PP 7767/09/2010(025354)

16 June 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Marke t Upda te
16 June 2010
MARKET DATELINE

Benchmarking
Changes To The FBM KLCI Weights

Mid-year review. Although the mid-year review of the FBM KLCI was
Table 1. FBM KLCI Sector Weights
conducted earlier than expected, the changes will still become effective on
Sector Implied Implied
21 Jun. We had expected the top 30 rankings to remain intact based on
Weight (%) Weight (%)
share price performance for the 1H 2010 up to 31 May, but more
After Before
importantly, significant changes to index weights were announced.
changes changes
Nestle to be replaced by MAS. As Nestle did not meet the necessary Finance 36.03 38.65
liquidity requirement under the FTSE Bursa Malaysia Ground Rules (which Plantation 19.50 19.30
require that at least 10% of the shares, after applying the free float Telecom 14.58 12.91
adjustment, be traded during the twelve months prior to the review), the Power 10.00 9.46
stock will be deleted and replaced by MAS with a 0.3x free float factor. Gaming 8.11 8.03
We estimate that MAS would have an index weight of 0.51%. Transport 3.34 3.30
Oil & Gas 2.13 2.11
Free float factors changed for CIMB, DiGi and Tanjong. The free Construction 1.76 1.74
float factor (or investability weight) has been adjusted for three stocks: Infra 1.66 1.64
CIMB (from 1.0x to 0.75x), Digi (from 0.4x to 0.75x) and Tanjong (from Consumer 1.57 1.55
0.5x to 0.75x). FTSE Bursa Malaysia did not explain the reasons for the Motor 1.32 1.30
change which occurred despite minimal changes to the reported major Prices as at 15 Jun
shareholdings for the three companies. Therefore, we can only conclude Figures are before and after assuming the
that FTSE Bursa Malaysia has changed the classification of certain new free float factors have been applied
restricted shareholdings and this has in turn affected the free float factor. Source: Bloomberg, RHBRI
If this is the case, Khazanah Nasional with 27.83% of CIMB shares would
need to sell 7.83% (after taking into account the buffer zone) to raise the
free float factor back to 1.0x. Table 2. Top Picks
Price# (RM) FV (RM)
Significant impact to index weights. The impact is clearly negative for
Maybank 7.46 8.96
CIMB, which will drop from 1st place on the top 30 to 3rd. Its index weight
CIMB 6.89 8.12
will fall from 12.01% to 9.10%. In contrast, Digis index weight will rise
Maxis 5.31 6.20
from 1.74% to 3.29%. Similarly, Tanjongs index weight will rise from
Tenaga 8.31 10.40
0.86% to 1.31% (see Table 4).
Genting Bhd 7.17 8.95

Banks continue to dominate. Even with the changes, the banks will Top Glove 12.80 15.50

continue to dominate the benchmark index with a combined weighting of IJM Land 2.15 3.06

36.03% (albeit down from 38.65% assuming the free float factors had Media Prima 2.15 2.55

not changed). The key beneficiaries are the telecom and power sectors Sunway City 3.89 5.33

with new combined index weights of 14.58% (+1.67%-pts) and 10.00% Unisem 3.11 4.06

(+0.54%-pts) respectively. The lower weight for CIMB also has a Kossan 7.37 10.74

marginally positive impact on the other sectors (see Table 1). Faber 2.90 3.40
Evergreen 1.51 2.30
Conclusion. While we note that the market has yet to price in the impact Notion Vtec 2.97 4.68
of these changes especially for the three stocks, we expect some near- Daibochi 3.02 4.20
term rebalancing for funds that benchmark against the FBM KLCI, which # As at 15 Jun
could put some pressure on CIMB shares. Nevertheless, beyond the index Source: Bloomberg, RHBRI
weight changes, we remain positive on CIMB, and we reiterate our
Outperform call for the stock with an unchanged fair value of RM8.12
based on CY10 PER. Our fundamental calls and target prices for DiGi
(Outperform, FV = RM25.70) and Tanjong (Market Perform, FV =
RM19.20) also remain unchanged. We continue to expect the market to
remain volatile due to uncertain external factors. For the longer term, we Yap Huey Chiang
favour stocks that are fundamentally sound and attractively valued (see (603) 92802171
Table 2 for a list of our top picks). yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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 16 June 2010

Table 3. Changes To Index Weights By Sector

Sector Weightings (%)
15-Jun-10 31-May-10 31-Mar-10 31-Dec-09
Construction 1.76 1.74 1.75 1.77
Consumer 1.57 2.17 2.14 2.15
Finance* 36.03 38.60 36.75 35.65
Gaming 8.11 7.82 7.68 8.41
Infra 1.66 1.66 1.66 1.66
Media - - 0.81 0.59
Motor 1.32 1.35 1.32 1.37
Oil & Gas 2.13 2.13 2.09 2.16
Plantation 19.50 19.24 21.06 21.86
Power* 10.00 9.59 9.14 9.77
Telecom* 14.58 12.89 12.93 11.84
Transport^ 3.34 2.81 2.66 2.77
* Assuming new free float factors for CIMB, DiGi and Tanjong have been applied as at 15 June
^ Assuming MAS has replaced Nestle as at 15 Jun
Source: Bloomberg, RHBRI estimates

Table 4. Changes To Index Weights For FBM KLCI Stocks

Share New Old YTD Rel. YTD Abs.
Name Price Index Index Change to Perf. vs. Perf. vs.
15 Jun Weight Weight Weight FBM KLCI FBM KLCI
(RM) (%) (%) (%) (%) (%)
1 Public Bank 11.60 10.22 10.11 0.11 2.11 4.16
2 Malayan Banking 7.46 9.88 9.77 0.10 6.60 8.75
3 CIMB Group 6.89 9.10 12.01 (2.91) 5.21 7.32
4 Sime Darby 7.81 8.78 8.69 0.09 (14.65) (12.93)
5 Tenaga Nasional 8.31 6.76 6.69 0.07 (3.02) (1.07)
6 IOI Corp 4.97 6.21 6.14 0.07 (10.93) (9.14)
7 Axiata Group 3.85 6.08 6.02 0.06 23.74 26.23
8 Genting 7.17 4.97 4.92 0.05 (4.24) (2.32)
9 Digi.Com 22.64 3.29 1.74 1.56 1.06 3.10
10 Maxis 5.31 2.98 2.95 0.03 (3.07) (1.12)
11 MISC 8.48 2.83 2.80 0.03 2.41 4.47
12 AMMB Holdings 4.91 2.77 2.74 0.03 (3.74) (1.80)
13 PPB Group 16.08 2.38 2.35 0.03 1.81 3.86
14 Telekom Malaysia 3.33 2.23 2.21 0.02 6.68 8.82
15 Kuala Lumpur Kepong 16.06 2.14 2.12 0.02 (4.59) (2.67)
16 HL Financial Group 8.10 2.13 2.10 0.02 6.44 8.58
17 Genting Malaysia 2.76 2.03 2.01 0.02 (3.72) (1.78)
18 YTL Corp 7.43 1.76 1.74 0.02 (0.23) 1.78
19 PLUS Expressways 3.33 1.66 1.64 0.02 0.13 2.15
20 BAT 44.10 1.57 1.55 0.02 1.01 3.04
21 Petronas Gas 9.85 1.46 1.44 0.02 (2.17) (0.20)
22 UMW Holdings 6.20 1.32 1.30 0.01 (4.29) (2.36)
23 Tanjong Plc 17.30 1.31 0.86 0.44 0.71 2.73
24 Hong Leong Bank 8.27 1.30 1.29 0.01 (0.28) 1.72
25 YTL Power 2.21 1.19 1.18 0.01 (3.28) (1.34)
26 Berjaya Sports Toto 4.38 1.11 1.10 0.01 (1.29) 0.69
27 MMC Corp 2.45 0.74 0.74 0.01 (1.16) 0.82
28 Petronas Dagangan 9.05 0.67 0.67 0.01 1.97 4.02
29 RHB Capital 5.80 0.62 0.62 0.01 7.28 9.43
30 MAS 2.02 0.51 0.50 0.01 (10.53) (8.73)
New index weights are based on 15 Jun prices assuming the new free float factors have been applied. (The new free float factors will
become effective on 21 June)
Old index weights are based on 15 June prices and existing free float factors
Source: Bloomberg, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). 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 may differ 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 not to 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 herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
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 objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any 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 providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group 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 equity
securities 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 other
services 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 reflect
information 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 based
upon 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 FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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

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

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

Industry/Sector Ratings

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

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

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, 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 for
the actions of third parties in this respect.

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