PP 7767/09/2011(028730)

11 January 2011
RHB Research

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

M ar k et Up dat e
11 January 2011
MARKET DATELINE

Talking Points
Second Wind

♦ January effect. The so-called January effect was clearly evident between Chart 1. January Effect – (FBM KLCI
30 Dec and 7 Jan (or the first five days of trading) with the FBM KLCI 10 Dec 10 – 7 Jan 11)
rising by 2.9%. This compares with the one-week performance of 1.6%
for 2010, 3.9% for 2009 and 3.1% for 2008. In fact over the last 10
years, the first five days of trading in the year has been positive every
year since 2004. Although this performance may not be sustained for the
whole of Jan, we note that the first five days of trading has been an
indicator for the annual performance for seven of the last 10 years.

♦ Liquidity. The spike in volume and value of trades on Bursa Malaysia

indicates that there is still ample liquidity in the market. More money
flowing into the market should also mean better performance for equities Source: Bursa Malaysia, Bloomberg
– this appears to be supported by the last 10 years of data (see Chart 2).
However, this also suggests that any reversal in short-term liquidity flows
Table 1. Top Picks
would be negative for the market. Separately, we note that the FBM KLCI
Price# FV Rec.
appears to be highly correlated with the RM/US$ exchange rate (see
(RM) (RM)
Chart 3) but we believe the relationship is indirect, i.e. both are affected
CIMB 8.93 9.80 OP
by the same factors, including capital flows that are reacting to global
Genting 11.30 12.80 OP
economic conditions. Recent trading participation data suggests some
KLK 22.38 27.35 OP
cooling in foreign flows, but this has been more than offset by local flows.
Gamuda 4.25 4.51 TB
♦ PER expansion. The FBM KLCI rose by 19.3% for the year on both EPS MAHB 6.00 8.02 OP
growth (+24.6% yoy) and PER expansion (+1.3x for 2010 based on SP Setia 6.45 6.95 OP
comparative figures extracted from our 2010 and 2011 Market Outlook SapuraCrest^ 3.27 3.86 OP
and Strategy reports). However, we highlight that our 2010-2011 EPS Dialog 2.15 2.11 OP
growth estimates have also risen from 15.0% and 14.1%, to 24.6% and Jaya Tiasa^ 5.01 5.78 OP
16.3% between the two strategy reports, thereby masking some of the TH Plantation 2.10 2.80 OP
PER expansion. If we exclude the earnings adjustment, by assuming that HSL 1.79 2.27 OP
our latest 2011 forecasts were already in place at the beginning of 2010), KSL 1.96 2.78 OP
we estimate the PER expansion was in fact +2.6x for 2010 and +2.1x for # 7 Jan Source: Bloomberg, RHBRI
2011.

♦ Delivery. For the 12 months ahead, we expect continued anticipation in

terms of news flow for new projects, contracts, mergers and acquisitions.
However, we believe the focus will shift more to actual award of contracts
or projects, as well as to delivery and execution. This will likely be seen as
more challenging, and subject to other factors such as politics, global
economic conditions, and sustained liquidity. Delivery will likely also come
with disappointment as there will be winners and losers. For some stocks
e.g. in the construction sector, delivery/award of the anticipated contracts
could also be a signal to lock in profit. In any case, for the outperformers
in the market, the risk-reward equation will increasingly become less
compelling unless there are new catalysts to provide continued upside.

♦ News flow to continue driving the market. Notwithstanding the risk

of a reversal in capital flows, the news flow for some sectors (in particular
the oil & gas sector) appears to be going strong, and will continue to be
the catalyst in the near term. In our view, the market will remain a
trading market as we believe share prices cannot veer too far from Yap Huey Chiang
fundamental valuations. Our top picks (Table 1) include fundamentally (603) 92802171
yap.huey.chiang@rhb.com.my
inexpensive stocks (except Dialog which has risen by 20% YTD).

Please read important disclosures at the end of this report.

Page 1 of 5
 11 January 2011

Second Wind

♦ January effect. One week into 2011, the so-called January effect appears to be in full swing. Between 30 Dec
and 7 Jan (or the first five days of trading), the FBM KLCI rose by 2.9%. This compares with the one-week
performance of 1.6% for 2010, 3.9% for 2009 and 3.1% for 2008. In fact over the last 10 years, the first five
days of trading in the year has been positive every year since 2004. This performance has tended to be
sustained for the whole of Jan, and has been an indicator for the performance of seven out of the last 10 years.

Table 2. January Effect

Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
FBM KLCI
1st 5 days trading 2.9 1.6 3.9 3.1 1.5 1.3 1.0 2.4 (3.3) (0.6) (0.7)
Jan trading 2.9 (1.1) 0.9 (3.6) 8.5 1.6 1.0 3.1 2.9 3.3 7.1
Feb-Dec trading +ve 20.6 43.9 (37.1) 21.5 19.9 (1.8) 10.8 19.4 (10.1) (4.3)
Annual trading +ve 19.3 45.2 (39.3) 31.8 21.8 (0.8) 14.3 22.8 (7.1) 2.4

FBM EMAS
1st 5 days trading 4.0 2.2 4.1 3.4 1.7 1.0 1.2 3.5 (2.9) 1.5 (0.8)
Jan trading 3.7 (0.3) 1.2 (3.7) 9.5 1.9 1.1 4.4 3.0 5.5 6.4
Feb-Dec trading +ve 22.3 46.8 (39.4) 25.0 22.6 (7.6) 6.8 19.5 (10.7) (5.0)
Annual trading +ve 21.9 48.6 (41.6) 36.8 25.0 (6.6) 11.6 23.0 (5.8) 1.1
Source: Bloomberg

♦ Liquidity. The spike in volume and value of trades on Bursa Malaysia indicates that there is still ample liquidity
in the market. More money flowing into the market should also mean better performance for equities – this
appears to be supported by the last 10 years of data (see Chart 2). However, this also suggests that any
reversal in short-term liquidity flows would be negative for the market. Separately, we note that the FBM KLCI
appears to be highly correlated with the RM/US$ exchange rate (see Chart 4) but we believe the relationship is
indirect, i.e. both are affected by the same factors, including capital flows that are reacting to global economic
conditions. Recent trading participation data suggests some cooling in foreign flows, but this has been more than
offset by local flows.

Chart 2. Annual Traded Volumes And Value Vs. FBM KLCI Performance (1990-2011)
('000)
700 120.0
Traded value FBM KLCI
600 Performance 100.0

80.0
500
60.0
400 40.0

300 20.0

0.0
200
(20.0)
100
(40.0)
Traded vol
0 (60.0)
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Traded Vo lume (m) - LHS Traded Value (RM m) - LHS A nnual FB M KLCI P erf (%) - RHS

Source: Bloomberg

Chart 3. Recent Trading Participation (10 Dec 2010-7 Jan 2011)

100.0
90.0
Fo reign
80.0
70.0
60.0
50.0 Lo cal institutio n
40.0
30.0
20.0
10.0 Lo cal retail
0.0
10-Dec-10 15-Dec-10 20-Dec-10 25-Dec-10 30-Dec-10 4-Jan-11

Source: Bursa Malaysia, RHBRI

Page 2 of 5
 11 January 2011

Chart 4. RM vs. US$ Exchange Rate (2004-2011)

Source: Bloomberg

♦ PER expansion. The FBM KLCI rose by 19.3% for the year on both EPS growth (+24.6% yoy) and PER
expansion (+1.3x for 2010 based on comparative figures extracted from our 2010 and 2011 Market Outlook and
Strategy reports). However, we highlight that our 2010-2011 EPS growth estimates have also risen from 15.0%
and 14.1%, to 24.6% and 16.3% between the two strategy reports, thereby masking some of the PER
expansion. If we exclude the earnings adjustment, by assuming that our latest 2011 forecasts were already in
place at the beginning of 2010), we estimate the PER expansion was in fact +2.6x for 2010 and +2.1x for 2011.
We highlight that the last 10 years of data appears to show broad relationship between the annual FBM KLCI
performance and the corresponding year PER, earnings growth and traded value (see Chart 5). This suggests
that the market is influenced by fundamental factors apart from liquidity.

Chart 5. Year-End PER, Earnings Growth, FBM KLCI Performance And Annual Traded Volume (1990-2010)
P ER (x) P erf (%)
33.0 120
100
28.0
FBM KLCI 80
Performance 60
23.0
40
20
18.0
0

13.0 (20)
(40)
8.0 (60)
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year-end P ER (x) - LHS FB M KLCI P erf (%) - RHS

EP S Gro wth (%) P erf (%)

30.0 1998-1999 estimates not shown as 120
25.0 numbers were significantly out of the range
100
20.0 80
15.0
60
10.0
40
5.0
20
0.0
0
-5.0
-10.0 FBM KLCI (20)
-15.0 Performance (40)
-20.0 (60)
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
EP S Gro wth (%) - LHS FB M KLCI P erf (%) - RHS

Value (RM bn) P erf (%)

700.0 120
100
600.0
80
500.0
60
400.0 40

300.0 20
0
200.0
(20)
100.0 FBM KLCI
(40)
Performance
0.0 (60)
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Traded value (RM bn) - LHS FB M KLCI perf (%) - RHS

Source: Bursa Malaysia, RHBRI

Page 3 of 5
 11 January 2011

♦ Delivery. For the 12 months ahead, we expect continued anticipation in terms of news flow for new projects,
contracts, mergers and acquisitions. However, we believe the focus will shift more to actual award of contracts
or projects, as well as to delivery and execution. This will likely be seen as more challenging, and subject to
other factors such as politics, global economic conditions, and sustained liquidity. Delivery will likely also come
with disappointment as there will be winners and losers. For some stocks e.g. in the construction sector,
delivery/award of the anticipated contracts could also be a signal to lock in profit. In any case, for the
outperformers in the market, the risk-reward equation will increasingly become less compelling unless there are
new catalysts to provide continued upside.

Table 3. Catalysts And Risks For Selected Sectors

Sector New or Sustained Catalysts Risks Picks
Banks Potential for upside once interest rates begin to Downside risk for domestic CIMB (OP, FV = RM9.80)
trend upwards again. We continue to see value and global economy. Affin (OP, FV = RM4.27)
for the banks in the early stage of the recovery Slower-than-expected
upcycle. capital market activities.
Oil & Gas Although crude oil prices are holding at around The rise in crude oil prices Dialog (OP, FV = RM2.82)
US$88-90/barrel, but we anticipate prices to rise has been driven by financial SapuraCrest (OP, FV = RM3.86)
further and potentially break the US$100 mark. demand, even though KNM (OP, FV = RM3.78)
Sustained news flow as deepwater projects are supply and demand factors
revived, and marginal fields are tendered out have been relatively
over the next 12 months, which will in turn result balanced. Reversal of capital
in new contracts for the service operators. flows would also have a
negative impact on crude oil
prices.
Plantation Sustained CPO prices at current levels would Likewise, a sharp drop in KLK (OP, FV = RM27.35)
mean upside for average CPO price assumptions CPO prices would also be TH Plantation (OP, FV = RM2.80)
for 2011 (vs. our current estimate of reflected in share prices.
RM3,100/tonne).
Timber Beneficiary of the uptrend in CPO price, plus Downturn in CPO and/or Jaya Tiasa (OP, FV = RM5.78)
improving timber prices. timber prices.
Property M&A activities are likely to continue, albeit at a Another round of regulatory SP Setia (OP, FV = RM6.95)
slower pace. Government land privatisations will tightening would be Mah Sing (OP, FV = RM2.50)
also drive news flow. negative, but we believe the KSL (OP, FV = RM2.78)
Some property companies are still cheap. risk is relatively low.
Construction The sector, and in particular Gamuda, is still Focus will likely shift to Gamuda (OP, FV = RM4.51)
underpinned by the Economic Transformation execution and delivery risk HSL (OP, FV = RM2.27)
Programme (ETP) projects, and news flow is still once the contracts are
forthcoming on the MRT project. awarded.
Work on Sarawak’s SCORE will also continue to
gather pace.
Source: RHBRI

Risks

♦ Risks to our view. The risk is that capital flows may reverse due to unexpected events.

♦ Mitigating factors. The positive underlying fundamentals for the market suggest that any pullback in share
prices would be relatively shallow, and could be an opportunity to buy.

Conclusion

♦ News flow to continue driving the market. Notwithstanding the risk of a reversal in capital flows, the news
flow for some sectors (in particular the oil & gas sector) appears to be going strong, and will continue to be the
catalyst in the near term. In our view, the market will remain a trading market as we believe share prices cannot
veer too far from fundamental valuations. Our top picks are listed in Table 4, and include fundamentally
inexpensive stocks (except for Dialog which has already risen by 20% since the beginning of the year, but
remains our favourite for the sector).

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 11 January 2011

Table 4. RHBRI’s Top Picks

Price FV EPS EPS Growth PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) (%) (x) (x) (x) (%) Rec
7 Jan FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11
CIMB Dec 8.93 9.80 57.8 67.0 19.3 15.9 15.5 13.3 2.4 n.a. 1.4 OP
Genting Dec 11.30 12.80 79.8 89.5 -0.2 12.2 14.2 12.6 2.1 6.4 1.2 OP
KLK Sep 22.38 27.35 152.1 154.1 79.6 1.3 14.7 14.5 3.6 14.7 3.8 OP
Gamuda Jul 4.25 4.51 19.0 20.5 36.5 7.9 22.4 20.7 2.4 55.6 2.8 TB
MAHB Dec 6.00 8.02 44.9 49.9 20.5 11.3 13.4 12.0 1.8 9.5 3.3 OP
SP Setia Oct 6.45 6.95 25.9 29.5 26.5 13.6 24.9 21.9 2.9 88.8 3.1 OP
SapuraCrest^ Jan 3.27 3.86 19.3 20.4 14.4 5.7 17.0 16.0 2.7 6.2 2.1 OP
Dialog Jun 2.15 2.82 7.8 11.4 34.2 45.5 27.4 18.9 7.0 24.8 2.0 OP
Jaya Tiasa^ Apr 5.01 5.78 43.5 48.8 67.1 12.2 11.5 10.3 1.1 9.7 0.0 OP
TH Plantation Dec 2.10 2.80 25.3 26.8 60.1 6.0 8.3 7.8 1.9 6.3 6.7 OP
HSL Dec 1.79 2.27 16.2 17.7 21.4 8.9 11.0 10.1 2.3 13.0 1.4 OP
KSL Dec 1.96 2.78 23.4 29.0 30.1 24.2 8.4 6.8 0.9 -85.5 2.8 OP
^ FY11-12valuations refer to those of FY12-FY13

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 investor’s 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 RHBRI’s 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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