6 2.7 2.6

FY10F 2.8 3.4 2.4 2.9 2.0 2.7 2.7 2.5

FY11F 2.8 3.4 2.4 2.9 2.0 2.6 2.6 2.5

Non-Interest Income As % of Total Income

FY09F 30.8 35.1 22.6 31.2 26.0 19.9 23.9 15.0

FY10F 35.3 33.6 22.1 32.4 27.1 20.2 23.6 25.9

FY11F 34.8 33.3 21.7 32.5 26.8 20.5 23.7 26.2

Cost-to-Income Ratio (% )

FY09F 53.9 54.0 34.5 48.0 42.4 58.9 47.4 54.2

FY10F 50.2 50.6 33.4 46.9 43.3 57.4 46.9 47.4

FY11F 50.0 48.7 32.8 46.3 43.4 56.6 47.0 46.5

Loan-to-Deposit Ratio (% )

FY09F 87.4 79.5 79.2 92.0 51.5 92.9 78.7 75.7

FY10F 86.7 76.3 82.1 91.1 50.5 93.1 77.5 78.8FY11F 86.8 75.9 83.6 90.4 50.5 93.3 76.8 82.0

Loan Growth (% )

FY09F 13.5 20.9 18.8 9.2 0.8 8.3 12.9 10.4

FY10F 8.0 10.4 14.0 7.1 5.0 10.2 8.3 9.3

FY11F 7.0 9.4 10.0 7.1 7.1 9.2 8.1 9.3

Gross NPL Ratio (% )

FY09F 3.5 5.0 1.0 3.3 2.2 3.8 3.7 4.5

FY10F 3.2 4.5 0.9 2.7 2.2 3.3 2.9 4.0

FY11F 3.0 4.0 0.9 2.2 2.1 2.8 2.6 3.5

Net NPL Ratio (%)

FY09F 1.5 1.8 0.8 2.1 1.3 2.3 2.2 2.2

FY10F 1.4 1.6 0.8 1.7 1.3 2.0 1.7 1.9

FY11F 1.3 1.4 0.7 1.4 1.3 1.6 1.6 1.7

Loan Loss Cover (% )

FY09F 112.9 90.8 172.4 83.8 109.1 78.5 81.5 85.8

FY10F 117.0 93.4 181.0 95.1 110.2 85.6 91.9 90.1

FY11F 121.1 96.8 191.6 108.0 112.4 94.5 96.7 95.6

RWCAR (%)

FY09F 15.0 14.4 14.2 15.2 16.5 14.4 13.8 14.4

FY10F 15.6 13.6 14.3 15.4 17.3 14.3 13.3 14.8

FY11F 15.8 13.3 14.3 15.7 17.8 14.2 12.8 15.3

Source : RHBRI for companies with Mar & Jun YE, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively


15/16

4 March 2010

Page 15 of 16



Table 8 : Valuation Summary

Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG

Bloomberg Ticker MAY MK CIMB MK PBK MK AMM MK HLBK MK EON MK AHB MK AFG MK

Recommendation OP OP OP OP UP OP MP OPShare Price (RM/s) @ 3 Mar 10 6.98 13.60 11.16 5.00 8.57 6.93 2.79 2.78

Fair Values (RM) 8.96 16.24 13.12 6.13 8.48 8.07 3.03 3.27

EPS (Sen)

FY09F 37.8 79.5 73.3 33.5 57.3 49.2 24.9 16.8

FY10F 51.3 95.5 82.0 39.9 56.5 53.8 27.5 23.5

FY11F 60.7 112.6 91.7 45.7 56.6 60.9 29.6 26.6

EPS Growth (% y-o-y)

FY09F -29.8 37.4 -4.7 7.8 22.0 155.0 27.0 13.2

FY10F 35.7 20.2 11.8 19.0 -1.4 9.4 10.5 40.5

FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 13.0

PER (x)

FY09F 18.4 17.1 15.2 14.9 15.0 14.1 11.2 16.6

FY10F 13.6 14.2 13.6 12.5 15.2 12.9 10.1 11.8

FY11F 11.5 12.1 12.2 10.9 15.1 11.4 9.4 10.5

Book (RM/ s)

FY09F 3.5 5.8 3.1 3.1 3.6 5.1 3.2 1.9

FY10F 3.8 6.1 3.6 3.5 4.0 5.6 3.2 2.1

FY11F 4.2 6.8 4.0 3.9 4.4 6.1 3.3 2.3

P / Book (x)

FY09F 2.0 2.4 3.6 1.6 2.4 1.4 0.9 1.5

FY10F 1.8 2.2 3.1 1.4 2.1 1.2 0.9 1.3

FY11F 1.7 2.0 2.8 1.3 1.9 1.1 0.8 1.2

ROE (%)

FY09F 9.9 15.0 24.5 11.8 16.7 10.1 8.1 9.1

FY10F 14.0 16.1 24.2 12.1 14.8 10.0 8.6 11.8

FY11F 15.2 17.4 23.8 12.5 13.4 10.4 9.0 12.0

ROE / PB (x)

FY09F 5.0 6.4 6.8 7.4 7.1 7.5 9.2 6.2

FY10F 7.7 7.2 7.8 8.4 6.9 8.1 10.0 8.9

FY11F 9.1 8.7 8.6 9.6 6.9 9.2 10.7 10.0

ROA (%)

FY09F 0.2 1.3 1.2 1.1 1.2 0.8 1.0 0.8

FY10F 1.1 1.3 1.3 1.2 1.1 0.8 1.0 1.0

FY11F 1.2 1.4 1.3 1.3 1.0 0.8 1.0 1.1

DPS (Sen)

FY09F 8.0 18.5 55.0 10.0 24.0 7.7 8.5 6.3

FY10F 29.0 18.5 60.0 10.0 24.0 10.0 8.5 6.3

FY11F 35.0 18.5 65.0 10.0 24.0 10.0 8.5 6.3

Dividend Yield (% )

FY09F 1.1 1.4 4.9 2.0 2.8 1.1 3.0 2.2

FY10F 4.2 1.4 5.4 2.0 2.8 1.4 3.0 2.2

FY11F 5.0 1.4 5.8 2.0 2.8 1.4 3.0 2.2

Source : RHBRI for companies with Mar & Jun YE, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively


16/16

4 March 2010

Page 16 of 16

IMP ORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment BankBerhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and maydiffer or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is notto be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated hereinin any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associatedpersons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectivesof persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment orstrategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents acceptsany liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHBGroup may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equitysecurities or loans of any company that may be involved in this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or otherservices from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation basedupon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% ormore over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to takeon higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- f ive percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommendedsecurities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever forthe actions of third parties in this respect.

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