Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

11 August 2010 (Plantation, Daibochi, Hartalega; Technical: AirAsia)

Top Story : Plantation – Largely affected by external developments Neutral

Sector Update
- Malaysia’s CPO production rose in Jul by 7.0% mom, while exports rose by a smaller 1.8% mom. However,
closing CPO stock levels fell again to 1.40m tonnes in Jul (from 1.45m tonnes in Jun), due mainly to higher
domestic use (+24.8% mom), potentially due to the upcoming festive season.
- Stock/usage ratio thus fell to 7.5% (from 7.8% in Jun and vs. the 7-year average of 9.1%). However, going
forward, notwithstanding any effects of adverse weather, we expect this to potentially start reversing from
next month onwards, as production picks up pace towards the peak seasonal production period.
- A slew of external factors have affected prices of CPO in the last month, resulting in CPO prices rising 13%
mom to a high of RM2,800/tonne a few days ago, including: 1) skyrocketing wheat prices caused by the
drought in Russia, which resulted in speculative buying for corn, soybean and other grain and oilseed
products; 2) continued US$ weakening; 3) rising crude oil prices; and 4) weather concerns, particularly the
impact of an impending La Niña. Based on our analysis, it would seem that the current spike in CPO and
other vegetable oil prices is mainly due to external non-fundamental factors, and could be temporary. We
believe this is particularly so for soybean and soyoil prices, given the good news coming out of the US on
its soybean crop conditions recently.
- No change to our forecasts. We maintain our Neutral stance on the plantation sector. We continue to have
Outperform calls SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.70), IOIC (FV = RM6.65) and
CBIP (FV = RM3.70), while we maintain our Underperform call on Sime Darby (FV = RM8.00), Genting
Plantation (FV = RM6.70) and IJMP (FV = RM2.30).

Macro View

IPI : Slowed down in June, GDP growth estimated to have softened to +8.1% in the 2Q
Economic Highlights (published 10 Aug 2010)
- Industrial production slowed down to 9.4% yoy in Jun, from +12.3% in May and a high of +14.2% in Mar.
This was the slowest pace of growth in four months, suggesting that industrial activities are moderating.
The slowdown was due to a more moderate increase in manufacturing production, in tandem with a
slowdown in the exports of manufactured goods, and slowdown in electricity output.
- Cumulatively, industrial production moderated to 10.8% yoy in the 2Q, from +11.0% in the 1Q. Slower
growth was due to a slowdown in electricity and mining output in the 2Q.
- Based on preliminary numbers, we estimate real GDP growth is likely to have moderated to 8.1% yoy in
2Q, from the peak of +10.1% in 1Q. This was due to a slowdown in exports, which was mitigated by a pick-
up in domestic demand.

Corporate Highlights

Daibochi : Stabilising costs; Electronics packaging in final stages Outperform

Briefing Note
- The main culprit for the raw material price increase was polyester film (27% of total raw material costs)
which faced a shortage due to a major film manufacturer in Korea switching its focus from food products to
the higher-end electronic packaging products. This caused 1H10 EBIT margins to fall to 10.4% from 12.2%
in 1H09. We note that since Jun, of Daibochi’s entire raw materials requirement, only polyester prices have
continued on an uptred (+3-5%), whereas the others have fallen about 5-10% from 1H10 averages.
- Daibochi incurred RM1.1m in forex losses (vs. RM1.5m gain in 1H FY12/09), attributed to the drop in AUD.
To protect margins, management has indicated that Daibochi will start hedging its AUD exposure, which we
understand will incur extra costs of RM10-15k/mth, totaling to RM120-180k/year. We thus tweak our
forecast slightly to input the hedging costs of RM90k for FY10 and RM180k for FY11-12.
- We understand from management that Daibochi’s electronic packaging film, named Tribosafe, has
received a certificate from RMB Technology Group of USA, after passing all of the required tests.
Furthermore, Daibochi is in the finalisation stages of its agreement with Lubrizol for a partnership to
produce Tribosafe packaging film. Management expects the signing of the agreement by end FY10.
- Following the slight change in earnings forecasts, our target price is reduced slightly to RM3.80 (from
RM3.83 previously) based on unchanged 12x FY12/11 EPS. Maintain Outperform.

Hartalega : No surprises Outperform

1QFY11 Results
- 1QFY11 net profit of RM41.5m (+57.1% yoy) came in within our and consensus expectations, accounting
for 24% of our and consensus full-year estimates respectively.
- Qoq, revenue grew 4% as result of an increase in sales volume as two more new lines in Plant 5 were
commissioned during the quarter. 2Q EBIT margin, however, contracted by 3.1%-pts qoq largely due to: 1)
time lag in passing on the weakening US$ against RM (-3.8% qoq); and 2) recognition of share-based
payment expenses of RM1m during the quarter. As nitrile prices has been rather stable given that its
product mix is predominantly nitrile gloves, Hartalega was not really affected by the surged in latex prices
during the quarter. Coupled with a higher effective tax rate of 22.9%, net profit fell 10.8% qoq.
- We have kept our FY11-13 forecasts unchanged for now.
- Maintain fair value of RM9.29 based on unchanged target FY11 PER of 13x. Reiterate Outperform.

Technical Highlights

Daily Trading Strategy : Short-term investors should turn cautious…

- Disappointedly, the current profit-taking leg appears longer than expected with the FBM KLCI drifting even
lower than the crucial 10-day SMA of 1,361 yesterday.
- The fall to below the SMA, coupled with the reduced daily turnover show that the chart’s short-term outlook
could turn negative in the next few sessions, if the index fails to launch any recovery soon.
- Not helping either, the mild T+4 selling pressure expected today from last Thursday’s 994m shares high
turnover could further dampen the short-term sentiment on the local market, in our view.
- Therefore, short-term investors should turn cautious for the index to regather its buying support and rebuild
a base between the 10-day SMA and the 1,350 critical support level in the near term.
- However, we remain mildly positive on the FBM KLCI’s short- to medium-term chart outlook, until and
unless it breaches to below the 1,350 resistance-turn-support level..

Daily Technical Watch: AirAsia – More profit-taking activities in the near term…
- 10-day SMA: RM1.554
- 40-day SMA: RM1.388
- Support: IS = RM1.50 S1 = RM1.40 S2 = RM1.28
- Resistance: IR = RM1.66 R1 = RM1.80 R2 = RM1.90

Bulletin Board

Co/Sector News Impact Recom

CIMB Khazanah has exercised its discretion to sell an The additional new CIMB shares to be issued OP, FV =
additional 615.99m Class B shares (2.57% stake) from the 2.57% stake in CIMB Niaga represent RM8.40
in CIMB Niaga to CIMB. With that, Khazanah will only 0.5% of CIMB’s current outstanding number
now be selling a total of 4.71bn CIMB Niaga of shares. In total, the new CIMB shares to be
shares (19.67% stake) to CIMB, to be satisfied issued would increase CIMB’s issued capital by
by the issuance of 268m new CIMB shares. 3.8%, but the impact to EPS would be mitigated
(Bursa Malaysia) by the incremental contribution from the higher
stake that CIMB would hold in CIMB Niaga.
Lafarge (M) Following a flattish cement consumption growth Neutral. Based on the recent share price rally, we MP, FV =
Cement in 1H10, Lafarge expects cement demand to pick believe the market has already expected an RM6.83
up in 2H, underpinned by several upcoming increase in cement consumption in the near term.
projects including the second Penang bridge
project, double track railway project and the
LCCT project. (Starbiz)
Genting According to a RAM report, Genting Malaysia’s Negative, although we cannot actually say this is MP, FV =
Malaysia US racino may cost US$730m initially, unexpected, given that the company did not RM3.00
 comprising of US$380m for the upfront licensing disclose in its announcement the amount of
fee and US$300-350m for initial capex. (Financial capex required for the project. In addition, as this
Daily)
Gaming Tycoons Tan Sri Robert Kuok and Tan Sri
Francis Yeoh have denied any plans to join a bid
for the privatisation of the Philippine Amusement
& Gaming Corp (Pagcor), contradicting San
Miguel Corp president Ramon Ang, who said
they may make a joint offer together with Ananda
Krishnan. (The Star)
Consumer : The retail industry in Malaysia is projected to
Retail grow by 5.5% this year, according to the
Malaysia Retail Industry Report (July 2010)
issued by Retail Group Malaysia. (The Star)
is only the initial capex involved, there is a
likelihood that the total investment involved could
even rise to as much as US$1-1.4bn (RM-3.1-
4.3bn) for the second and final phase of the
project. While GM would have no trouble
financing the project, we believe this would
reduce the IRR for this project even further from
the already low levels of about 10% based on the
initial sum of US$380m.
We believe it is unlikely for a Malaysian company N
or individual to be involved, given this is a highly
profitable national entity. We believe there is
more likelihood that it will be privatised by a local
company or consortium of companies, if it does
get privatised at all.
Positive. The projected growth of 5.5% is slightly N
above our expectations of the SSS growth
assumptions of about 2.5-4% for our retail stocks
i.e. AEON and Parkson. However, we maintain
our projections for these companies for now,
given that the retail sector growth quoted by
RGM is made up of a variety of retail outlets, and
not just department stores.

Important Dates

Company Quarter Expected Results Date

AMMB 1QFY03/11 Week beginning 9-Aug
EON Capital 2QFY12/10 Week beginning 9-Aug
Genting Singapore 2QFY12/10 12-Aug
RCE 1QFY03/11 13-Aug

Company Entitlement details Ex-date Payment date

New entitlements
AMMB Holdings 1st and final dividend of 4.4% less tax + 6.1% single tier tax exempt 7-Sep-10 24-Sep-10
Wijaya Baru Global 6th interest payment on 7% 5-year ICULS 2007/2012 6-Sep-10 17-Sep-10
SHL Consolidated First and final dividend of 7% less tax 13-Sep-10 12-Oct-10

Going “ex” on 12 Aug

Aluminium Co Of Msia Interim dividend of 7.5 sen less 25% tax 12-Aug-10 23-Aug-10
CYL Corporation Final tax exempt dividend of 8% 12-Aug-10 30-Aug-10
Ajinomoto (M) First and final dividend of 9 sen less 25% tax + 9 sen tax exempt 12-Aug-10 7-Sep-10
Central Industrial Corp Final dividend of 1.5 sen less 25% tax 12-Aug-10 13-Sep-10
Magna Prima Final dividend of 1 sen single tier exempt 12-Aug-10 15-Sep-10

...For more details, see individual reports attached

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