Malaysia Equity Strategy 2007

Transcription

Asia Pacific | Malaysia
Equity Strategy
Industry In-Depth
16 January 2007 | 124 pages
Moderate Index Increases but Ride the Upcycles
 Moderate rise in index but broad market remains healthy — Malaysia surprised
market played catch-up to the regional markets rallies. For 2007, we expect a
more moderate rise of 5.7% to 1169 points. That said, market conditions
appear healthy with interest switching into special situational stocks.
 Strong macro picture — After a 3-year infrastructure spending slump, Malaysia
appears ready to pump-prime under the 9th Malaysia Plan (9MP). Khazanah's
plan to develop the South Johor region could help reflate asset prices. These
initiatives, alongside a benign interest rate and inflation outlook, should support
5.7% GDP growth in 2007 and a recovery in consumer confidence, in our view.
Wai Kee Choong 1
+60-3-2383-2943
[email protected]
Chi-Chang Teh, CFA1
[email protected]
Andrew Chow, CFA 1
[email protected]
Julian Chua, CFA 1
[email protected]
 Theme 1: Ride the upcycle — Coming from a relatively low base and with a few
false starts, it doesn't appear to take a lot to positively impact the market. The
multiplier effects of the long cycle 9MP spending will likely create a positive
impact on the economy, infrastructure-linked sectors, consumer confidence and
the stock market. Plantation is our preferred sector for upcycle upside.
 Theme 2: Return of Khazanah government-linked companies (GLCs) — The
GLC reform story, entering its fourth year of reforms, will likely begin to deliver
more tangible results. Tenaga and Bumi Commerce are so far the most
successful GLC stories. We believe that GLCs that are closely linked to the South
Johor Development could be imminent reform targets this year. Telekom
appears to be the wild card.
 Theme 3: Election play/generous budget — Malaysia’s next election is not due
until early 2009 but the general view is that it will be held earlier; this could lead
to a generous expansionary budget.
 Sector strategy — We upgrade the Malaysia telecommunications and media
sectors from Neutral to Overweight and maintain our Overweight on plantations,
banks, construction, property, tobacco and utilities. We Underweight
transportation and are Neutral on gaming.
Robert Kong, CFA 2
[email protected]
Karen Ang 3
[email protected]
Corrine Png 2
[email protected]
Charles de Trenck4
[email protected]
Markus Rosgen 4
[email protected]
Elaine Chu 4
[email protected]
Chris W Leung, CFA 4
[email protected]
Paul Chanin 2
[email protected]
 Stock picks — On the assumption that consumer confidence and spending will
improve on a more favorable macro outlook alongside rising infrastructure
spending, our top picks are Telekom Malaysia, Star Publications, Tenaga
Nasional, SP Setia, E&O Property and AMMB.
See page 121 for Analyst Certification and important disclosures.
Citigroup Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a
result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with the NYSE
and/or NASD.
1
Citigroup Global Markets Malaysia SDN BHD; 2Citigroup Global Markets Singapore PTE LIMITED; 3Citicorp Securities (Thailand) Ltd.; 4Citigroup Global Markets Asia
Citigroup Global Markets | Equity Research
16 January 2007
Contents
Malaysia Equity Strategy 2007 – Moderate Index Increases but Ride the Upcycles
Model portfolio
Quantitative Analysis
Sector Analyses
Banks/Diversified Financials – Overweight
Construction – Overweight
Gaming – Neutral
Media – Overweight
Plantations – Overweight
Property – Overweight
Telecommunications – Overweight
Tobacco – Overweight
Transport (Shipping and Aviation) – Underweight
Utilities – Overweight
Company Write-Ups
AirAsia (AIRA.KL)
AMMB (AMMB.KL)
BAT (BATO.KL)
Berjaya Sports Toto Bhd (BSTB.KL)
Bumiputra Commerce (BUCM.KL)
Bursa Malaysia (BMYS.KL)
DiGi.Com (DSOM.KL)
E & O Property Development Bhd (EOPD.KL)
Gamuda (GAMU.KL)
Genting Bhd (GENT.KL)
IJM Corp (IJMS.KL)
IJM Plantations (IJMP.KL)
IOI Corp (IOIB.KL)
KL Kepong (KLKK.KL)
Mah Sing Group (MAHS.KL)
Malakoff (MLKF.KL)
Malaysia Airports (MAHB.KL)
Malaysian Plantations Bhd (MPBM.KL)
Maxis (MXSC.KL)
Maybank (MBBM.KL)
Media Prima Bhd (MPRM.KL)
MISC (MISCe.KL)
MK Land (MKLH.KL)
NSTP (NSTP.KL)
Plus Expressways (PLUE.KL)
PPB Oil Palms Bhd (PPBO.KL)
Public Bank (PUBM.KL)
Resorts World Bhd (RWBW.KL)
RHB Capital (RHBC.KL)
Road Builder (M) Holdings (ROAD.KL)
Sime Darby (SIME.KL)
SP Setia (SETI.KL)
Star Publications (STAR.KL)
Tanjong PLC (TJPL.KL)
Tenaga (TENA.KL)
Telekom Malaysia (TLMM.KL)
TSH Resources (TSHR.KL)
UMW Holdings Bhd (UMWS.KL)
YTL Power (YTLP.KL)
Analyst Certification Appendix A-1
2
3
13
14
17
18
20
22
23
25
28
31
36
37
40
41
42
44
46
48
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
100
102
104
106
108
110
112
114
116
118
121
16 January 2007
Malaysia Equity Strategy 2007 – Moderate Index Increases
but Ride the Upcycles
 Moderate rise in index but broad market remains healthy — Malaysia
surprised investors with a 13% rise in the Kuala Lumpur Composite Index in
4Q06 as the market played catch-up to the regional markets rallies. For 2007,
we expect a more moderate rise of 5.7% to 1169 points. That said, market
conditions appear healthy with interest switching into special situational
stocks.
 Strong macro picture — After a 3-year infrastructure spending slump,
Malaysia appears ready to pump-prime under the 9 th Malaysia Plan (9MP).
Khazanah's plan to develop the South Johor region could help reflate asset
prices. These initiatives, alongside a benign interest rate and inflation
outlook, should support 5.7% GDP growth in 2007 and a recovery in
consumer confidence, in our view.
 Theme 1: Ride the upcycle — Coming from a relatively low base and with a
few false starts, it doesn't appear to take a lot to positively impact the market.
The multiplier effects of the long cycle 9MP spending will likely create a
positive impact on the economy, infrastructure-linked sectors, consumer
confidence and the stock market. Plantation is our preferred sector for
upcycle upside.
 Theme 2: Return of Khazanah government-linked companies (GLCs) — The
GLC reform story, entering its fourth year of reforms, will likely begin to deliver
more tangible results. Tenaga and Bumi Commerce are so far the most
successful GLC stories. We believe that GLCs that are closely linked to the
South Johor Development could be imminent reform targets this year.
Telekom appears to be the wild card.
 Theme 3: Election play/generous budget — Malaysia’s next election is not
due until early 2009 but the general view is that it will be held earlier; this
could lead to a generous expansionary budget.
 Sector strategy — We upgrade the Malaysia telecommunications and media
sectors from Neutral to Overweight and maintain our Overweight on
plantations, banks, construction, property, tobacco and utilities. We
Underweight transportation and are Neutral on gaming.
 Stock picks — On the assumption that consumer confidence and spending
will improve on a more favorable macro outlook alongside rising infrastructure
spending, our top picks are Telekom Malaysia, Star Publications, Tenaga
Nasional, SP Setia, E&O Property and AMMB.
3
16 January 2007
Moderate rise in the index but broad market remains healthy
Index target of 1169 points
Our bottom-up analysis suggests that the Kuala Lumpur Composite Index (KLCI)
will rise by a moderate 5.7% to 1169 points in 2007. This is after a sharp 13%
jump in the KLCI in 4Q06, which boosted 2006’s performance by 22%. Malaysia
so far has outperformed its regional peers.
Our index target of 1169 suggests a
5.7% rise in the KLCI
Figure 1. Regional Market Performance Based on MSCI Indices — YTD to 10 Jan 2007
4
(%)
2
0
(2)
(4)
(6)
(8)
Thailand
Indonesia
Korea
China
Australia
AC Asia ex Japan
India
Taiwan
Singapore
Philippines
Hong Kong
Malaysia
(10)
Source: MSCI, Citigroup Investment Research
Figure 2. Regional Market Valuations Based on MSCI Indices
MSCI AC Asia ex Japan
P/E (x)
07E
14.0
08E
12.4
MSCI Malaysia
15.0
13.7
11.9
MSCI Australia
MSCI China
MSCI Hong Kong
MSCI India
MSCI Indonesia
MSCI Korea
MSCI Philippines
MSCI Singapore
MSCI Taiwan
MSCI Thailand
14.4
16.2
18.9
18.2
13.4
10.1
14.9
16.3
13.6
8.5
13.8
14.3
16.5
15.8
11.6
9.0
13.3
14.9
12.3
7.7
13.6
9.9
-7.7
17.0
13.5
15.5
15.9
1.8
19.9
4.1
EPS Growth (%)
07E
08E
11.1
12.5
P/BV (x)
07E
2.0
08E
1.8
10.6
2.0
1.9
6.2
12.0
15.9
16.3
15.4
12.1
11.6
10.1
10.9
11.0
2.7
2.6
1.8
3.7
3.1
1.4
2.3
2.0
2.0
1.5
2.4
2.3
1.7
3.3
2.7
1.3
2.1
1.9
1.9
1.3
Div Yield (%)
07E
2.8
08E
3.1
ROE (%)
07E
14.2
08E
14.5
3.6
3.8
13.4
13.7
4.1
2.3
2.9
1.3
3.1
2.2
2.9
3.2
3.9
5.1
4.4
2.6
3.2
1.5
3.9
2.4
3.5
3.4
4.2
5.6
18.5
16.2
9.7
20.5
23.5
14.0
15.3
12.2
14.7
17.3
17.8
16.4
10.5
21.0
23.6
14.1
15.6
12.5
15.2
17.3
Source: MSCI, I/B/E/S, Datastream, Bloomberg, CEIC, Citigroup Investment Research estimates
4
16 January 2007
Underlying market likely to remain healthy
Interest likely to switch to mid-cap
and situation stocks, in our view
Notwithstanding the mediocre rise in our index target, underlying market
sentiment remains healthy. As the Malaysian stock market had lagged its
regional peers for most of 2006, we believe the 4Q06 rally was largely due to the
market playing catch-up driven by the influx of liquidity. We believe the market
has yet to fully price in any positive developments such as the start of the 9th
Malaysia Plan spending for this year, Khazanah’s plan to develop South Johor,
and the likelihood that benign interest rate and inflationary pressures would
help lift consumer confidence and spending. The underlying market will likely
continue to perform well on interest switching towards mid-cap and situation
stocks, in our view.
Valuations and market EPS growth
Market P/E is now at 15x, EPS growth
at 10.3% for 2007E
After a 22% rise in 2006, the market is now trading at a P/E valuation of 15x
2007 earnings based on CIR’s estimates. This is at a 30% discount to its 16year historical average of 21.5x and 14% discount to the regional average of
17.4x. EPS growth of 10.3% for 200E supports our index target of just a 5.7%
increase. Nevertheless, we do see some earnings surprises from the ongoing
M&A buzz.
Figure 3. Selected Market Valuations
Market Valuations
Year to Dec
EPS Growth (%)
P/E (x)
P/B (x)
Div Yield (%)
ROE (%)
MSCI Average Since 1990
AsiaExJapan
Malaysia
15.3
11.9
17.4
21.5
2.0
2.4
2.2
1.9
11.0
11.4
FY06E
13.6
16.6
2.7
4.0
14.9
CIR
FY07E
10.3
15.0
2.5
4.5
15.2
FY08E
6.9
14.1
2.3
4.9
15.1
FY06E
15.1
16.5
2.4
3.7
NA
IBES
FY07E
12.4
14.7
2.2
3.9
NA
FY08E
8.6
13.5
2.1
4.1
NA
FY06E
10.2
17.0
NA
NA
12.8
MSCI
FY07E
14.7
2.2
2.2
3.5
13.4
FY08E
13.5
2.1
NA
NA
13.6
Source: Citigroup Investment Research, I/B/E/S estimates and MSCI
Figure 4. Selected Valuations – CIR Universe
Market
Sector
EPS Growth (%)
P/E (x)
P/BV (x)
Dividend yields (%)
ROE (%)
Cap
Weightings
11-Jan-07
Sector
(RM m)
(%) 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E
Banks
114,171
24.9
18.3
13.7
5.8
16.8
14.7
13.9
2.9
2.6
2.4
4.7
5.0
5.3
14.3
15.5
15.2
Diversified Finance
4,547
1.0
16.1
69.3
4.3
45.9
27.1
26.0
6.0
5.7
5.6
2.8
5.3
5.6
11.7
20.9
21.4
Airlines
6,189
1.4 (6.9)
13.1
19.5
22.3
19.7
16.5
1.6
1.5
1.4
0.5
0.5
0.6
7.4
7.8
8.3
Auto
3,903
0.9
1.5
12.9
13.6
13.6
12.1
10.6
1.6
1.5
1.4
4.8
5.5
6.3
11.9
12.6
13.4
Construction
10,254
2.2 (1.5)
16.7
14.3
23.6
20.2
17.7
1.8
1.7
1.6
2.6
2.9
3.3
7.7
8.5
9.0
Gaming
46,097
10.1
2.5
1.3
3.6
16.6
16.4
15.9
2.7
2.4
2.2
2.4
2.3
2.2
16.1
14.9
14.0
Infrastructure
14,000
3.1
57.3 (19.4)
9.3
12.2
15.1
13.8
3.0
2.8
2.5
4.6
3.7
4.0
26.1
19.0
19.1
Conglomerates
18,455
4.0
10.9
10.4
10.0
15.4
13.9
12.7
2.0
1.9
1.9
4.6
5.0
5.3
13.5
13.9
14.1
Media
4,733
1.0 (3.8)
16.6
39.5
21.4
18.4
13.2
2.1
1.9
1.8
4.1
4.2
5.3
9.8
10.9
14.1
Plantations
40,153
8.8
16.5
31.8
10.9
22.4
17.0
15.4
3.1
2.8
2.6
2.8
3.2
3.5
14.1
17.1
17.6
Real Property
5,848
1.3
8.9
14.8
16.2
13.8
12.0
10.4
1.5
1.4
1.3
3.8
5.0
5.6
11.7
12.5
13.6
Shipping
33,106
7.2 (16.5) (28.4) (9.6)
11.6
16.3
18.0
1.9
1.8
1.7
3.4
3.4
3.4
16.3
10.8
9.4
Telecommunications
69,626
15.2
18.5
12.4
10.3
15.4
13.7
12.4
4.0
3.7
3.4
5.9
6.6
7.3
16.1
17.4
18.3
Tobacco
12,421
2.7
29.9
9.7
6.0
16.1
14.7
13.9
43.8
33.8
27.2
7.7
8.5
9.0 117.2 114.5 108.6
Utilities
74,940
16.3
35.2
31.1
6.2
18.5
14.1
13.3
2.3
2.1
1.9
2.9
4.3
5.0
13.3
15.6
15.0
Citigroup Universe
458,442
100.0
13.6
10.3
6.9
16.6
15.0
14.1
2.7
2.5
2.3
4.0
4.5
4.9
14.9
15.2
15.1
Source: Citigroup Investment Research estimates
5
16 January 2007
Figure 5. Selected Valuations: CIR Universe Using I/B/E/S Estimates
Sector
Banks
Diversified Finance
Airlines
Auto
Construction
Gaming
Infrastructure
Conglomerates
Media
Plantations
Real Property
Shipping
Telecommunications
Tobacco
Utilities
IBES
Market Cap
Sector
11-Jan-07 Weightings
(RM m)
(%)
114,171
24.9
4,547
1.0
6,189
1.4
3,903
0.9
10,254
2.2
46,097
10.1
14,000
3.1
18,455
4.0
4,733
1.0
40,153
8.8
5,848
1.3
33,106
7.2
69,626
15.2
12,421
2.7
74,940
16.3
458,442
100.0
EPS Growth (%)
2006E
19.3
17.3
1.6
(1.3)
3.7
3.6
10.3
11.0
(28.4)
12.7
9.5
(21.0)
48.8
24.2
35.0
15.1
2007E
16.6
23.9
15.4
4.6
18.9
7.5
(14.5)
5.7
53.6
22.7
7.6
(3.1)
7.8
6.0
28.1
12.4
P/E (x)
2008E
11.6
18.9
18.6
15.6
15.4
8.8
(1.0)
2.9
18.4
10.2
12.0
5.6
6.9
5.1
7.1
8.6
2006E
16.6
44.4
20.3
14.0
21.2
16.4
11.9
15.3
26.2
22.8
13.3
12.3
15.4
16.9
17.9
16.5
P/BV (x)
2007E
14.2
35.9
17.6
13.4
17.8
15.2
13.9
14.5
17.1
18.5
12.3
12.7
14.3
15.9
14.0
14.7
2008E
12.7
30.2
14.8
11.6
15.4
14.0
14.1
14.1
14.4
16.8
11.0
12.0
13.3
15.1
13.1
13.5
2006E
2.3
5.3
1.6
1.6
1.7
2.6
2.9
2.0
2.1
3.0
1.6
1.8
2.5
18.4
2.3
2.4
2007E
2.1
5.0
1.5
1.6
1.6
2.3
2.7
1.9
1.9
2.7
1.5
1.7
2.4
16.8
2.0
2.2
Dividend yields (%)
2008E
2.1
5.0
1.4
1.4
1.5
2.3
2.7
1.7
1.9
2.5
1.3
1.5
2.4
16.8
1.8
2.1
2006E
4.5
3.1
0.6
2.9
2.4
2.3
4.3
4.0
3.7
2.6
3.7
3.5
5.4
6.8
2.4
3.7
2007E
4.6
2.6
0.7
4.7
2.4
2.2
4.3
4.0
4.1
2.7
4.6
3.7
5.4
7.3
2.7
3.9
2008E
5.0
3.2
0.7
5.2
2.5
2.2
4.5
4.1
4.3
3.0
4.6
3.7
5.7
7.8
3.0
4.1
Source: Citigroup Investment Research, I/B/E/S estimates
Figure 6. Selected Valuations: MSCI Universe
Sector
Banks
Diversified Financials
Transportation (incl. Airlines,
Infrastructure, Shipping)
Auto & Components
Capital Goods (incl. Construction,
Conglomerate)
Consumer Services (incl. Gaming)
Media
Food Bev & Tobacco (incl. Plantations,
Tobacco)
Real Estate
Telecom
Utilities
MSCI
Market Cap
Sector
11-Jan-07 Weightings
(USD m)
(%)
15,758
24.4
2,689
4.2
5,918
9.2
EPS Growth (%)
P/BV (x) DY (%)
P/E (x)
2006E
18.3
(30.6)
(10.1)
2007E
15.0
19.8
7.6
2008E
12.5
16.3
10.7
2006E
19.9
20.2
12.4
2007E
16.8
23.9
15.2
2008E
14.6
17.8
14.1
Current
2.5
1.4
2.2
ROE (%)
2007 2006E
4.2
12.6
2.2
6.9
3.2
17.5
2007E
14.9
5.8
14.3
2008E
17.2
7.8
15.4
1,288
5,681
2.0
8.8
104.3
9.6
90.2
16.2
22.1
8.4
61.6
20.0
30.2
18.2
15.9
15.7
0.8
1.8
3.1
3.1
1.3
9.2
2.7
10.1
5.1
11.7
6,934
1,567
8,272
10.7
2.4
12.8
1.7
4.6
(4.1)
8.9
13.5
19.9
7.5
25.2
10.4
17.3
26.0
20.9
17.0
24.8
21.7
15.6
21.9
18.1
2.8
4.5
3.1
2.4
3.0
3.9
16.1
17.5
15.0
16.4
18.3
14.4
17.8
20.8
17.3
1,599
5,013
8,084
64,615
2.5
7.8
12.5
100.0
17.1
40.8
44.4
10.2
3.6
4.3
1.3
11.9
9.8
6.8
10.5
10.6
16.3
21.8
21.9
17.0
14.0
15.4
15.2
15.1
13.5
14.8
15.0
13.8
1.6
2.5
2.3
2.2
4.5
5.0
2.9
3.5
9.6
11.4
10.6
12.8
11.3
16.0
15.3
13.4
11.7
16.7
15.5
13.6
Source: MSCI, Citigroup Investment Research. Note: Other sectors make up the balance 2.8% in the MSCI Universe
6
16 January 2007
Figure 7. P/E – Malaysia Avg 21.5x, Asia ex Japan Avg 17.4x
Figure 8. P/BV – Malaysia Avg 2.4x, Asia ex Japan Avg 2x
40 (x)
5 (x)
35
4
30
Steep
Steep
3
25
Expensive
Expensive
Inexpensive
20
15
Inexpensive
2
Cheap
Cheap
1
10
PE
+1SD
Average
-1SD
PB
Figure 9. Dividend Yield (%) – Malaysia Avg 1.9%, Asia ex Japan Avg 2.2%
+1SD
Average
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
0
Jan-90
5
-1SD
Figure 10. ROE (%) – Malaysia Avg 11.4%, Asia ex Japan Avg 11%
5 (%)
20
4
15
3
10
(%)
Very High
High
Very high
High
2
Low
Very Low
5
Low
0
Yield (%)
+1SD
Average
80
6,000
60
4,000
Very High
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-00
Average
-1SD
(US$m)
10%
FCF as at Dec 06: US$2.9m
FCF Yield: Average < 0.1%
Current 2.4%
5%
0%
2,000
-5%
0
High
-2,000
Low
0
+1SD
Figure 12. FCF (US$ m) and FCF Yield (%) - Malaysia
8,000
20
Jan-94
ROE
(%)
40
Jan-93
-1SD
Figure 11. EPS Growth (%) – Malaysia Avg 11.9%, Asia ex Japan Avg 15.3%
100
-5
Jan-92
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
0
Jan-91
Very Low
Jan-90
1
-10%
-4,000
Very Low
-20
-15%
-6,000
-40
-20%
+1SD
Average
Mil USD
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
EPS Growth (%)
Jan-90
-8,000
-60
FCF Yld
-1SD
Source for all charts: MSCI, Citigroup Investment Research
7
16 January 2007
Favorable macro outlook
Economic factors likely to play a more
important role in 2007E
In the past, macroeconomic factors played a relatively small role in the Malaysia
stock market. For 2007, however, economic developments such as the
implementation of the 9MP and the development of South Johor will likely be
watched closely and evaluated by investors. The interest rate trend and inflation
outlook are also key economic indicators; when they both trended up in 200506, consumer confidence was negatively affected.
A conducive environment
After a three-year infrastructure spending slump (the previous 5-year 8th
Malaysia Plan ended in 2005), Malaysia appears ready to pump-prime under
the 5-year 9th Malaysia Plan (9MP). After a few false starts, we are confident of
more spending in 2007 as the 9th Malaysia Plan enters its second year. Under
the 9MP, we expect spending to rise by 29% to RM220b for the next four years.
The South Johor development will likely help reflate land prices in South Johor.
Our 2007 GDP growth forecast at
5.7%, the ringgit will likely continue
to strengthen
We recently upgraded Malaysia’s 2006 GDP to 6% from 5.5% and nudged up
our 2007 GDP forecast to 5.7% from 5.5%. Significant Ringgit appreciation and
modest improvement in the core inflation trend, if sustained as we expect,
should keep the lid on headline inflation and could temper the need for two rate
hikes to just one for all of 2007. Our expectation of a 25bp OPR hike in 4Q07
reflects our view that, even with the likely decline in headline inflation in 2007,
real interest rates appear too low.
Hoping for the best for job creations
The slowdown in infrastructure spending has seen job generation slow sharply
in the past two years. Only about 59K jobs were created in 2005 compared with
177K in 2004 and 327K in 2003. The start of a brand new 5-year spending
cycle under the 9th Malaysia Plan and the multi-billion-Ringgit South Johor
Development project could help create more jobs.
Figure 13. Malaysia – Key Economic Indicator and Forecasts
2000
2001
2002
2003
2004
2005
2006E
2007E
2008E
Real Sector
Real GDP (% YoY)
8.9
0.3
4.4
5.5
7.2
5.2
6.0
5.7
5.7
Domestic Demand (% YoY)
15.5
2.5
3.9
6.1
7.5
7.3
6.6
6.9
7.3
Real Consumption: Private (% YoY)
13.0
2.4
4.4
6.6
10.5
9.2
6.3
6.2
6.2
Real Gross Fixed Capital Formation (% YoY)
25.7
-2.8
0.3
2.7
3.1
4.7
7.0
8.5
9.8
Consumer Prices (% YoY)
1.6
1.4
1.8
1.2
1.4
3.0
3.7
2.5
2.5
Nominal GDP (US$ Bils)
90
88
95
104
118
131
148
165
184
3,844
3,665
3,884
4,152
4,631
5,005
5,547
6,055
6,623
3.1
3.7
3.5
3.6
3.6
3.6
3.5
3.4
3.4
Exports (US$, % YoY)
16.2
-10.4
6.9
11.6
20.5
11.4
13.0
12.0
14.0
Imports (US$, % YoY)
25.5
-10.2
8.0
4.8
25.9
8.9
15.0
14.5
17.0
Trade Balance (US$ Bils.)
16.1
14.2
14.3
21.4
21.2
26.4
27.5
27.5
26.8
9.4
8.3
8.4
12.8
12.6
15.2
14.4
12.8
10.4
International Reserves ex. Gold (US$ Bils.)
29.9
30.8
34.6
44.9
66.7
70.5
82.0
90.0
100.0
Local Currency/USD (Period Average)
3.80
3.80
3.80
3.80
3.80
3.79
3.68
3.57
3.46
3-Month KLIBOR Fixing (Period Average, %)
3.22
3.25
3.24
3.13
2.94
2.89
3.65
3.98
4.20
5-Year MGS Yield (Period Average,%)
5.11
3.54
3.47
3.60
4.09
3.51
4.03
4.05
4.35
Fiscal Balance (% of GDP)
-5.7
-5.5
-5.6
-5.3
-4.3
-3.8
-3.6
-3.5
-3.2
Population (persons million)
23.5
24.0
24.5
25.0
25.6
26.1
26.6
27.2
27.8
GDP Per Capita (USD)
Unemployment Rate (%)
External Sector
Current Account (% of GDP)
Other
Source: CEIC, Citigroup estimates
8
16 January 2007
Key themes for 2007
 Theme 1: Ride the upcycle — We see multiplier effects from the start of the
9th Malaysia Plan spending cycle affecting the economy, infrastructure-linked
sectors, consumer confidence and the stock market. The start of
announcements of projects will likely add positive momentum to the market.
The 9th Malaysia Plan, which is at the second year of a new five-year plan, will
be a good long-cycle proposition, in our view.
Plantation is our preferred sector for upcycle upside. We expect CPO prices to
remain firm on a multi-year upcycle on strong demand for palm oil. CPO
prices are likely to trend up in 2007E on strong demand for edible and nonedible uses. Rising biodiesel demand is a bonus but our bullish call is not
predicated on this. Supply-side concerns (El Nino, shipping constraints)
could drive prices upward.
 Theme 2: Return of Khazanah GLCs — The GLC reform story, entering into its
fourth year of reforms, will likely begin to deliver more results. Tenaga
Nasional and Bumi Commerce are among the successful GLC stories.
Telekom Malaysia, which has been a laggard among the GLCs in terms of
share price performance, could be a wild card this year.
GLCs that are closely linked to the South Johor Development such as UEM
World could be imminent reform targets this year. The development of South
Johor will likely help reflate asset prices. Other companies with exposure to
the South Johor region include SP Setia, Mah Sing, Mulpha, Tebrau Teguh,
Ekovest, KSL, Plentitude, Asiatic Development, UEM Builders, Ranhill, MMC,
IJM, Road Builder and Gamuda.
 Theme 3: Election play/generous budget — Malaysia’s next election is not
due till early 2009 but the general view is that it will be held earlier. We
believe this could lead to a generous expansionary budget.
Figure 14. Key Themes for 2007
Themes
1) Ride the upcycle
- 9th Malaysia Plan
- Plantations
- Benign interest rate and
inflation outlook
2) Khazanah GLCs to return
- South Johor Development
- GLCs restructuring
- M&A momentum likely to
continue
3) Election play/generous
budget
Comments
We see multiplier effects on infrastructure-related sectors
ultimately lifting consumer spending
Infrastructure spending likely to start as we enter the second year
of the 5-year 9th Malaysia Plan.
We expect CPO prices to remain firm and on a multi-year upcycle.
Strong cash generation could also result in more capital
management, new investments and M&A possibilities that would
sustain the sector's outperformance
This could help lift consumer confidence, which has been hit by
high fuel and inflation prices.
The immediate focus would be South Johor-related companies but
the wild card could be Telekom Malaysia
After almost two years of planning, Khazanah is ready to take the
development of South Johor to the next level
Entering its fourth year of restructuring, we believe more results
could come through
After the SimeDarby-Kumpulan Guthrie merger and PPB Palm Oil’s
deal, we expect strong M&A momentum to continue this year
The coming budget ahead of the next general election will likely
come with many goodies that could further help lift consumer
confidence and the stock market
Stocks likely to be impacted
Infrastructure-related companies to benefit. We like IJM Corporation
and Road Builder
Likely positive impact on the share prices of plantation companies.
We favor IOI Corp, KL Kepong, PPB Palm Oil and IJM Plantation.
We believe the impact of rising consumer spending would be good for
consumer-related companies such as Media Prima, Star Publications
and NST if ad spend were to increase. Auto distributors such as UMW
could benefit.
SP Setia, Mah Sing, Asiatic Development, IJM Corporation, Road
Builder, Gamuda
Tenaga Nasional will likely continue to show strong results. Telekom
Malaysia is the wild card, in our view
Companies under the Khazanah stable will likely benefit
Again, companies under the Khazanah stable tend to benefit from
expectations about the election.
Source: Citigroup Investment Research
9
16 January 2007
CIR Sector strategy
We are positive on most sectors
except for gaming and transport
Broadly, sectors that are directly linked to 9 th Malaysia Infrastructure spending
and the South Johor development will likely be immediate beneficiaries.
Nevertheless, we expect some meaningful spillover on other sectors such as the
consumer-related auto sector, banks, media advertising, telcos, property and
tobacco.
Infrastructure and construction
sectors will likely continue their
outperformance
Despite their good run, we continue to expect the infrastructure and
construction sectors to do well. This will likely be driven by positive newsflow on
the award of new projects. Specifically on the South Johor development project,
we expect Khazanah to start lining up investors and partners to jointly develop
its 2,217 sq km of landbank.
The consumer-related auto, banking and property sectors could enjoy the
positive spillover effects of recovering consumer confidence and spending. We
also expect the Media, tobacco and telco sectors to benefit from increasing
economic activity.
Upgrading the telecommunications
and media sectors
We upgrade the telecommunications and media sectors from Neutral to
Overweight and keep our Overweight rating on plantations, banks, construction,
property, tobacco and utilities. We Underweight transportation and are Neutral
on gaming.
Figure 15. CIR Sector Strategy
Overweight
Autos
Banks
Conglomerate
Construction
Media
Plantations
Property
Telcos
Tobacco
Utilities
Neutral
Gaming
Underweight
Transport
Comments
After an 11% decline in car sales, we expect the auto industry is expected to offer small growth in 2007 on the
back of recovery in consumer confidence.
Key catalysts this year are continued M&A activities and greater focus on legacy NPL resolution on a backdrop
of improving consumer sentiment and business loan growth on 9th Malaysia Plan spending.
M&A and its ensuing benefits will likely be a key focus for the conglomerate sector.
Positive newsflow from the award of new contracts under the 9MP and potentially more M&A activity are likely
to keep this sector buoyant in 2007
Potential recovery in consumer confidence will likely help boost ad spending
We expect CPO prices to remain firm and on a multi-year upcycle. Strong cash generation could also result in
more capital management, new investments and M&A possibilities that would sustain the sector's
outperformance
Asset reflation from higher infrastructure spending in Johor, Penang and resilient demand for premium
residential properties are key catalysts for the property sector, in our view
Telcos’ strategy to re-focus on domestic business could see some recovery in earnings. Other catalysts include
the unlocking of value of overseas telco units via IPOs
Price discipline is holding and volumes could surprise on the upside if enforcement against illegal tobacco
picks up.
We expect strong demand growth on strong industrial production output as a result of higher infrastructure
spending. We expect Tenaga to post 81% earnings growth on robust demand growth and the tariff hike.
Earnings could be boosted further on one-time writebacks.
Stocks
UMW
Maybank, AMMB, BCHB, Malaysian
Plantations
Sime Darby
IJM, Road Builder
Media Prima, Star Publications, NSTP
IOI Corp, KL Kepong, PPB Oil Palm, IJM
Plantation
SP Setia, E&O Property, Mah Sing
Telekom Malaysia and DiGi
BAT
Tenaga Nasional
We do not expect any new significant catalysts because we believe that all the good news is out. The Singapore Genting
IR/Casino was the key catalyst previously.
We are Underweight the aviation sector in view of AirAsia's rising investment risks and 70-90% valuation
premium, and MAHB's deteriorating profitability and uncertainty on the timing of restructuring.
AirAsia
10
16 January 2007
CIR stock picks
Figure 16. Top Buys and Sells
Price (RM)
TP
Top Buys
AMMB
RIC Rating 11-Jan-07
AMMB.KL
1L
3.12
(RM)
3.96
(%)
29.2
E&O Prop
IOI Corp
EOPD.KL
IOIB.KL
1M
1L
1.90 2.60
18.50 21.50
38.4
19.2
12.0
18.5
41.3
43.2
1.6
3.2
13.8
19.4
6.3
3.0
SP Setia
SETI.KL
1L
5.00
5.60
18.7
12.5
10.8
1.8
15.2
6.7
Sime Darby
SIME.KL
1L
7.40
8.55
20.3
14.7
10.0
1.9
13.6
4.8
Star
STAR.KL
1L
3.18
3.65
20.6
17.9
-18.7
2.0
11.1
5.8
Telekom #
TLMM.KL
1L
9.70 12.00
28.7
14.7
22.3
1.6
11.0
4.9
Tenaga
TENA.KL
1L
11.40 13.70
23.7
14.5
80.5
2.2
16.3
3.5
Top Sells
MK Land
MKLH.KL
3M
0.66
0.49 -24.4
32.5
-43.6
0.7
2.2
0.8
Public Bank
PUBM.KL
3L
7.80
6.91
-6.0
15.0
6.9
2.9
19.9
5.8
Resorts World RWBW.KL
3L
14.50 10.90 -23.2
15.6
0.8
2.2
15.0
1.7
YTL Power
3L
15.8
-3.8
1.7
14.0
4.6
YTLP.KL
2.16
ETR P/E (x)
1.60 -21.3
EPS PB (x) ROE (%) Div Yield
Growth
(%)
(%)
FY07E FY07E FY07E FY07E
FY07E
15.5
20.7
1.2
8.7
2.3
Comments
Appears poised to be re-rated as the only foreign-bank-owned
local bank; RM1bn fresh capital from ANZ will likely be used
to raise loan loss coverage to industry levels of c.60% from
42% currently to deal with legacy NPLs
Good exposure to firming Penang property market
Quality upstream and downstream integrated plantation
group
Earnings visibility, good dividend yield and potentially more
earnings accretive land acquisitions
Option to lock in upside to Synergy Drive and a potential
uplift from Bakun
Gross cash represents a quarter of market cap. A special
dividend could augment the company’s sustainable 6% gross
yield, in our view
The stock was a major laggard in 2006 in the Asian telcos
space with low expectations priced in, in our view. We think
the tables are turning in 2007 and see four reasons to buy the
stock with a target price of RM12.00.
Robust power demand growth, bad debt recoveries, land sales
and the tariff hike will likely drive earnings
Poor earnings visibility and weak financial position, in our
view
Loan growth slowing, NIM contracting, minimal scope for
further capital management
Unlike its sister companies GIL and Star Cruises, growth
prospects of Resorts World’s Malaysian business is
questionable, in our view
Expensive on our DCF and P/E metrics. Extensive share
buyback program could help to support the stock, however
# Closing price as at 12 January 2007
Source: Powered by dataCentral, Citigroup Investment Research
11
16 January 2007
Figure 17. CIR Universe Grouped by Market Capitalization
Company
Tenaga
Maybank
Our large cap picks
MISC
are Tenaga, Telekom, Telekom #
IOI, BAT, Sime Darby
BHCB
Public Bank
Maxis #
Genting
IOI Corp
Sime Darby
Resorts World
Plus Expressways
BAT
DiGi #
YTL Power
KL Kepong
Malakoff #
Mid cap USD1-2b
AMMB
RHB Capital
Our top mid-cap picks Berjaya Sports Toto
are AMMB, IJM, UMW Tanjong*
PPB Oil Palms
Bursa Malaysia
IJM Corp
Gamuda
UMW Holdings
AirAsia
Small cap <USD1b
SP Setia
Malaysian
Our small cap picks Plantations
MAHB
are SP Setia, M
Plantations, Star
Star Pubs
Publication, E&O
Road Builder
Property, Media Prima
Media Prima
E&O Property
IJM Plantations
MK Land
TSH Resources
NSTP
Mah Sing
Large cap >USD2b
Price (RM)
Target
Price
RIC
Rating 11-Jan-07
TENA.KL
1L
11.40
MBBM.KL
1L
11.30
MISC.KL
3L
8.75
TLMM.KL
1L
9.70
BUCM.KL
1L
8.70
PUBM.KL
3L
7.80
MXSC.KL
2L
10.10
GENT.KL
2L
32.50
IOIB.KL
1L
18.50
SIME.KL
1L
7.40
RWBW.KL
3L
14.50
PLUE.KL
3L
2.80
BATO.KL
1L
43.50
DSOM.KL
1L
15.90
YTLP.KL
3L
2.16
KLKK.KL
1L
14.60
MLKF.KL
3L
10.20
AMMB.KL
1L
3.12
RHBC.KL
3L
3.56
BSTB.KL
3L
4.60
TJPL.KL
1L
13.90
PPBO.KL
1L
11.70
BMYS.KL
2L
8.75
IJMS.KL
1L
7.70
GAMU.KL
3L
5.20
UMWS.KL
1L
7.65
AIRA.KL
3H
1.56
SETI.KL
1L
5.00
MPBM.KL
1L
2.42
(RM)
13.70
12.65
7.50
12.00
9.75
6.91
10.60
32.50
21.50
8.55
10.90
2.70
47.90
17.50
1.60
15.90
10.35
3.96
3.10
4.55
16.30
15.10
8.80
8.65
2.90
8.80
1.33
5.60
2.93
MAHB.KL
STAR.KL
ROAD.KL
MPRM.KL
EOPD.KL
IJMP.KL
MKLH.KL
TSHR.KL
NSTP.KL
MAHS.KL
3L
1L
1L
1L
1M
1L
3M
1L
1L
1L
2.29
3.18
3.70
2.41
1.90
1.82
0.66
1.64
2.50
3.54
1.74
3.65
3.85
2.80
2.60
2.20
0.49
2.00
3.15
4.00
ETR
Mkt.
Cap
P/E (x)
(%) USD b
23.7 13.895
18.2 12.368
-10.9 9.417
28.7 9.378
15.5 7.882
-6.0 7.683
13.2 7.246
1.0 6.830
19.2 6.526
20.3 5.250
-23.2 4.514
1.0 3.982
17.9 3.533
17.1 3.393
-21.3 3.244
12.7 2.959
1.5 2.610
29.2 1.891
-10.8 1.847
7.6 1.768
23.2 1.594
31.0 1.482
5.9 1.293
14.8 1.184
-41.1 1.170
20.5 1.110
-14.7 1.044
18.7 0.955
22.3 0.806
FY07E
14.5
14.5
11.6
14.7
15.0
15.0
12.6
17.4
18.5
14.7
15.6
15.1
14.7
14.2
15.8
15.8
14.6
15.5
15.9
16.0
12.7
21.0
27.1
20.9
23.7
12.1
29.2
12.5
42.7
-22.9
20.6
6.9
19.1
38.4
23.6
-24.4
26.8
28.0
16.5
0.717
0.668
0.562
0.524
0.330
0.282
0.225
0.172
0.154
0.153
15.1
17.9
21.4
17.9
12.0
24.2
32.5
10.6
23.4
8.9
EPS PB (x) ROE (%) Div Yield Share performance
Growth
(%)
(%)
(%)
FY07E FY07E FY07E FY07E 2006 4Q06 YTD
80.5
2.2
16.3
3.5 37.6 12.4
4.6
4.8
2.5
17.5
6.3
6.3 5.4 -4.2
-4.9
1.7
15.7
3.4 -11.6 2.3
1.1
22.3
1.6
11.0
4.9
2.1 6.6 -0.5
32.1
2.2
16.1
3.4 36.0 16.5 12.3
6.9
2.9
19.9
5.8 18.3 13.1
0.6
2.4
3.4
28.1
8.3 21.4 14.6 -1.0
2.5
2.0
12.2
1.0 54.2 36.9 -1.5
43.2
3.2
19.4
3.0 48.4 13.6
0.5
10.0
1.9
13.6
4.8 17.1 20.0
2.8
0.8
2.2
15.0
1.7 30.4 31.5 -0.7
-19.4
2.8
19.0
3.7 -8.2 0.4 -0.4
9.7
15.9 114.5
8.5
7.5 1.2
0.6
14.3
7.2
52.1
7.0 94.9 21.6
4.6
-3.8
1.7
14.0
4.6 -7.6 5.6
4.3
50.5
2.3
14.8
3.8 60.7 23.9
8.1
39.8
2.3
16.0
5.1 23.2 3.1
0.1
20.7
1.2
8.7
2.3 34.2 28.2 -1.9
8.8
1.3
8.2
2.5 54.8 20.4
4.1
-16.5
11.0
42.1
9.2 19.4 2.6 -4.2
17.9
1.9
15.8
5.9 -0.7 14.3 -3.5
57.1
3.2
16.2
1.9 143.6 50.0
2.6
69.3
5.3
20.9
5.3 119.9 41.2
8.7
20.5
1.7
9.4
2.1 67.0 18.5
4.8
10.6
1.7
8.2
3.2 60.4 26.9
2.0
12.9
1.5
12.6
5.5 30.5 6.2 -0.6
2.0
3.0
11.2
0.0 -5.0 -1.3
3.3
10.8
1.8
15.2
6.7 56.4 34.9 -2.0
-146.2
1.6
4.3
1.2
7.2 5.8
2.1
8.8
-18.7
34.4
48.6
41.3
22.5
-43.6
22.8
-338.4
14.0
0.9
2.0
1.3
4.3
1.6
1.6
0.7
1.3
0.6
1.4
5.9
11.1
6.1
31.8
13.8
7.9
2.2
12.8
2.6
22.0
1.3 11.9 5.4
5.8 -17.3 -8.4
2.8 144.6 29.3
2.9 47.1 30.9
6.3 92.3 53.8
1.7 60.9 22.1
0.8 36.3 49.5
4.9 15.7 9.9
2.0 -5.3 28.9
4.0 128.6 21.7
6.0
4.6
8.8
-3.6
-5.0
2.8
-5.8
5.8
7.8
5.4
*FY08E, # closing price as at 12 Jan 2007
Source: Powered by dataCentral
12
16 January 2007
Model portfolio
Our stock weightings are calculated based on the individual percentage of
upside/downside to our ETRs multiplied by MSCI's individual weightings. For
the bigger market cap stocks, we have accorded an additional 3% weighting to
reflect the importance of these stocks, and an additional 1% weighting for the
rest of the stocks with Buy ratings. We initiated coverage on UMW Holdings with
a Buy/Low Risk (1L) rating on 14 December 2006 and now include it in our
model portfolio with a 1.8% weighting. We include Star Pubs with a 1.7%
weighting after we upgraded it to a Buy/Low Risk (1L) on 9 January 2007,
Telekom with a 7.1% weighting after having upgraded it to a Buy/Low Risk (1L)
on 16 January 2007 and Maxis with a 3.7% weighting after having upgraded it
to Hold/Low Risk (2L) on 16 January 2007. We exclude Malakoff after having
downgraded it to Sell/Low Risk (3L) on 16 January 2007.
Figure 18. Malaysia Model Portfolio
Automobiles & Components
UMW
Banks & Diversified Financials
AMMB
Bursa Malaysia
Bumiputra-Commerce
Maybank
MPlant
Capital Goods
IJM
Road Builder
Sime Darby
Consumer Services
Genting
Food Beverage & Tobacco
BAT
IJM Plantations
IOI Corp
KLKK
PPB Oil Palms
TSH Resources
Media
NSTP
Star Pubs
Media Prima
Real Estate
E&O Property
Mah Sing
SP Setia
Telecommunication Services
DiGi.Com#
Maxis#
Telekom#
Utilities
Tanjong*
Tenaga
Others
Totals
Price
11-Jan-07
(RM)
YTD
Performance
(%)
RIC
Analyst's
Rating
7.65
-0.6
UMWS.KL
1L
3.12
8.75
8.70
11.30
2.42
-1.9
8.7
12.3
-4.2
2.1
AMMB.KL
BMYS.KL
BUCM.KL
MBBM.KL
MPBM.KL
1L
2L
1L
1L
1L
7.70
3.70
7.40
4.8
8.8
2.8
IJMS.KL
ROAD.KL
SIME.KL
1L
1L
1L
32.50
-1.5
GENT.KL
2L
43.50
1.82
18.50
14.60
11.70
1.64
0.6
2.8
0.5
8.1
2.6
5.8
BATO.KL
IJMP.KL
IOIB.KL
KLKK.KL
PPBO.KL
TSHR.KL
1L
1L
1L
1L
1L
1L
2.50
3.18
2.41
7.8
4.6
-3.6
NSTP.KL
STAR.KL
MPRM.KL
1L
1L
1L
1.90
3.54
5.00
-5.0
5.4
-2.0
EOPD.KL
MAHS.KL
SETI.KL
1M
1L
1L
15.90
10.10
9.70
4.6
-1.0
-0.5
DSOM.KL
MXSC.KL
TLMM.KL
1L
2L
1L
13.90
11.40
-3.5
4.6
TJPL.KL
TENA.KL
1L
1L
MSCI Portfolio
Overweight/
Weight Weight
Underweight
(%)
(%) Rel. to MSCI (bps)
2.0
1.8
-17
1.8
O/W
28.6
30.9
237
3.5
O/W
1.2
O/W
10.4
O/W
14.8
O/W
1.0
O/W
8.8
10.6
179
2.2
O/W
1.6
O/W
6.7
O/W
10.7
5.1
-560
5.1
O/W
12.8
18.9
611
3.9
O/W
1.0
O/W
9.4
O/W
2.7
O/W
1.0
O/W
1.0
O/W
2.4
4.5
204
1.0
O/W
1.7
O/W
1.8
O/W
2.5
4.2
175
1.0
O/W
1.0
O/W
2.2
O/W
7.8
11.8
399
1.0
O/W
3.7
O/W
7.1
O/W
12.5
12.2
-33
2.8
O/W
9.4
O/W
2.8
0.0
-280
100.0
100.0
2007E
P/E EPS Growth
(x)
(%)
PB
(x)
ROE
(%)
12.0
12.9
1.5
12.6
14.6
27.1
14.7
14.6
37.2
20.7
69.3
32.1
4.8
146.2
1.3
5.7
2.4
2.5
1.6
8.7
20.9
16.1
17.5
4.3
20.6
21.9
14.9
20.5
34.4
10.0
1.9
1.3
2.0
9.4
6.1
13.6
18.3
2.5
2.2
12.2
14.7
22.5
18.8
15.8
21.0
10.7
9.7
22.5
43.2
50.5
57.1
22.8
16.8
1.8
3.6
2.3
3.4
1.4
114.5
7.9
19.4
14.8
16.2
12.8
23.4
18.0
16.8
338.4
-18.7
48.6
0.6
2.0
5.3
2.6
11.1
31.8
11.9
7.3
12.6
41.3
14.0
10.8
1.6
1.6
1.9
13.8
22.0
15.2
14.2
12.6
14.7
14.3
2.4
22.3
7.2
3.4
1.6
52.1
28.1
11.0
10.8
14.3
17.2
80.5
1.8
2.3
17.0
16.3
15.5
26.9
2.3
14.8
*FY08E, # closing price as at 12 Jan 2007; Source: Citigroup Investment Research estimates.
13
16 January 2007
Quantitative Analysis
14
 Contrarian Call – Media Prima is one of our Quant Dogs this month but is
rated Buy/Low Risk (1L) by our fundamental analyst Teh Chi-Chang.
0.9
0.8
High
 Glamour Outperforms: Glamour was the strongest performer in the past 12
months generating returns of 64.5%. Attractive stocks outperformed
Unattractive stocks in nine months of 2006 bringing the AttractiveUnattractive spread up to 23.9%.
Figure 19. Aggregate Country Evolution
China
Philippines
0.7
Malaysia
0.6
Momentum
 Stretched Valuation: Relative value remains stretched and Malaysia starts
2007 in the Glamour quadrant after spending the first half of 2006 in the
Unattractive quadrant. Composite momentum remains strong with both
price momentum and earnings estimate revisions remaining positive.
16 January 2007
Malaysia - Glamour
Singapore
Nov-06
India
Indonesia
Australia
Hong Kong
New Zealand
0.5
May-06Taiwan
Aug-06
Nov-05
0.4
South Korea
0.3
15
Low
Thailand
0.2
0.1
0.1
0.2
0.3
0.4
Expensive
0.5
0.6
0.7
Relative Value
0.8
0.9
Cheap
Source: FactSet; IBES; Worldscope; CIR.
Figure 20. Stars: Extreme Corner of Attractive Quadrant
Ticker
Name
YTL MK
MIT MK
PELI MK
MBC MK
KFC MK
YTL Corp
Mulpha Int
Pelikan Int Corp
Malaysian Bulk Carriers
KFC Malaysia
Comp
Figure 21. Composite Score, Relative Performance and Value & Momentum Scores
Value
Mom
Pmom
ERR
1(1)
1(1)
1(1)
1(1)
1(1)
Price
6.85
1.36
3.70
3.00
5.65
Name
Media Prima
Ranhill
Sunrise
Kurnia Asia
0.7
0.6
0.5
0.4
0.3
0.1
Valuation
Figure 22. Dogs: Extreme Corner of Unattractive Quadrant
MPR MK
RANH MK
SUN MK
KUAB MK
0.8
0.2
Ticker
0.9
Comp
5(3)
5(5)
5(5)
5(5)
Val
Mom
Price
ERR
Price
2.46
1.27
2.10
1.10
0.6
0.5
0.4
0.3
0.2
0.1
Jan-00
Jan-01
Jan-02
Price Momentum
Momentum
0.9
0.8
0.7
Jan-03
Jan-04
Jan-05
Jan-06
Earnings Revisions
Jan-07
Attractive
Return
IR
1m
4.2
—
3m
31.4
—
64.5
31.8
15.4
Kuala Lumpur Kepong
IOI Corp
Digicom
Sp Setia
Tenaga Nasional Genting
Bumiputra- Commerce
Malaysian Airline System
Astro All Asia Networks
YTL Corp
0.9
3.67
2.02
0.97
Gamuda
Batu Kawan
High
12m
2y (p.a)
5y (p.a)
1.0
PPB Oil Palms
Kumpulan Guthrie
0.7
Composite Momentum Score
16
0.6
—
3m
20.8
—
12m
2y (p.a)
5y (p.a)
50.7
30.3
25.4
3.84
2.29
1.76
PPB
Sime Darby
Malakoff
IR
2.5
Lion Diversified Holdings
Malayan Banking
0.8
Return
1m
Tanjong
M alay sia
Sarawak Ent Corp
WTK
Magnum Corp
Hong Leong Bank
Bursa Malaysia
Malaysian Plantations
0.5
Telekom Malaysia
EON Capital
Public Bank
Maxis Comms
UMW
Airasia
0.4
Transmile
Media Prima
Bat Malaysia
AMMB
Resorts World
0.2
Plus Expressways
Low
0.3
0.1
Unattractive
1m
3m
12m
2y (p.a)
5y (p.a)
Return
IR
1.7
—
11.6
26.8
5.5
5.6
—
2.52
0.41
0.37
YTL Power Int
Berjaya Sports Toto
Contrarian
0.0
1m
0.0
Source: Factset; IBES; Worldscope; CIR
0.1
0.2
0.3
0.4
Expensive
¡
CIR Rated a Buy
0.5
0.6
0.7
0.8
Relative V alue Score
¡
CIR Rated Hold

CIR Rated a Sell
0.9
Cheap
U
Not Rated
1.0
3m
12m
2y (p.a)
5y (p.a)
Return
IR
1.9
—
18.5
41.0
7.3
7.0
—
2.41
0.42
0.38
16 January 2007
Glamour
16 January 2007
Sector Analyses
17
16 January 2007
Banks/Diversified Financials – Overweight
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Robert Kong, CFA
[email protected]
We maintain our overweight stance on names with specific catalysts. Loan
growth, which is still at modest levels, and continued moderation in consumer
loans will likely be offset by a pick-up in business loans. Our top pick is AMMB,
which we think is poised for a re-rating with the emergence of ANZ and potential
balance sheet clean-up. We prefer Maybank (still scope for capital management
with good yields) to Public (slowing loan growth, narrowing NIMs and an end of
capital management). We remain positive on BCHB (merger benefits now
kicking in) while our top pick among the small cap banks is Malaysian
Plantations. We rate RHB Cap (M&A hopes appear built in) as Sell/Low Risk
(3L).
Figure 23. Selected Valuation Metrics
Company
Maybank
Public Bank
BCHB
AMMB
RHB Capital
Bursa Malaysia
Malaysian Plantations
Simple average
(unweighted)
RIC Rating
MBBM.KL
1L
PUBM.KL
3L
BUCM.KL
1L
AMMB.KL
1L
RHBC.KL
3L
BMYS.KL
2L
MPBM.KL
1L
Avg 3 months
Price (RM) Mkt. Cap daily turnover
P/E (x)
11-Jan-07 (RM m)
(US$ m) FY07E FY08E
11.30
43480
15.196 14.5 14.0
7.80
27010
5.700 15.0 14.3
8.70
27709
12.546 15.0 14.4
3.12
6647
6.279 15.5 14.2
3.56
6492
1.991 15.9 14.0
8.75
4547
4.531 27.1 26.0
2.42
2834
0.581 42.7 13.8
16960
6.689 20.8 15.8
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
FY07E
FY08E FY07E FY08E FY07E FY08E
FY07E
FY08E
4.8
4.1
2.5
2.3 17.5 17.5
6.3
6.6
6.9
4.6
2.9
2.7 19.9 19.3
5.8
6.0
32.1
3.8
2.2
2.0 16.1 15.0
3.4
3.6
20.7
9.6
1.2
1.1
8.7
8.9
2.3
2.6
8.8
13.3
1.3
1.2
8.2
8.7
2.5
2.8
69.3
4.3
5.3
5.3 20.9 21.4
5.3
5.6
-146.2
208.8
1.6
1.5
4.3 12.7
1.2
2.2
-0.5
35.5
2.4
2.3 13.7 14.8
3.8
4.2
Source: Powered by dataCentral, Citigroup Investment Research estimates
Key themes: Consumer debt and M&A
 M&A: Market focus will likely be on the deal completion for ANZ's entry into
AMMB, which we expect to occur in April 2007. The RM1.07bn cash
recapitalization would free the group to deal with its legacy NPLs once and for
all. We expect a revitalized AMMB that will focus on the consumer space, a
new regional platform and an improved risk management framework. As for
RHBC, the M&A situation remains fluid; in our view, the timing of the
completion, who the eventual buyer will be and the nature of the
consideration remain execution risks. Meanwhile, BCHB continues to make
good progress in consolidating SBB's operations. Merger benefits
(management has guided for RM200m pa) are already flowing in with the
cross-sale of BCHB/SBB products into each other's customer base and cost
savings.
 Consumer debt: We expect the decline in consumer loan growth to continue
this year albeit at a slower rate. Sentiment has rebounded off the 2006 lows
on expectations of no further rate rises and a benign inflation environment, in
our view. Consumption credit growth (credit cards, personal loans) will likely
remain robust as we think the banks’ focus on this high-yield segment would
offset margin squeeze in housing and car loans.
 Concentration on resolving legacy NPLs: There is more work to be done on
legacy NPLs this year: 1) Maybank could sell RM2bn of NPLs in 1H07; 2)
AMMB could sell RM1bn of NPLs this year; and 3) BCHB will likely focus its
attention on its RM13bn NPL stock, which has been written down to
RM5.4bn but has a forced-sale value of RM9bn. These banks account for
64% of total domestic banks' NPL stock.
18
16 January 2007
Figure 24. Malaysian Banks P/BV Vs ROE 2006E/FY07E
Figure 25. Malaysian Banks P/E Vs Div Yield 2006E/FY07E
4.00x
46.0x
3.50x
P/B vs ROE 06E/FY07E
Linear (P/B vs ROE 06E/FY07E)
3.00x
Maybank
BCHB
2.50x
2.00x
MPLant
31.0x
HLBK
RHBC
1.00x
21.0x
Affin
0.00x
0.0%
5.0%
15.0%
20.0%
25.0%
AMMB
Affin
Figure 26. Loan growth QoQ (Annualized) vs. Loan Growth YoY
6.0x
1.0%
2.0%
Maybank
HLB
EON Cap
11.0x
10.0%
BCHB
RHBC
16.0x
AMMB
0.50x
MPlant
36.0x
26.0x
EONC
1.50x
41.0x
Public
Public
PER vs Yield
FY04/0 E
3.0%
4.0%
5.0%
6.0%
7.0%
Figure 27. Net Interest Margins:3Q06 vs. 2Q06 and vs. 3Q05
(Percent)
36%
7%
4%
0.50%
Loan Growth YoY
Adj. NIM
Adj. NIM (Last Qtr)
Adj. NIM (Same Qlast yr)
Figure 29. Cost/Income Ratio: 3Q06 vs. 2Q06 and vs. 3Q05
80.0%
26.2%
27.0%
20.9%
21.6%
24.1%
69.6%
57.2%
70.0%
37.5%
29.6%
13.3%
60.0%
50.0%
52.4%
40.3%
42.6%
42.9%
44.2%
AMMB
38.5%
RHBC
39.9%
EONC
0.00%
-17%
47.7%
45.3%
35.5%
40.0%
30.0%
20.0%
9.6%
Maybk
BCHB
Sector
MPlant
EONC
Affin
HLB
AMMB
Public
BCHB
Maybk
RHBC
PPP/AIEA (Last Q)
PPP/AIEA (Same Qlast yr)
1.8%
8.6%
NPL Ratio
13.0%
Sector
MPlant
EONC
Affin
17.0%
6.5%
4.5%
12.6%
60%
7.7%
Sector
20% 6.8%
0%
51%
46%
MPlant
40%
0.5%
PPP/AIEA
44%
42%
1.0%
0.0%
72%
65%
60%
EONC
72%
60%
1.5%
Affin
80%
1.69%
1.19%
100%
100%
HLB
1.66%
AMMB
2.13%
RHBC
1.69%
1.86%
HLB
120%
2.25%
2.0%
Cost/Income Ratio (Last Qtr)
Figure 31. Asset Quality: 3Q06 (Percent)
Public
2.27%
Public
Cost/Income Ratio
Cost/Income Ratio (Same Qlast yr)
2.81%
2.26%
BCHB
Non-Int. Income Ratio (Last Qtr)
Figure 30. Pre-provision Profitability: 3Q06 vs. 2Q06 and vs. 3Q05
2.5%
0.0%
Maybk
Sector
MPlant
EONC
Affin
HLB
AMMB
RHBC
Public
BCHB
Maybk
10.0%
Non Int Income/Operating Inc
Non-Int. Income Ratio (Same Qlast yr)
3.0%
1.50%
Affin
-7%
Figure 28. Non-interest Income Ratio: 3Q06 vs. 2Q06 and vs. 3Q05
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2.74%
1.00%
-20.0%
Loan Growth QoQ(Annualised)
2.24%
HLB
Affin
HLB
AMMB
RHBC
-1%
-6%
Public
BCHB
-10.0%
Maybk
0.0%
3%
0%
3.10%
2.44%
2.00%
AMMB
1%
2.50%
RHBC
6%
2.75%
2.38%
Public
4%
3.02%
2.92%
Maybk
6%
Sector
10.0%
14%
11%
MPlant
9%
8%
EONC
17%
20.0%
2.65%
2.90%
3.00%
20%
Sector
3.50%
25%
MPlant
4.00%
30.0%
BCHB
40.0%
Provision Cover
Source: Company Reports, Citigroup Investment Research estimates.
19
16 January 2007
Construction – Overweight
We maintain our Overweight stance on the sector. 2007E marks the second year
of the 9th Malaysia Plan and we expect more new contracts to be awarded ahead
of the general elections. While there is downside pressure on margins, we
believe the sector could outperform on positive newsflow. We are upbeat on the
merger between Road Builder and IJM Corporation, which we think will create
the “construction stock to own” in Malaysia. We expect the combined entity to
have a strong overseas presence and good recurrent earnings.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Company
Plus Expressways
IJM Corp
Gamuda
Road Builder
Simple average
(unweighted)
RIC Rating
PLUE.KL
3L
IJMS.KL
1L
GAMU.KL
3L
ROAD.KL
1L
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
11-Jan-07 (RM m)
(US$ m) FY07E FY08E FY07E FY08E FY07E FY08E FY07E FY08E
FY07E
FY08E
2.80
14000
2.341 15.1
13.8 -19.4
9.3
2.8
2.5
19.0 19.1
3.7
4.0
7.70
4164
4.353 20.9
18.2
20.5
15.3
1.7
1.6
9.4 10.2
2.1
2.5
5.20
4114
3.196 23.7
20.4
10.6
15.9
1.7
1.6
8.2
8.5
3.2
3.7
3.70
1976
3.252 21.4
18.2
34.4
17.8
1.3
1.2
6.1
6.9
2.8
3.3
6063
3.285 20.3
17.6
11.5
14.6
1.8
1.7
10.7 11.2
3.0
3.4
New jobs ahead of impending general election
Figure 33. Development Allocation to
Infrastructure (RM b)
1996-2000 2001-05 2006-10
7MP
8MP
9MP
Infrastructure
24.4
38.7
46.8
Total
89.5
170.0
220.0
% of total allocation
27
23
21
% chg in allocation
10
-17
-6
Source: CIDB 3 Aug 2004, 8MP and 9MP
This year will mark the second year of the 9th Malaysia Plan (which is for the
period 2006-10). We believe that jobs earmarked under the plan could be
awarded ahead of the impending general election. Under the 9 th Malaysia Plan,
allocation for development expenditure has been raised 29% to RM220bn. Key
beneficiaries, in our view, are agriculture development (+52%), housing
(+65%), commerce & industry (+99%), energy & public utilities (+71%),
education & training (+16%) and health (+22%).
Newsflow for the sector should improve as new projects are awarded. While
construction margins could be squeezed as more new jobs are awarded on an
open tender basis, we think the positive newsflow from awards of new contracts
would be positive catalysts. In addition, companies with a good execution track
record such as IJM might benefit from the host of construction opportunities in
India and Middle East.
Other than new construction jobs, we believe that M&A could be another theme
to watch out for as small and mid-sized contractors consider merging to obtain
scale, stronger balance sheets and expertise to improve their competitiveness.
20
16 January 2007
Figure 34. Notable Projects Under the 9MP
Projects
Estimated
value (RMbn)
Iskandar Development Region (South Johor
47
Economic Region)
Ipoh-Padang Besar section of double
9
tracking railway
Pahang-Selangor inter state water transfer
3
West Coast Highway #
2
South Klang Valley Expressway
1.5
Kajang Seremban Highway
1.3
Penang monorail
1.1
Penang Second Bridge
3
Penang Outer Ring Road
1.1
Taman Ekspo Pertanian Malaysia
0.2
Railway line from KL International Airport’s
NA
main terminal to the Low-Cost Carrier
Terminal’s departure lounge
Water infrastructure - treatment plants,
NA
dams
Potential beneficiaries
SP Setia, Mah Sing, UEM World*, UEM Builder*
Gamuda, Malaysia Mining (presented proposal
to the Cabinet committee on Nov 7 2006)
Gamuda, Road Builder,
NA
NA
NA
MMC Engineering
UEM Builder*
IJM Corp
UEM*
NA
Hiap Teck,Engtex, YLI , JAKS Resources
*Confirmed # Temporarily delayed; Source: 9MP and Citigroup Investment Research
Sector strategy – Buy IJM Corporation and Road Builder
Our favorites in the construction sector are IJM Corporation and Road Builder.
These two are on our buy list for their undemanding valuations, diversified
earnings stream and strong financial position. Between these two, IJM
Corporation is our top pick given a higher ETR of 14.8% compared with Road
Builder’s 6.9%. IJM also offers quality exposure to the construction (50% of its
unbilled RM4.8bn orderbook is from India) and housing boom in India. We
estimate IJM will register a healthy 3-year EPS CAGR of 16%, underpinned by
growth in most of its divisions. Our RNAV-based target of RM8.65/share implies
a 14.8% expected total return.
For Road Builder, the group’s strong operating cash flow could pave the way for
rising dividends. We believe downside risk is limited from its capital
management exercise (share buybacks since April 2006). We have a Buy/Low
Risk (1L) rating on Road Builder with a RM3.85 target price.
21
16 January 2007
Gaming – Neutral
Wai Kee Choong
+60-3-2383-2943
[email protected]
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
We believe Resorts World’s (RW) growth prospects are likely to be hindered by
saturation in visitor arrivals. Growth in visitor arrivals from the mass domestic
market will likely continue to slow. With half the population aged below 25, RW
appears structurally disadvantaged with a shrinking customer base. On our
estimates, top-line growth will likely stabilize at 3%, from more than 10% in the
past five years. Meanwhile, sales of Number Forecast Operators (NFOs) remain
satisfactory on our estimates.
Company
Genting
Resorts World
Berjaya Sports Toto
Tanjong*
Magnum
Simple average
(unweighted)
RIC Rating
GENT.KL
2L
RWBW.KL
3L
BSTB.KL
3L
TJPL.KL
1L
MGMS.KL
NR
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
11-Jan-07 (RM m)
(US$ m) FY07E FY08E FY07E
FY07E
FY08E
32.50
24012
11.256 17.4
17.0
2.5
2.5
2.0
1.8 12.2 11.3
1.0
1.0
14.50
15870
5.830 15.6
15.2
0.8
2.4
2.2
2.0 15.0 13.6
1.7
1.7
4.60
6215
2.299 16.0
14.9 -16.5
7.4
11.0
10.5 42.1 72.2
9.2
8.7
13.90
5605
3.183 10.8
10.1
17.2
7.1
1.8
1.6 17.0 16.6
6.3
6.6
2.53
3665
0.617 15.7
14.7
22.9
6.8
1.9
1.8 12.1 12.0
4.3
4.3
11073
4.637 15.1
14.4
5.4
5.2
3.8
3.5 19.7 25.2
4.5
4.5
Source: Powered by dataCentral, Citigroup Investment Research estimates. I/B/E/S estimates for Non-Rated (NR) stocks *FY08E and FY09E
Casinos
After years of strong growth, we expect RW to enter into a more mature growth
period. In the core domestic gaming business, we expect average long-term
growth to be more modest at 3%, from more than 10% in the past five years. For
the first time in recent history, RW is no longer building new hotels — at least
for the next few years. The challenge now, according to the company, is to raise
occupancy rates at its existing hotels from around 75% to nearly 80% before
planning more hotels.
To make up for the lackluster domestic business, RW will likely keep tapping
into the low-margin, high-roller business. Coupled with rising competition for
experienced workers and high-roller punters, we expect wages and marketing
costs to keep rising. We see the long-term EBIDTA margin trending down to a
more normalized level of 33%, 5ppts below 1Q FY06's 38%.
Number Forecast Operators (NFOs)
B Toto’s 2Q06 gaming turnover rose just 3.3% yoy; 1H06 rose 3.4% ytd. The
7% FY07 growth expected by consensus will likely be hard to meet.
Comparatives for 2H07 appear tough. There are fewer special draws – five as
compared with 10 in 2H06. The RM167m 1H06 net profit was just 42% of IBES
consensus. High prize payouts adversely affected margins.
Over at Tanjong, the luck factor finally swung its way. The 63% prize payout
ratio for its 3Q06 ended 31 October 2006 is below the 65% long-term average.
We are relieved to find the luck factor swinging Tanjong’s way after three
quarters of high 74-75% payouts. Numbers forecast turnover rose 4% yoy/5%
YTD.
22
16 January 2007
Media – Overweight
We believe that Media Prima is reaping the benefits of consolidating free-to-air
TV, exercising pricing power and growing volumes by offering better segmented
channels. Star Pubs’ revenue remains flattish. But, we think much is in the
price after the stock fell 17% last year. NSTP could see a boost if talks with
Utusan result in a more benign Malay-language paper environment.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Company
Star Pubs
Media Prima
NSTP
Sin Chew Media
Utusan Melayu
Simple average
(unweighted)
RIC Rating
STAR.KL
1L
MPRM.KL
1L
NSTP.KL
1L
SCWM.KL
NR
UTUS.KL
NR
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
11-Jan-07 (RM m)
FY07E
FY08E
3.18
2349
0.748 17.9
14.4 -18.7
24.7
2.0
1.9 11.1 13.4
5.8
6.9
2.41
1841
1.003 17.9
13.0
48.6
37.4
4.3
3.4 31.8 31.8
2.9
4.1
2.50
543
0.475 23.4
10.1 -338.4
133.0
0.6
0.6
2.6
5.8
2.0
2.0
2.67
806
0.040 13.1
12.8
14.0
2.0
NA
NA 17.2 18.0
4.0
0.0
1.53
168
0.012 16.3
NA -51.8
NA
0.8
NA
4.6
NA
1.6
0.0
1141
0.456 17.7
12.6 -69.3
49.3
7.6
2.0 13.5 17.2
3.3
3.3
Source: Powered by dataCentral, Citigroup Investment Research estimates. I/B/E/S estimates for Non-Rated (NR) stocks
Media Prima gaining ground
TV taking market share from print
Media Prima posted 38% revenue growth for the nine months ended September
2006; the 1-2% 9M revenue growth posted by newspaper publishers Star Pubs
and NSTP pale in comparison. Media Prima’s growth was driven by both pricing
and volume. Media Prima has been reducing discounts but the segmentation
possibilities offered by its four stations appear to have appealed to marketers.
We expect Star Pubs earnings to contract this year in the absence of one-off
land sale gains that boosted its 2006 numbers. Competition has increased. We
estimate ad volume at free daily Sun doubled after it refocused its circulation to
the urban Klang Valley in March 2006. This is off a low c.50 pages/copy base
compared with Star's c.200 pages but does offer an alternative channel to
advertisers. Sun has been busily adding circulation. It now claims 265k
copies/day, up from the audited 230k copies/day as of 1Q06.
Still, we think the negatives are already in Star’s share price. We upgraded the
stock to Buy/Low Risk (1L) on 9 January 2006. The 6% sustainable gross
dividend lends support and there is the prospect of a special dividend, in our
view. Also, a stronger economy as 9th Malaysia Plan spending flows through
should allow for ad rate and cover price hikes.
NSTP-Utusan talks could lead to
upside
Content at New Straits Times continues to impress us but we are disappointed
that the 8% circulation growth rate last year could not be sustained into this
year. Leading Malay language tabloid Harian Metro saw circulation rise another
22% to c.280k copies/day, but the industry structure is such that the bulk of ad
spend is in English dailies. Harian Metro's success does little for NSTP's net
profit, but we think that talks with Malay-language rival Utusan (UTUS.KL RM1.40; NR) could lead to a more benign environment and pave the way for
pricing power.
23
16 January 2007
Figure 37. Newsprint Costs Rising (Star Pubs)
600
Figure 38. NST Circulation Stagnant
140000
138000
500
136000
US$/MT
400
134000
132000
300
130000
200
128000
126000
100
124000
122000
0
02a
03a
04a
05a
Source: Company Reports and CIR estimates
24
06f
02a
03a
04a
05a
06f
16 January 2007
Plantations – Overweight
We Overweight the sector because we think its poised to be a long-cycle choice
on good prospects for crude palm oil (CPO) prices. We expect CPO prices to
trend up in 2007E on strong demand for edible and non-edible uses. Rising
biodiesel demand would be a bonus but our bullish call is not predicated on
this. Supply-side concerns (El Nino, shipping constraints) could drive prices
north. Another area to watch out for are further M&A activities. Our top picks
based on ETRs are KL Kepong and IJM Plantations.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Company
IOI Corp
KL Kepong
PPB Oil Palms
IJM Plantations
Simple average
(unweighted)
RIC Rating
IOIB.KL
1L
KLKK.KL
1L
PPBO.KL
1L
IJMP.KL
1L
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
11-Jan-07 (RM m)
FY07E
FY08E
18.50
22943
10.142 18.5
16.5
43.2
11.9
3.2
2.9 19.4
19.9
3.0
3.3
14.60
10403
4.850 15.8
14.2
50.5
11.8
2.3
2.1 14.8
15.6
3.8
4.2
11.70
5211
2.343 21.0
17.5
57.1
20.5
3.2
2.8 16.2
17.3
1.9
2.3
1.82
991
0.460 24.2
14.6
22.5
65.1
1.6
1.5
7.9
12.2
1.7
2.7
9887
4.448 19.9
15.7
43.3
27.3
2.6
2.3 14.6
16.2
2.6
3.1
Stay Overweight – Still going strong and a long cycle play
Don’t take profit yet, still attractive
ETRs of 12.7-31%
Despite the sector’s strong outperformance versus the market, we remain
positive due to positive prospects for CPO prices. Demand for biodiesel would
be a bonus but our call is not contingent on this. We have based our target
prices on the respective plantation companies’ P/E at the high-end of their P/E
range. Based on our existing forecasts, ETRs for the various plantation stocks
remain compelling at 12.7-31%. A potential negative is the consolidation of
several PNB plantation companies to form Synergy Drive, the largest listed CPO
producer. The listing of Synergy Drive may divert some buying interest from
other big-cap plantation companies such as IOI Corp and KL Kepong, in our
view.
IJM Plantations and PPB Oil offer
high leverage to CPO prices
Our forecasts assume CPO prices of RM1,800/tonne by end-CY07E and
RM1,900/tonne by end-CY08E. On our estimates, every 1% variance in CPO
prices would change our FY07E net profit for the all plantations companies
under our coverage by 1.1-2.8%. In terms of sensitivity, we think companies
such as PPB Oil palm and IJM Plantations offer higher leverage to CPO prices;
these two companies are purer plays compared with IOI Corporation and KL
Kepong.
CPO prices underpinned by strong demand drivers
CPO demand as an edible oil has been rising, helped by emerging trends such
as the following:
 Preference for non-genetically modified products. The concept of traceability
is important in the EU, which should help CPO gain acceptance (the EU
accounts for 18% of Malaysia’s exports and is the second-largest CPO buyer
from Malaysia behind China).
 Labeling of products with trans-fatty acid (TFA) in the US from January 2006.
This could result in food producers switching to CPO, which is “TFA”-free.
According to Loder Croklaan (unlisted), there has been a 6-fold increase in
25
16 January 2007
launches of new food products with CPO since 2002. Malaysia’s CPO exports
to the US are up 19% yoy (year to December 2006).
 Rising market share in China. CPO enjoys a market share 19% of China’s
total edible oils (2006E), up from 10% in 1995. We think the prospects look
promising; China’s edible oil per capita consumption of 20kg is substantially
below the level of developed countries (>40kg per capita).
Biodiesel would be a bonus for CPO demand
Global biodiesel capacity could rise more than 100% by end-2007E
Demand for 17 oil & fats could
exceed supply in 2007E and keep
prices firm
Substantial investments into new biodiesel capacity are being undertaken and
could result in a rise in capacity from 6m tonnes (as at December 2005) to
13.5m tonnes by December 2007E (+125%). These new plants are in the
construction stage and we expect them to commence operations from 2H
CY06E.
We expect this to drive demand for the 17 oils & fats. Oil World (15 December
2006) reported that global demand for 17 oils & fats could exceed production in
2007, and thereby keep prices firm. World demand in 2007 of 154.9m (+8.9%
yoy) is projected by Oil World to exceed world supply of 153.9m (+6.2% yoy).
CPO advantage for biodiesel
CPO has an edge over other vegetable oils as a feedstock for biodiesel due to the
following:
 Cost competitiveness. CPO trades at a US$128/tonne discount to soybean oil
and a US$267/tonne discount to rapeseed oil.
 Predictable supply. CPO is a perennial crop. Oil palm trees are planted and
harvested over 20 years whereas oils such as rapeseed/soya are re-planted
annually and subject to seasonal production volatility.
Figure 40. Plantation Index Moves 6-12 Months
Ahead of CPO Price
5000
Figure 41. Global Biodiesel Capacity – On the Rise
2500.0
16
4500
14
4000
2000.0
12
3500
1500.0
2500
2000
1000.0
8
6
4
1500
1000
500.0
500
2
0
MY Plantation Index (LHS)
Oct-06
Jan-06
Jul-04
Apr-05
Oct-03
Jan-03
Apr-02
Jul-01
0.0
Oct-00
0
end-2002
end-2005
EU-25
end-2007
World
CPO Price (RM/t) (RHS)
Source: CIR, Bloomberg, MPOB
26
10
Mn T
3000
Jan-00
CPO is a suitable feedstock for
biodiesel on cheaper cost and also
supply predictability
Source: Citigroup, Oil World
16 January 2007
Figure 42. Rising CPO/Capita Demand in China
Figure 43. Tight Stock/Usage of 17 Oils and Fats
(kg)
25.0
18.9
20.0
17.4
14.9
10.0
5.0
0.0
1999
2000
2001
2002
2003
2004
2005E
18.0%
160
16.0%
140
14.0%
120
12.0%
100
10.0%
80
8.0%
60
6.0%
40
4.0%
20
2.0%
0
0.0%
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007E
12.7
13.6
15.8
In Mil T
15.0
19.7
180
Production (LHS)
Source: CIR, Oil World data
27
Consumption (LHS)
Stock/usage (RHS)
Source: CIR, Oil World data
16 January 2007
Property – Overweight
Rising demand and specific catalysts for Johor and Penang are key reasons why
we are bullish on the sector. Despite increasing competition, developers with
strong branding, track record and well-located projects will likely continue to
enjoy good sales. Our top picks in this sector appears to offer earnings visibility,
good dividend yield and RNAV upside from rising land values. For these
reasons, we think SP Setia, Mah Sing and E&O Properties look compelling. We
have buy ratings on these three with ETRs of 17-38%. We rate MK Land as
Sell/Medium Risk (3M) on poor earnings visibility and unexciting valuations.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Figure 44. Selected Valuation Metrics; SP Setia is our top pick on ETR
Company
SP Setia
E&O Property
Mah Sing
MK Land
Simple average
(unweighted)
RIC Rating
SETI.KL
1L
EOPD.KL
1M
MAHS.KL
1L
MKLH.KL
3M
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
11-Jan-07 (RM m)
FY07E
FY08E
5.00
3357
3.100
12.5
10.5
10.8
19.3
1.8
1.7 15.2
17.1
6.7
8.0
1.90
1162
0.297
12.0
9.2
41.3
31.4
1.6
1.4 13.8
16.2
6.3
1.5
3.54
538
0.339
8.9
7.6
14.0
17.8
1.4
1.2 22.0
21.8
4.0
4.7
0.66
791
0.777 32.5
24.1 -43.6
34.7
0.7
0.7
2.2
3.1
0.8
1.0
1462
1.128 16.5
12.8
5.6
25.8
1.4
1.2 13.3
14.5
4.4
3.8
Overweight – Buy Setia, Mah Sing and E&O Prop
Overweight on specific catalysts –
strong upgrading demand, higher
infrastructure spending in Johor and
Penang
We are upbeat on the property sector on a combination of catalysts such as
strong upgrading demand and higher infrastructure spending in Johor and
Penang. Our favored picks in the sector include SP Setia, Mah Sing and E&O
Properties. SP Setia and Mah Sing appear to be beneficiaries of high upgrading
demand and higher infrastructure spending in Johor whereas E&O Properties is
a good proxy for an expected pick-up in demand in Penang, in our view. We
remain negative on MK Land in view of its poor earnings visibility and weak
operating cash flow.
Property boost in Johor and Penang from the 9th Malaysia Plan
Johor and Penang property may get a
boost from 9MP
Higher planned development expenditure for Penang and Johor under the 9th
Malaysia Plan (9MP) would likely improve infrastructure in these two states.
Including private sector initiatives, planned development expenditure for
Penang and Johor under 9MP has been raised 37% and 31%, respectively.
Some of the projects include the following:
 Development of the South Johor Economic Region (named Iskandar
Development Region) as the focus area
 Two international seaports and an international airport in Johor
 Extension of Senai airport
 Development of Bandar Nusajaya as a new administrative center in Johor
 A second bridge for Penang
28
16 January 2007
Johor property may also be lifted by
development of integrated resorts in
Singapore
Other than higher development expenditure for Johor under the 9th Malaysia
Plan, prospects for Johor’s property market could be enhanced by Singapore’s
plan to develop two integrated resorts. All in, Singapore’s Ministry of Trade and
Industry estimates that the two integrated resorts could create about 35,000
jobs. This includes jobs within the resorts and spin-offs throughout the
economy. We expect the employment opportunities created will drive stronger
housing demand in Johor. Interestingly, property demand in Johor has already
picked up since 1QCY06; our checks with Mah Sing and SP Setia indicate
higher volume sales in 1QCY06 compared with 1QCY05.
Upgrading demand remains good
Good demand for premium landed
properties account for 18% of total
housing supply
Unsold housing mainly priced at less than RM150k/unit
Market share of premium housing has
been creeping up
Assuming RM250k/unit as a pricing level for premium housing, our study
suggests that the market share of this segment has been steadily rising since
1999. This trend is not surprising to us because Malaysia’s economy is
continuing to grow, leading to rising demand for better quality and larger
housing.
Based on the Ministry of Finance’s Residential stock report (2Q06), we note that
premium landed housing property accounted for just 18% of total residential
stock of 3.7m units. Our classification of premium landed housing includes
semi-detached units, bungalows, townhouses and cluster houses but excludes
2-3 storey link houses.
Figure 45. Rising Market Share of Premium
Housing
Figure 46. 68% of Unsold Stocks at RM150k and
Below
18.0
RM201-RM250k
8%
16.0
14.0
> RM250k
10%
<RM50k
19%
12.0
10.0
8.0
RM151-RM200k
14%
6.0
4.0
RM50-RM100k
30%
2.0
0.0
1999
2000
2001
2002
2003
2004
2005
RM101-RM150k
19%
Market share of premium housing (%)
Source: Citigroup, Property Market Status Report
Unsold properties skewed towards
housing priced <RM150k
Source: Company Reports
Breaking down unsold residential properties by pricing range, it is clear to us
that oversupply persists in housing priced at RM150k and below (68% of unsold
units as at 2Q06). This has happened because most developers concentrated on
the “affordable segment” (priced less than RM150k) after the Asian financial
crisis in 1997, which led to over-building in this segment. In addition, there
could also be a structural supply mismatch such as wrong products in poor
locations. Hence, we think that developers with strong branding and the right
products in good locations will continue to fare well in niche premium housing.
As for unsold properties in poor locations with the wrong product mix, these
would likely attract little buying interest.
29
16 January 2007
Figure 47. Low Correlation Between Interest and
Housing Demand (1990-2005)
250,000
Figure 48. Premium Landed Only Account for 18%
of Total Supply (as at 1Q06)
12.0%
Condominium
9.0%
Flats
8.4%
10.0%
200,000
8.0%
150,000
Service apartment
0.5%
Terrace
39.9%
6.0%
100,000
4.0%
50,000
2.0%
0.0%
Low cost housing
24.8%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
0
Transactions (LHS)
Cluster homes
0.5%
BLR (RHS)
Source: Citigroup, National Property Market Reports
Detached
10.1%
Town house
0.5%
Semi detached
6.2%
More incentives for foreign purchasers
The sector has been given an additional boost as the government has been
easing restrictions on foreign buyers. As an indication, foreign purchasers will
be allowed to buy houses and condominiums priced above RM250,000/unit
without the approval from the Foreign Investment Committee (FIC). On top of
that, foreigners will also not be subject to any conditions in terms of usage (of
property for investment) or limit on the number of properties purchased.
New REIT incentives but not enough
New REIT incentives but more needs
to be done
There have been several incentives for Malaysia REIT since July 2006. On 10
July 2006, the Securities Commission raised the gearing limit for Malaysia REIT
companies from 35% to 50%. In addition, these companies are allowed to gear
up beyond 50% provided that approvals are secured from unit holders. Another
notable incentive is that under Malaysia’s 2007 Budget, withholding taxes on
dividends received by foreign institutional investors have been reduced from
28% to 20%, whereas individuals (residents and non-residents) would be taxed
at a flat 15%. While these are moves in the right direction, in our view,
additional incentives might be needed to make Malaysian REITs more attractive
compared with other markets such as Singapore (10% withholding tax on
foreign institutional investors, whereas individuals are not taxed on dividends
from REITs).
30
16 January 2007
Telecommunications – Overweight
Karen Ang
+66-2-232-3613
[email protected]
Anand Ramachandran, CFA
+852-2501-2448
[email protected]
We are Overweight telecoms. Our preference ladder has changed. Telekom
Malaysia is now our preferred pick followed by DiGi and Maxis. We think the
market will be looking for capital management surprises, especially as balance
sheets remain strong. Competition in the domestic market would likely intensify
with the introduction of MNP, although subscriber growth should remain
healthy. Exposure to Indian wireless growth will be a key driver of stock
performance, in our view, as more data points emerge with IPOs and merger
activities.
Company
Telekom
Maxis
DiGi
Simple average
(unweighted)
Avg 3 months
P/E (x)
EPS Growth (%)
PB (x)
ROE (%)
Dividend Yield (%)
RIC Rating 12-Jan-07 (RM m)
(US$ m) FY07E FY08E
FY07E
FY07E
FY08E
TLMM.KL
1L
9.700 14.7 12.9
22.3
13.9
1.6
1.5 11.0 12.0
4.9
5.8
9.70
32957
MXSC.KL
2L
7.861 12.6 11.9
2.4
5.7
3.4
3.2 28.1 27.5
8.3
8.7
10.10
25467
DSOM.KL
1L
4.446 14.2 12.6
14.3
12.4
7.2
7.0 52.1 56.2
7.0
7.9
15.90
11925
7.336 13.8 12.5
13.0
10.7
4.1
3.9 30.4 31.9
6.7
7.5
23450
Top telco pick – Telekom Malaysia
Telekom Malaysia is now our preferred pick followed by DiGi and then Maxis.
We think laggard Telekom Malaysia warrants a re-rating on strong Indonesian
growth, capital management upside and value crystallization of the Indian
investment Spice. Our bullish view of DiGi remains but we think the possibility
for outsized gains has diminished given the stock's strong performance in 2006,
hence our preference for Telekom Malaysia now. Scope for further capital
payouts (either via higher dividends or further capital reduction) will likely
continue to support the shares. Finally, we have turned more positive on Maxis
because we take a more bullish stance on the domestic wireless business and
Aircel. Still, the likelihood of Indonesian losses caps our bullishness.
31
16 January 2007
Capital management: Delivery imminent?
Figure 50. Cash Flow Profiles
2006
2007
2008
Telekom
Net gearing
Dividend payout
Dividend yield
Free cash flow
27.3%
75.0%
4.4%
-1,325
27.7%
75.0%
4.9%
1,041
25.2%
75.0%
5.8%
2,556
Maxis
Net gearing
Dividend payout
Dividend yield
Free cash flow
1.9%
97.7%
7.6%
-1,708
DiGi
Net gearing
Dividend payout
Dividend yield
Free cash flow
28.3% 47.1%
104.1% 103.7%
8.3%
8.7%
-435
93
net cash net cash net cash
100.0% 100.0% 100.0%
6.2%
7.0%
7.9%
757
837
896
Capital management remains a key pillar of the investment case for Malaysian
telcos with all three stocks in the above figure boasting ample capacity to gear
up to support further investments (domestically and/or for their international
investments) and a healthy dividend payout.
 Telekom Malaysia – We forecast a gross dividend payout of 75% on 2006
earnings from 72% for 2005. We think a higher payout is possible.
Management says it will announce capital management initiatives once the
2007-09 business plan is finalized.
 Maxis – Earnings pressure in 2007 could likely see payout ratios boosted to
maintain absolute dividend levels; in our previous meeting with management,
this was deemed "sacred".
 DiGi – DiGi's underleveraged balance sheet and Telenor's impending stake
reduction are likely to drive higher payout expectations in 2007, in our view.
We estimate that a RM1.35/share capital reduction similar to last year's (in
addition to a 100% gross dividend payout) will increase gearing to 1.1x from
a net cash position. A smaller but still attractive RM1.00/share payout raises
net gearing to a more comfortable 0.5x.
Wireless competition intensifies but stays rational
The biggest risk to the investment thesis is increased competitive activity leading
to deteriorating profits. In 2007, we expect the competitive environment to
become more difficult relative to 2006 as Maxis renews its focus in its home
market, two new 3G players launch services and mobile number portability is
introduced. While competition will likely intensify, we think it will remain
rational. First, incumbents have nothing to gain from a market-share-grabbing
but value-destructive-pricing aggression at already high levels of penetration.
Second, we believe the smaller 3G operators MiTV and Timedot.com lack the
network scale, presence, and financial wherewithal to support and sustain
aggressive pricing.
That said, we think growth prospects remain attractive. We anticipate operators
may announce subscriber deletions with the 4Q06 results sometime in February
following the passing of the prepaid registration deadline on 15 December 2006.
This should give us a better picture of penetrations, which we estimate at 69%
as of end-2006 post the subscriber deletions, rather than 85% prior to these
deletions. While already high, we think that there is still scope for further
penetration improvements and forecast a 77% penetration rate in 2007.
Telekom Malaysia already kicked off the process with 500k net churn in 3Q06
(with more to come in 4Q06). DiGi and Maxis have yet to follow suit. When the
dust settles, we anticipate penetration rates of c.69% as of the end of 2006
(compared with 85% pre-subscriber deletions) based on the assumption that
20% of the prepaid subscriber base is churned out due to non-registration. On
our numbers, this translates into approximately 4.6m deletions.
32
16 January 2007
Figure 51. Malaysia: Wireless Cellular Penetration
Figure 52. Malaysia: Wireless Subscriber Market Share
100%
80%
0.0%
20.0%
0.0%
22.2%
0.0%
24.6%
0.0%
25.5%
0.4%
26.4%
0.9%
26.6%
1.2%
26.7%
1.4%
26.8%
60%
39.4%
36.6%
35.1%
35.0%
34.0%
33.7%
33.6%
33.5%
40.6%
41.2%
40.3%
39.5%
39.1%
38.8%
38.5%
38.3%
2003
2004
2005
2006E
2007E
2008E
2009E
2010E
40%
20%
0%
2003
2004
2005
2006E 2007E 2008E 2009E 2010E
Cellular penetration (%)
Maxis
Celcom
DiGi
Others
Growth expectations in India likely to drive positive sentiment
Figure 53. Indian Presence
Aircel
Metro
Delhi
Mumbai
Chennai
Calcutta
A category
Maharashtra
Gujarat
AP
Karnataka
Tamil Nadu
B category
Kerala
Punjab
Haryana
UP (W)
UP (E)
Rajasthan
M Pradesh
W Bengal
C category
H Pradesh
Bihar
Orissa
Assam
North East
Jammu & Kashmir
Spice
√
We think the Indian exposure of TM and Maxis will come into sharper focus as a
positive driver for both stocks in 2007. Citigroup forecasts a 47% increase to the
subscriber base in India for FY08 following 76% growth for FY07. IPOs
(particularly of Spice and perhaps Aircel) and merger activities (for now, the
sale of a Hutch Essar stake) should help set benchmark valuations and lead to
greater disclosure of data points and hence scrutiny of the performance of both
Spice Telecom and Aircel.
Maxis – Organic growth vs. acquisitions
√
√
√
√
Pending rollout
Pending rollout
√
√
√
√
At this juncture, we think Maxis faces two options for Aircel's future: pursue
organic growth or acquisitions. On the former, Maxis took the next step towards
a pan-Indian presence by its decision to pay the entry fee for 14 new circles last
month (in addition to its nine circles) for US$300m according to media reports.
With this, Maxis would have accepted the Indian regulator's letters of intent for
unified access service licenses (which includes national and international long
distance). All Maxis would need now is the issuance of spectrum to proceed
with network roll-out. During the 3Q06 conference call in November, Maxis
indicated that it expects the spectrum to be released in the next six to nine
months.
Management has also expressed an intention to participate in any sector
consolidation and has followed-up with a bid for a stake in Hutchison Essar.
However, Maxis is widely considered to have dropped out of contention for
Hutchison Essar based on media reports that its relatively lower bid of
US$13.5bn previously was rejected. We doubt whether Maxis would be willing to
pay a substantial premium to its first bid (current bids are at US$17bn+),
particularly given that it is now one step closer towards achieving a pan Indian
presence.
Telekom Malaysia – Spice Telecom IPO could crystallize value
The imminent listing of 49%-owned Indian wireless company Spice Telecom
and merger activities surrounding the sale of a stake in Hutchison Essar should
help crystallize value in Spice Telecom, and lead to better disclosure. Press
reports point to a US$150m IPO for Spice Telecom involving the sale of a 1533
16 January 2007
20% stake in the company. This suggests an equity value of US$750mUS$1.0bn for 100% of the company representing at least a 109% gain for TM
already on its acquisition price of US$175.85m for a 49% stake.
At present we have very few data points such that an accounting for Spice
Telecom is limited to valuing it at its acquisition price in our sum-of-the-parts
valuation for TM. We do not as yet reflect Spice's contributions to the overall
consolidated picture.
TM also intends to pursue organic growth by obtaining more spectrum. Spice
had on 1 September 2006 applied for a Unified Access Service license for all of
the 21 circles in India (it has two circles now). Management estimates US$2bn
in spending for the new circles on top of the US$500m earmarked for the two
existing circles. TM acknowledges the high debt levels at Spice and the priority
is to raise fresh debt as well as refinancing.
Regulations – Telenor gets one year worth of breathing space
We enter 2007 with the key overhang of 2006 unchanged, namely, Telenor's
stake reduction and the lack of a 3G license.
Telenor stake reduction postponed by one year
Telenor's disposal of a 12% stake in DiGi remains an overhang as the deadline
has moved out by one year. Telenor has indicated that in principle it has
received approval from the government to postpone the reduction of its stake in
DiGi from 61% to 49% to the end of 2007 (from end-2006) and to increase its
Bumiputra (ethnic Malaysian) stake to the required 30% by the same period,
from 10% previously. For possible disposal alternatives and more detail about
the implications of a timedot.com merger see “ Buy: What if DiGi Merged with
Time dotcom? ” dated 16 November 2006.
We think any decision about a sell-down will likely revolve around Telenor's
ability to keep control (and therefore consolidate DiGi at the parent level) post
any disposal. A total Telenor exit or a significant dilution of control will likely be
taken negatively from a sentiment perspective, in our view, given its strong
management track record at the company.
WiMax licensing
There are no new updates on WiMax licensing after it was postponed in July
2006. Winning a WiMax license (sometime 1Q07) would address DiGi's lack of
spectrum for next generation services. We continue to believe, though, that the
lack of a 3G service in 2007 is not a competitive handicap. We note that 3G
services remain small in scale for the incumbents Maxis and Celcom with only
30,000 and 38,000 subscribers, respectively, adopting the service by the end of
last year.
In the meantime, though, we will be monitoring TM’s execution on its
broadband strategy carefully. We forecast fixed-line revenues will stay flat from
2006 to 2008 and gradually rise from there, primarily as growing broadband
business starts to offset declining voice revenues. We expect c830,000 and
1.3m broadband customers for TM by end-2006 and end-2007 respectively. We
estimate broadband revenues to grow to 10% of Malaysian telecom revenues in
2007 (from 6.0% in 2005) and 16% by 2010.
34
16 January 2007
Figure 54. Telekom Malaysia – Broadband Subscribers and Revenues
'000
2,500
20%
2,000
15%
1,500
10%
1,000
500
5%
0
0%
2003
2004 2005 2006E 2007E 2008E 2009E 2010E
Malaysia broadband subscribers ('000)
Broadband as % of Malaysian fixed line revenues
35
16 January 2007
Tobacco – Overweight
The worst appears to be over; market share gains by “cheap white sticks” are
slowing. Price stability appears restored after last year's damaging price war. We
now find only tactical price promotions by the Big 3 players – BAT, JTI and
Philip Morris – even after the ban on 10-stick packs implemented June 2006.
The moderate 7% price hike post-Budget appears to have been accepted by
smokers.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Company
British American Tobacco
Japan Tobacco Intl
Simple average
(unweighted)
Avg 3 months
P/E (x)
EPS Growth (%)
RIC Rating 11-Jan-07 (RM m)
FY08E
BATO.KL
1L
43.50
12421
2.054 14.7
13.9
9.7
6.0
JTIN.KL
NR
4.06
1062
0.047 12.3
11.6
-7.1
6.4
6741
1.051 13.5
12.7
1.3
6.2
PB (x)
ROE (%)
Dividend Yield (%)
FY07E
FY08E
15.9 14.3 114.5 108.6
8.5
9.0
2.1
2.1 17.8 17.4
7.1
0.0
9.0
8.2 66.1 63.0
7.8
4.5
Source: Powered by dataCentral, Citigroup Investment Research estimates. I/B/E/S estimates for Non-Rated (NR) stocks
BAT – Gaining market share
Figure 56. BAT Gaining Market Share
BAT
Philip Morris
JTI
Others
Premium
Value
Share of premium
BAT
JTI
Phillip Morris
Share of VFM
BAT
JTI
Phillip Morris
Others
VFM share excl others
BAT
JTI
Phillip Morris
9M06
%
61.4
14.1
18.1
6.4
100.0
68.0
32.0
1Q06
%
62.7
14.2
18.4
4.7
100.0
69.0
31.0
1Q05
%
63.3
14.8
19.6
2.3
100.0
71.0
29.0
72.1
13.6
14.3
100.0
72.4
13.3
14.3
100.0
71.4
13.8
14.8
100.0
39.2
28.1
13.9
18.8
100.0
41.4
29.6
13.8
15.2
100.0
43.0
34.1
14.9
8.0
100.0
48.3
34.6
17.1
100.0
48.8
34.9
16.3
100.0
46.7
37.1
16.2
100.0
Budget 2007 delivered on 1 September 2006 by the prime minister and finance
minister Abdullah Badawi was a relief to the tobacco industry. Only the excise
duty was raised: to 12 sen/stick + 20% from 11 sen/stick + 20%.
The Big 3 players subsequently increased prices by 40sen per 20s pack. This
was more than sufficient to pass through the tax hike that we estimate adds 24
sen/pack. The 2% real price hike is consistent with our expectations.
This price hike did not appear to trigger significant volume contraction nor
downtrading. We are also heartened by price discipline holding among the Big 3
players. It appears to us that they have realized the competition is not each
other but the cheap white sticks.
We do not see the Big 3 players competing in this space because they cannot
duplicate the super-low-cost structure of the cheap white sticks under the
present tax regime. Price wars or significant increases in brand spend would
only reduce margins in their market segments, with little possibility of gains
from inroads into the cheap white space. Instead, we have noted a coordinated
media campaign to encourage the government to step up enforcement on illegal
cigarettes, which now account for nearly 20% of the market.
BAT's Dunhill remains a strong brand. BAT's premium market share grew since
1Q05, led by Dunhill. Competition in the value space meanwhile has been
distorted by the advent of cheap white sticks. Stripping these out, BAT also
gained; see the table beside.
Source: Company Reports and CIR
36
16 January 2007
Transport (Shipping and Aviation) – Underweight
Company
MISC
AirAsia
Malaysia Airports
Simple average
(unweighted)
RIC Rating
MISC.KL
3L
AIRA.KL
3H
MAHB.KL
3L
Avg 3 months
P/E (x)
11-Jan-07 (RM m)
(US$ m) FY07E FY08E
8.75
33106
2.933 11.6 18.3
1.56
3670
2.670 29.2 21.8
2.29
2519
0.336 15.1 14.0
13099
1.980 18.7 18.0
EPS Growth (%)
FY07E
FY08E
-4.9
-36.7
2.0
34.2
8.8
8.5
2.0
2.0
PB (x)
ROE (%)
Dividend Yield (%)
FY07E
FY08E
1.7
1.7 15.7
9.3
3.4
3.4
3.0
2.6 11.2 13.3
0.0
0.0
0.9
0.8
5.9
6.0
1.3
1.4
1.9
1.7 10.9
9.6
1.6
1.6
Shipping
Tankers
Corrine Png
+65-6432-1159
[email protected]
Charles de Trenck
+852-2501-2756
[email protected]
Tankers in mid-2006 switched from being more attractive to bulk to less
attractive. For the long term, we think a sign that it will be time to look at the
sector again is when the sector undergoes a strong run on scrapping. A strong
rise in scrapping ahead of mandatory single-hull scrapping in 2010-15 would be
a long-term positive, in our view. But, as we have seen there — in which owners
have looked to double-hull requirements as a positive counter-balance to heavy
ordering and fleet renewals at least three periods in the past decade — there
may also be a few ups and downs on the road to seeing the full removal of
single-hulls from operation. As the market stands now, oil demand growth
peaked in 2004 at 3.9% and we think 2006 (we estimate 84.5m bbl/day) should
prove to be only about 1% growth on 2005.
With current high oil prices, slowing oil demand growth and rising tanker
delivery growth going into 2009E, tanker rates should remain under pressure
(please refer to the Appendix for more summaries of tanker charter
performances). Our US tanker analyst, John Kartsonas, forecasts 2007 average
VLCC rates of US$32,000/day versus average rates of US$67,921/day in 2006.
Containers
Our thesis has been that boom-busts are not vestiges of the past. The boom in
container shipping is driven by long-term 9% cargo demand, which effectively is
the fastest-growing segment compared with other trades. The busts come when
vessel ordering binges invariably overwhelm demand booms. The current 200508E downturn is a variation on this theme (the variation is higher costs on
negative unit revenues).
Ultimately, we think more consolidation is needed. But the irony is that the
buyers of capacity through M&A have been hurt the most over the short term, as
seen through major M&A events over the past decade beginning with NOL in
1997, and Maersk and TUI more recently. The industry should benefit from
consolidation, but the instigators of consolidation would pay the price of
digesting capacity through their balance sheets.
Over the long term, the economics of operating container ships have favored
operators with lower-priced assets and low operating costs, often similar to startup regional air carriers. Operators with higher-priced assets have competed
poorly.
37
16 January 2007
MISC: Overvalued
Our Sell/Low Risk (3L) rating is driven by high valuation concerns for the LNG
defensive business. Tankers in 2006, after a spell of underperformance, made a
strong comeback, but we believe the cycle is now over. With current high oil
prices and slowing oil demand growth and rising tanker delivery growth going
into 2009, tanker rates will likely remain under pressure; potentially halving
average 2006 rates. Containers will likely continue to underperform, in our view.
Aviation
Following a year of international and domestic route rationalization that stifled
traffic growth for Malaysia Airports (MAHB) and Malaysian Airlines (MAS), we
expect traffic growth to rebound in 2007, helped by AirAsia’s continued
expansion with capacity growing at c.40%, Visit Malaysia Year and the potential
launch of AirAsia’s long-haul low cost flights. International yields could continue
to rise as MAS improves on its revenue management system and benefits from
capacity constraints of Singapore Airlines. Additionally, both AirAsia and MAS
are benefiting from the recent correction in crude oil prices and remaining
margins.
With 54% hedging in place for 2H FY07 and 45% for 1H FY08, and more clarity
on the impact of adopting IFRS, AirAsia's investment outlook has become less
negative. However, we are not revising our estimates because 1QFY07 only
accounts for 10% of FY07E EBIT. We have not factored in deferred taxes
(c.RM21m). Additionally, we remain concerned about AirAsia’s: 1) excessive
aircraft orders; 2) potential share overhang; 3) rising gearing; 4) management
funding part of fuel hedges by underwriting puts with limited disclosure; 5) risk
of being required to refund airport taxes for those that cancelled trips; 6)
contingent claims (c.RM10m); and 7) rising competition from a restructured
MAS.
Indeed, Malaysian Airlines (MAS) has so far delivered on the targets
management set out in February 2006. We think the market is expecting a
turnaround relatively soon. The company’s reported net loss year-to-date was
below its internal target; management said that it is on track to meet its internal
net loss projection of RM620m (excluding one-off items) for 2006, which implies
a loss of c.RM122m for 2H06. The company’s net profit targets (excluding
domestic) are RM50m for 2007 and RM500m for 2008, although some analyst
estimates are far more bullish.
With the imminent turnaround of MAS, expectations of a potential restructuring
in Malaysia Airports have been rising and, in our view, explains MAHB’s recent
re-rating (although relative share price performance has been in line with the
KLCI). There have been no new developments so far and timing remains a wild
card. MAHB’s restructuring could potentially be deferred again given that 2007
is Visit Malaysia Year and competition among regional air hubs is rising with the
opening of Suvarnabhumi in Bangkok in late 2006 and scheduled opening of
Terminal 3 in Singapore in early 2008.
Furthermore, we remain concerned about MAHB’s deteriorating margins.
Managing staff costs continues to be a challenge. The proportion of salaries to
total operating costs has risen to 41%, +5ppts yoy in 9M06. This is significantly
higher than other Asian airports and 3Q06 EBITDA margins fell 10ppts yoy to
34%, 20ppts below the global airport average. MAHB is also a premature
regional airports play. Although we view MAHB’s investments in the
38
16 January 2007
management of the new Hyderabad and Delhi airports, and the recent bids to
manage the Jordan and Jeddah airports positively, these will likely only start
contributing to earnings from 2008E at the earliest.
Consequently, we reiterate our ratings on AirAsia (Sell/High Risk (3H)) and
Malaysia Airports (Sell/Low Risk (3L)).
39
16 January 2007
Utilities – Overweight
We think that skeptics can be reassured that Tenaga's above-expectations 12%
tariff hike effective June last year is its to keep. Bills reflecting the higher rates
have been sent out for the last half year. There has been no public outcry. The
Energy Commission appears clear that Tenaga should be compensated for any
fuel price hikes, and is furthermore pursuing the IPPs to reduce capacity
payments.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Company
Tenaga
YTL Power
Malakoff #
Tanjong*
Simple average
(unweighted)
RIC Rating
TENA.KL
1L
YTLP.KL
3L
MLKF.KL
3L
TJPL.KL
1L
Avg 3 months
P/E (x)
11-Jan-07 (RM m)
(US$ m) FY07E FY08E
11.40
48847
25.060 14.5 14.4
2.16
11404
2.697 15.8 15.6
10.20
9173
3.454 14.6 10.8
13.90
5605
3.183 10.8 10.1
18757
8.598 13.9 12.7
EPS Growth (%)
FY07E
FY08E
80.5
0.0
-3.8
1.0
39.8
35.2
17.2
7.1
33.4
10.9
PB (x)
ROE (%)
Dividend Yield (%)
FY07E
FY08E
2.2
2.0 16.3 14.5
3.5
4.4
1.7
1.6 14.0 13.1
4.6
4.6
2.3
2.0 16.0 19.8
5.1
6.1
1.8
1.6 17.0 16.6
6.3
6.6
2.0
1.8 15.8 16.0
4.9
5.4
Source: Powered by dataCentral, Citigroup Investment Research estimates *FY08E, # closing price as at 12 Jan 07
Greater clarity on Tenaga’s improving situation
Watch out for likely rising dividends
from Tenaga
Tenaga is our top pick in the sector. We expect regulatory reform and the tariff
hike to help the near-term financial situation. If fuel prices stay as they are,
Tenaga could double earnings and the cash flow situation could improve
enough for Tenaga to support a 5% gross dividend yield. Positive catalysts
include strong earnings and the announcement of a dividend policy by April
2007, in our view.
The Energy Commission’s proposals that elements of the 2 nd and 3rd generation
PPAs be incorporated in all PPAs could save Tenaga RM0.4bn pa. This is on
the basis of a 15% reduction on RM2.7bn of capacity payments. The
Commission has proposed: 1) a 15% cut in capacity payments of 1st and 2nd
generation PPAs to incorporate demand risk-sharing as per 3rd generation
Tanjong Bin; and 2) step-downs in capacity payments for 10 years into the PPA
tenures, as per the 2nd and 3 rd generation PPAs.
Tanjong is our preferred IPP. Its 8% share price fall YTD already reflects PPA
risk while its power earnings have surpassed expectations. We retain our
Sell/Low Risk (3L) rating on YTL Power on valuation grounds. We rate Malakoff
as Sell/Low Risk (3L).
Tariff hike would be a major boost to
Tenaga’s financials
Figure 59. Tenaga's Net Debt Falling (RM bn)
Figure 60. Dividends Set To Rise (sen/share)
35.0
60.0
14000 0
13800 0
13600 0
13400 0
13200 0
13000 0
12800 0
12600 0
12400 0
12200 0
30.0
0 2a
03a
04a
0 5a
0 6f
50.0
25.0
40.0
20.0
30.0
15.0
20.0
10.0
10.0
5.0
03a
04a
05a
06f
07f
40
08f
03a
04a
05a
06f
07f
08f
16 January 2007
Company Write-Ups
41
16 January 2007
AirAsia (AIRA.KL)
Sell/High Risk
Price (11 Jan 07)
Target price
Expected share price return
Expected dividend yield
Expected total return
Market Cap
3H
RM1.56
RM1.33
-14.7%
0.0%
-14.7%
RM3,670M
US$1,044M
Price Performance (RIC: AIRA.KL, BB: AIRA MK)
Risk-Reward Remains Unattractive
 We continue to like AirAsia’s company fundamentals — Domestic market
share has risen to 51% post route rationalization. 29% EBITDAR margin and
8% spread between actual and breakeven load factor is impressive,
outperforming best-in-class airline majors given record high fuel prices.
 Risk-reward less negative, but not ready for upgrade — With the recent
decline in fuel prices, 54% hedging in place for 2HFY07 and 45% for
1HFY08, and more clarity on the impact of adopting IFRS, AirAsia's
investment outlook has improved. However, we are not revising our estimates
as 1QFY07 only accounts for 10% of FY07E EBIT and we have not factored in
deferred taxes (c.RM21m).
 Other concerns remain — 1) Excessive aircraft orders. 2) Potential share
overhang. 3) Rising gearing. 4) Mgmt funding part of fuel hedges by
underwriting puts with limited disclosure. 5) AirAsia being required to refund
airport taxes for those that cancelled trips. 6) Contingent claims (c.RM10m).
7) Competition from a restructured MAS.
 Market unwilling to pay above-sector premium — We believe AirAsia should
no longer trade at a premium to peers given the increased risks. Share price
has been flat vs. Jan-06 and underperformed the KLCI by 20%. We reiterate
Sell / High Risk (3H) with RM1.33 target. We see share price support at
RM1.34 (RM0.47 BV/shr + RM0.87/shr embedded equity of aircraft options).
Statistical Abstract
Corrine Png
+65-6432-1159
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
112
0.05
127.4
34.0
3.8
20.2
0.0
2006A
127
0.05
13.8
29.8
3.3
12.4
0.0
2007E
130
0.05
2.0
29.2
3.0
11.2
0.0
2008E
174
0.07
34.2
21.8
2.6
13.3
0.0
2009E
226
0.09
30.3
16.7
2.2
15.0
0.0
Valuation
Profitability Trend
40
25.0
20.0
15.0
10.0
5.0
0.0
2005A
30
20
10
0
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
42
2009E
0
250
200
150
100
50
0
-500
-1,000
-1,500
-2,000
2005A
2006A 2007E
Ne t Inc o me
2008E 2009E
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 30-Jun
Valuation Ratios
P/E adjusted (x)
EV/EBITDA adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
For further data queries on Citigroup's full coverage
universe please contact CIR Data Services Asia Pacific at
[email protected]
or +852-2501-2791
2005
2006
2007E
2008E
2009E
34.0
21.0
3.8
0.0
29.8
17.7
3.3
0.0
29.2
15.4
3.0
0.0
21.8
13.4
2.6
0.0
16.7
11.8
2.2
0.0
0.05
0.05
0.41
0.00
0.05
0.05
0.47
0.00
0.05
0.05
0.52
0.00
0.07
0.07
0.60
0.00
0.09
0.09
0.69
0.00
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Net interest expense
Non-operating/exceptionals
Pre-tax profit
Tax
Extraord./Min.Int./Pref.div.
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
666
-533
133
-3
-5
125
-14
0
112
112
168
856
-724
131
-22
6
116
11
0
127
127
214
1,199
-969
231
-84
-15
132
-3
0
130
130
330
1,480
-1,154
326
-166
17
177
-4
0
174
174
489
2,020
-1,579
441
-215
6
231
-5
0
226
226
668
69.6
120.1
132.3
127.4
28.5
-1.7
27.9
13.8
40.2
75.8
54.1
2.0
23.4
41.3
48.2
34.2
36.5
35.2
36.5
30.3
Cash Flow (RMM)
Operating cash flow
Depreciation/amortization
Net working capital
Investing cash flow
Capital expenditure
Acquisitions/disposals
Financing cash flow
Borrowings
Dividends paid
Change in cash
-40
34
-184
-181
-92
-19
598
-95
0
377
348
83
144
-1,235
-1,199
-37
1,053
1,053
0
165
61
99
-184
-1,611
-1,600
0
1,447
1,447
0
-103
265
163
-56
-1,598
-1,600
0
1,500
1,500
0
166
341
227
-108
-1,599
-1,600
0
1,400
1,400
0
142
Balance Sheet (RMM)
Total assets
Cash & cash equivalent
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
1,123
329
350
231
170
155
0
953
2,402
426
302
1,261
1,312
258
1,053
1,091
4,002
235
510
2,849
2,782
279
2,500
1,220
5,742
401
630
4,286
4,348
344
4,000
1,394
7,496
543
859
5,659
5,875
470
5,400
1,620
Profitability/Solvency Ratios (%)
EBITDA margin adjusted
ROE adjusted
ROIC adjusted
Net debt to equity
Total debt to capital
25.2
20.2
29.9
-34.5
0.0
25.0
12.4
12.3
57.5
49.1
27.5
11.2
8.8
185.7
67.2
33.1
13.3
7.7
258.2
74.2
33.1
15.0
7.7
299.8
76.9
43
16 January 2007
AMMB (AMMB.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM3.12
RM3.96
26.9%
2.3%
29.2%
RM6,647M
US$1,891M
Price Performance (RIC: AMMB.KL, BB: AMM MK)
Re-Rating Should Continue into 2007
 Buy/Low Risk (1L), TP RM3.96 – Our target price is based on 18x FY08E P/E;
a 29% premium to AMMB's post-crisis mean P/E of 13.9x, which we view is
justified given [1] re-rating as the only foreign bank-owned local bank; [2]
potential earnings upside from a likely balance sheet clean-up in FY07E; and
[3] potential synergies from ANZ.
 Asset quality issues expected to be addressed once and for all – Investors in
the past have had a poor perception of the low 42% provisioning cover of the
group. The RM1.07bn in fresh capital injection by ANZ should enable the
group to raise its loan loss coverage for FY07E to a healthy level of 60% and
maintain core capital ratio at about 10%. Assuming a normalized credit cost
of 100bps in FY08E, the P/E multiple would fall to 15x, which is in-line with
the larger Malaysian Bank's FY07E P/Es. We keep our forecasts intact for
now.
 What ANZ brings to the table – If completed, ANZ would be the single largest
shareholder and presumably have management control. Besides a thorough
balance sheet clean-up post recapitalization, ANZ can offer superior product
offerings, potential cost savings (outsourcing credit cards, back office etc.),
more rigorous risk management processes and collection as well as a regional
platform for AMMB to operate on.
 Deal scheduled for completion by April – Expect Central Bank's approval by
February followed by a shareholders' meeting to be held in March to approve
the deal.
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Robert Kong, CFA
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
204
0.11
-20.7
29.3
1.4
4.6
1.3
2006A
366
0.17
56.2
18.7
1.3
7.5
1.6
2007E
455
0.20
20.7
15.5
1.2
8.7
2.3
2008E
498
0.22
9.6
14.2
1.1
8.9
2.6
2009E
545
0.24
9.5
12.9
1.1
9.1
2.9
PE and PBV
Loan Growth and LDR
40
30
20
10
0
2005A
2006A
P/E (x)
2007E
2008E
P/BV (x) (RHS)
44
1.3
15
1.2
10
1.1
5
1.0
0
2009E
2005A
125
124
123
122
121
120
119
2006A
2007E
2008E
Lo an yo y (%)
LDR (%) (RHS)
2009E
16 January 2007
Fiscal year end 31-Mar
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
P/Adjusted BV diluted (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
Adjusted BVPS diluted
DPS
Profit & Loss (RMM)
Net interest income
Fees and commissions
Other operating Income
Total operating income
Total operating expenses
Oper. profit bef. provisions
Bad debt provisions
Pre-tax profit
Tax
Extraord./Min. Int./Pref. Div.
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
Oper. profit bef. prov.
Balance Sheet (RMM)
Total assets
Avg interest earning assets
Customer loans
Gross NPLs
Liab. & shar. funds
Total customer deposits
Reserve for loan losses
Shareholders' equity
universe please contact CIR Data Services Asia Pacific
at [email protected]
or +852-2501-2791
ROE adjusted
Net interest margin
Cost/income ratio
Cash cost/average assets
NPLs/customer loans
Reserve for loan losses/NPLs
Bad debt prov./avg. cust. loans
Loans/deposit ratio
Tier 1 capital ratio
Total capital ratio
45
2005
2006
2007E
2008E
2009E
29.3
29.3
1.4
1.3
1.3
18.7
18.7
1.3
1.4
1.6
15.5
15.5
1.2
1.3
2.3
14.2
14.2
1.1
1.2
2.6
12.9
12.9
1.1
1.1
2.9
0.11
0.11
2.24
1.99
2.50
0.04
0.17
0.17
2.36
2.12
2.29
0.05
0.20
0.20
2.54
2.28
2.39
0.07
0.22
0.22
2.72
2.46
2.56
0.08
0.24
0.24
2.92
2.66
2.75
0.09
1,382
314
881
2,578
-1,279
1,299
-807
1
493
-205
-84
204
204
1,420
307
1,138
2,865
-1,450
1,414
-706
2
710
-231
-114
366
366
1,390
356
1,332
3,078
-1,595
1,483
-635
2
850
-255
-140
455
455
1,385
402
1,492
3,279
-1,715
1,564
-640
2
926
-269
-159
498
498
1,385
450
1,643
3,478
-1,850
1,628
-630
2
1,000
-280
-175
545
545
-20.7
3.5
56.2
8.9
20.7
4.9
9.6
5.5
9.5
4.1
60,566
56,499
42,544
7,598
60,566
34,447
3,943
4,773
72,136
62,343
47,115
6,137
72,136
38,918
2,255
5,029
71,835
67,272
51,800
6,527
71,835
42,100
2,821
5,408
75,794
68,767
54,500
6,649
75,794
45,100
3,026
5,795
79,395
72,543
58,500
6,786
79,395
47,200
3,218
6,218
4.6
2.4
49.6
2.1
17.9
51.9
1.9
123.5
7.0
11.6
7.5
2.3
50.6
2.2
13.0
36.7
1.6
121.1
10.0
13.9
8.7
2.1
51.8
2.2
12.6
43.2
1.3
123.0
10.0
16.8
8.9
2.0
52.3
2.3
12.2
45.5
1.2
120.8
10.3
16.8
9.1
1.9
53.2
2.4
11.6
47.4
1.1
123.9
10.7
17.0
16 January 2007
BAT (BATO.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM43.50
RM47.90
10.1%
7.7%
17.9%
RM12,421M
US$3,533M
Price Performance (RIC: BATO.KL, BB: ROTH MK)
On Track to Surprise Consensus
 Results for 3Q06 were above consensus, as we expected — RM215m 3Q net
profit (+2% yoy/+18%qoq) took ytd to RM597m (+19%), 82% of the
RM732m consensus full year estimate. 4Q06 will likely be boosted by the 23% real price increases instituted in the September post the budget. 3Q05
was a high base on intensive pre-budget loading. Last year, the budget was
announced much later.
 Big 3 realize the main competition is illicit trade — The absence of price wars
despite the difficult operating conditions heartens us. Industry price
discipline was maintained despite contracting volumes and the ban on 10s
packs in June. It appears the Big 3 players – BAT, Japan Tobacco, and
Phillip Morris – realize the competition is the illicit trade (c. 22% of the
market) rather than each other.
 Upside potential to our 1% FY07 volume growth assumption — Market share
gains by cheap white sticks are reaching a plateau. The prime minister has
promised increased enforcement against the illicit trade. Management is
“encouraged by the increased seizures and vigilance by Malaysian Customs.”
Momentum here would boost volumes among the licensed players.
 And to our dividend forecasts — Our current forecasts suggest a 9% gross
dividend yield. BAT pays out 90% of its earnings as dividends. Each 1%-pt
additional volume growth adds 1.5% to our EPS forecast and would raise our
DPS forecast accordingly.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
782
2.74
3.2
15.9
19.4
129.6
7.9
2005A
593
2.08
-24.2
21.0
20.1
94.1
8.0
2006E
770
2.70
29.9
16.1
17.9
117.2
7.7
2007E
844
2.96
9.7
14.7
15.9
114.5
8.5
2008E
895
3.13
6.0
13.9
14.3
108.6
9.0
Valuation
Profitability Trend
25
20
15
10
5
0
15.0
10.0
5.0
0.0
2005A
2006E
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
46
2009E
1,000
800
600
400
200
0
1,000
800
600
400
200
0
2005A
2006E 2007E 2008E 2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Dec
2004
2005
2006E
2007E
2008E
15.9
10.6
19.4
7.9
21.0
13.3
20.1
8.0
16.1
10.9
17.9
7.7
14.7
10.0
15.9
8.5
13.9
9.4
14.3
9.0
2.74
2.74
2.25
3.45
2.08
2.08
2.16
3.47
2.70
2.70
2.43
3.37
2.96
2.96
2.73
3.70
3.13
3.13
3.04
3.92
3,264
-2,125
1,138
-55
0
1,083
-301
0
782
782
1,224
3,564
-2,683
881
-48
0
833
-240
0
593
593
967
3,685
-2,568
1,117
-48
0
1,069
-299
0
770
770
1,181
3,932
-2,712
1,220
-48
0
1,172
-328
0
844
844
1,284
4,051
-2,760
1,291
-48
0
1,243
-348
0
895
895
1,354
2.0
3.0
3.9
3.2
9.2
-22.6
-21.0
-24.2
3.4
26.7
22.1
29.9
6.7
9.3
8.8
9.7
3.0
5.8
5.5
6.0
819
85
-36
-57
-88
28
-714
-50
-705
48
677
85
-35
-90
-90
0
-588
0
-617
-1
818
64
-5
-80
-80
0
-690
0
-824
48
902
64
-13
-80
-80
0
-755
0
-726
67
956
64
-8
-80
-80
0
-813
0
-783
63
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
1,747
236
43
594
1,106
155
700
642
1,719
234
47
587
1,101
194
700
618
1,784
284
49
604
1,089
187
700
695
1,887
346
52
620
1,107
198
700
779
1,985
416
54
637
1,116
202
700
869
ROE adjusted
ROIC adjusted
Net debt to equity
37.5
129.6
73.1
72.4
52.2
27.1
94.1
55.7
75.4
53.1
32.0
117.2
71.0
59.9
50.2
32.7
114.5
75.7
45.4
47.3
33.4
108.6
78.6
32.6
44.6
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
47
16 January 2007
Berjaya Sports Toto Bhd (BSTB.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM4.60
RM4.55
-1.1%
8.7%
7.6%
RM6,215M
US$1,768M
Price Performance (RIC: BSTB.KL, BB: BST MK)
2Q Revenue Growth Well Below Consensus
 Reiterating our contrarian Sell call — 2Q gaming turnover rose just 3.3% yoy;
1H rose 3.4% ytd. The 7% FY07 growth expected by consensus will be hard
to meet. Comparatives for 2H07 are tough. There are fewer special draws – 5
as compared to 10 in 2H06. The RM167m 1H net profit was only 42% of
IBES consensus. High prize payouts adversely affected margins.
 Dividend maintained; 140% net payout ratio — The 12.5 sen/share interim
gross dividend took the 1H total to 25 sen, similar to last year. B Toto cannot
sustain the payout ratio in excess of 100% for long. Cash has to be set aside
to repay the RM550m debt raised to finance the capital repayment. This is
payable in tranches up to 2010. We maintain our bottom-of-market earnings
estimates.
 RM311m (23 sen/share) balance sheet cash as at 30 Oct — A special
dividend is the largest upside risk to our Sell call. B Toto also had 56.3m
Treasury shares worth RM267m at current prices. Selling these could fund a
20 sen/share special dividend equivalent to a 4% yield. The inter-co balance
fell to RM93m from RM478m as at 31 July.
 Mid-teens P/E for 9% FY07E-10E EPS CAGR is expensive — The 6-7%
sustainable net dividend yield provides downside support, but we do not see
upside catalysts from operations. B Toto does not appear to be fully exploiting
its suite of games and extensive distribution network. Its competitors with
fewer games and outlets posted 5-6% revenue growth.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Apr
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
328
0.25
137.7
18.1
3.3
21.2
9.8
2006A
443
0.34
35.0
13.4
4.9
31.7
11.1
2007E
370
0.29
-16.5
16.0
11.0
42.1
9.2
2008E
397
0.31
7.4
14.9
10.5
72.2
8.7
2009E
444
0.34
11.8
13.3
9.3
74.0
8.7
Valuation
Profitability Trend
20
15.0
15
10.0
10
5.0
5
0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
48
2009E
500
400
300
200
100
0
500
400
300
200
100
0
2005A
2006A
2007E
2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 30-Apr
2005
2006
2007E
2008E
2009E
18.1
12.1
3.3
9.8
13.4
11.2
4.9
11.1
16.0
11.3
11.0
9.2
14.9
10.7
10.5
8.7
13.3
9.8
9.3
8.7
0.25
0.25
1.39
0.45
0.34
0.34
0.95
0.51
0.29
0.29
0.42
0.43
0.31
0.31
0.44
0.40
0.34
0.34
0.49
0.40
2,670
-2,201
470
20
-2
487
-158
-1
328
328
484
2,938
-2,420
519
49
0
568
-122
-3
443
443
533
2,994
-2,455
539
1
0
540
-167
-3
370
370
554
3,204
-2,621
583
-11
0
572
-171
-3
397
397
597
3,460
-2,824
636
-6
0
629
-183
-3
444
444
650
7.8
16.2
15.2
137.7
10.0
10.4
10.1
35.0
1.9
4.0
3.9
-16.5
7.0
8.0
7.8
7.4
8.0
9.1
8.9
11.8
288
14
-54
-13
-13
0
-275
-2
-400
0
408
14
1
-18
-18
0
567
553
-468
957
387
14
0
-75
-75
0
-100
-125
-394
212
414
14
0
-15
-15
0
-496
-125
-371
-97
461
14
0
-15
-15
0
-496
-125
-371
-50
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
1,880
344
24
73
299
35
22
1,581
2,080
672
27
77
849
38
575
1,231
1,275
206
27
138
724
39
450
551
1,182
109
29
138
602
41
325
580
1,136
59
32
139
480
44
200
656
ROE adjusted
ROIC adjusted
Net debt to equity
18.1
21.2
24.9
-20.4
1.4
18.1
31.7
33.6
-7.9
31.8
18.5
42.1
38.9
44.3
45.0
18.6
72.2
52.2
37.2
35.9
18.8
74.0
57.5
21.5
23.4
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
49
16 January 2007
Bumiputra Commerce (BUCM.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM8.70
RM9.75
12.1%
3.4%
15.5%
RM27,709M
US$7,882M
Price Performance (RIC: BUCM.KL, BB: CAHB MK)
Riding the M&A Wave; TP Recently Raised to RM9.75
 Record fee income this year — BCHB looks poised to book record fee
revenues this year on completion of bulky M&A advisory deals valued at
RM55bn. We recently doubled our FY07E fee income growth assumption to
39% from 19%, and raised FY07 earnings estimate by 8.5% while keeping
our FY08E earnings intact. We expect upside bias to management's current
FY07E ROE target of 15.5%.
 Adviser to deals worth RM82bn — CIMB's M&A deal book is the largest it's
ever been – RM82bn for deals announced in 2006 versus just RM15bn for
FY2005. Three mega deals scheduled for completion this year: [1] Malakoff
privatization (c.RM9.3bn) [2] PPB Oil Palms – Wilmar merger (c.RM15bn)
and [3] Synergy Drive merger (c.RM31bn). We have factored in an additional
RM200m in fee revenue (equivalent to 0.3% of incremental deal size).
 Tweaking our dividend payout ratio — We recently raised our FY07E dividend
payout ratio to 36% from 34.5%, now consistent with our FY08E payout
assumption. We do not expect a special dividend arising from the disposal of
the insurance units for RM990m cash (~RM0.31/share) given the low core
capital of the group, which we estimate at 6.6%. Nevertheless, the disposal
allows the group more flexibility in its dividend policy.
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Robert Kong, CFA
[email protected]
 Best-performing bank stock this year — Still early in the year, but stock is
already up year-to-date. Post crisis, BCHB trades between 12.6x-17.3x P/E
multiples. Our target price of RM9.75 implies a P/E of 16.8x, a premium over
the mean P/E of 14.9x, justified by superior earnings growth this year. Key
downside risk would be a liquidity pullback as foreign ownership is high at
45%.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
2005A
2006E
2007E
2008E
735
827
1,405
1,889
1,961
0.26
0.29
0.44
0.58
0.60
-12.7
12.2
49.5
32.1
3.8
33.2
29.6
19.8
15.0
14.4
2.6
2.5
2.5
2.2
2.0
8.7
8.9
13.6
16.1
15.0
1.7
1.8
2.3
3.4
3.6
PE and PBV
Loan Growth and LDR
2.5
2.0
1.5
1.0
0.5
0.0
20
15
10
5
0
2004A
2005A
2006E
P/E (x)
2007E
P/BV (x) (RHS)
50
2008E
50
100
40
30
95
20
10
85
90
80
0
2004A
2005A
2006E
Lo an yo y (%)
2007E
2008E
LDR (%) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
DPS
Profit & Loss (RMM)
Net interest income
Bad debt provisions
Pre-tax profit
Tax
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
Balance Sheet (RMM)
Total assets
Customer loans
Gross NPLs
Liab. & shar. funds
or +852-2501-2791
ROE adjusted
Net interest margin
Cost/income ratio
NPLs/customer loans
Loans/deposit ratio
Total capital ratio
51
2004
2005
2006E
2007E
2008E
33.2
33.2
2.6
2.7
1.7
29.6
29.6
2.5
2.5
1.8
19.8
19.8
2.5
2.5
2.3
15.0
15.0
2.2
2.3
3.4
14.4
14.4
2.0
2.1
3.6
0.26
0.26
3.34
3.21
3.17
0.15
0.29
0.29
3.55
3.35
3.43
0.15
0.44
0.44
3.50
1.77
3.45
0.20
0.58
0.58
3.95
2.23
3.83
0.30
0.60
0.60
4.36
2.63
4.22
0.31
2,691
755
709
4,155
-1,953
2,201
-1,149
0
1,053
-120
-198
735
735
2,986
850
887
4,723
-2,278
2,445
-1,140
8
1,313
-284
-202
827
827
3,370
1,025
1,151
5,546
-2,750
2,796
-800
5
2,001
-501
-95
1,405
1,405
4,165
1,420
1,323
6,908
-3,335
3,573
-885
25
2,713
-706
-118
1,889
1,889
4,580
1,330
1,410
7,320
-3,580
3,740
-925
25
2,840
-739
-140
1,961
1,961
-12.7
17.6
12.2
11.1
49.5
14.4
32.1
27.8
3.8
4.7
112,259
98,623
66,036
6,726
112,259
74,105
3,433
9,098
113,526
106,358
72,576
6,306
113,526
74,324
3,480
9,837
162,806
126,351
104,900
8,602
162,806
108,500
4,886
11,226
167,971
147,621
110,940
8,875
167,971
119,050
5,087
12,661
177,040
153,486
119,940
9,355
177,040
126,240
5,412
13,940
8.7
2.7
47.0
1.9
10.2
51.0
1.9
89.1
10.0
13.8
8.9
2.8
48.2
2.0
8.7
55.2
1.6
97.6
11.2
15.2
13.6
2.7
49.6
2.0
8.2
56.8
0.9
96.7
6.6
10.6
16.1
2.8
48.3
2.0
8.0
57.3
0.8
93.2
7.2
11.8
15.0
3.0
48.9
2.1
7.8
57.8
0.8
95.0
7.6
12.2
16 January 2007
Bursa Malaysia (BMYS.KL)
Hold/Low Risk
Price (11 Jan 07)
Target price
Market Cap
2L
RM8.75
RM8.80
0.6%
5.3%
5.9%
RM4,547M
US$1,293M
Price Performance (RIC: BMYS.KL, BB: BURSA
MK)
Boost from Strong Market Sentiment
 Running on strong market sentiment — Bursa Malaysia shares rose 9.6% to
RM9.10 year-to-date on the back of strong market sentiment. The strong run
was boosted by a 64% jump in average daily turnover in Nov 06 (RM1.4bil)
and 8% surge in December 2006 (RM1.5bil).
 Our target price assumption is based on RM1.6b per day — Year-to-date,
daily trading volume is hovering at around RM1.6b level, in line with our
assumption. But Bursa’s share price seems to suggest a more bullish market
outlook.
 Targeting stronger growth for derivative business — Bursa plans to release its
FY06 results on January 31. Daily trading turnover of RM1b is in line with our
assumption. No special dividend is expected for the final results but taking
into account special dividends declared during the interim results, payout
would exceed 100%.
 Sensitivity of earnings to trading volume — Our sensitivity analysis of changes
in average daily turnover suggest that for every RM100m addition to daily
average turnover, our DDM-derived target price will rise by 4-5%. At daily
turnover of RM1.7b, its target price would rise to RM9.25/share. At RM2b per
day, it would be worth RM10.61/share.
Wai Kee Choong
+60-3-2383-2943
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
35
0.07
-41.5
124.9
3.0
2.4
0.0
2005A
81
0.16
134.5
53.2
5.0
6.9
2.3
2006E
97
0.19
16.1
45.9
5.6
11.7
2.8
2007E
168
0.32
69.3
27.1
5.3
20.9
5.3
2008E
177
0.34
4.3
26.0
5.3
21.4
5.6
52
16 January 2007
2004
2005
2006E
2007E
2008E
124.9
nm
3.0
0.0
53.2
57.9
5.0
2.3
45.9
35.3
5.6
2.8
27.1
19.5
5.3
5.3
26.0
17.3
5.3
5.6
0.07
0.07
2.92
0.00
0.16
0.16
1.77
0.20
0.19
0.19
1.56
0.24
0.32
0.32
1.64
0.46
0.34
0.34
1.65
0.49
218
-223
-5
54
14
63
-25
-3
35
35
12
193
-140
53
46
19
118
-32
-4
81
81
67
258
-158
100
27
9
135
-38
0
97
97
117
362
-173
190
32
12
233
-65
0
168
168
214
400
-201
199
34
14
246
-69
0
177
177
242
8.4
-131.5
-64.6
-41.5
-11.6
1,277.5
473.0
134.5
33.5
86.8
75.8
16.1
40.6
90.4
82.9
69.3
10.3
4.7
12.8
4.3
-44
16
-17
25
-61
0
76
0
0
57
56
13
16
203
-21
0
403
0
0
662
60
18
-16
-156
-30
0
-360
0
-116
-456
149
25
0
2
-41
0
-104
0
-128
48
173
43
0
19
-27
0
-152
0
-172
41
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
1,758
707
66
356
280
215
0
1,478
1,191
407
55
364
287
218
0
904
1,069
125
66
376
284
215
0
785
1,090
130
66
392
265
215
0
825
1,069
125
66
376
240
215
0
830
ROE adjusted
ROIC adjusted
Net debt to equity
5.3
2.4
-6.2
-47.9
0.0
34.5
6.9
4.3
-45.0
0.0
45.5
11.7
14.0
-15.9
0.0
59.1
20.9
27.5
-15.8
0.0
60.5
21.4
28.7
-15.1
0.0
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
53
16 January 2007
DiGi.Com (DSOM.KL)
Buy/Low Risk
Price (12 Jan 07)
Target price
Market Cap
1L
RM15.90
RM17.50
10.1%
7.0%
17.1%
RM11,925M
US$3,393M
Price Performance (RIC: DSOM.KL, BB: DIGI MK)
Powering On
 Buy maintained – We maintain our Buy/Low Risk rating with a target price of
RM17.50. We continue to believe that operating leverage driving strong
earnings growth and capital management are supporting the stock.
 Operating leverage mitigates competitive pressures on margins – The biggest
risk is increased competitive activity though we think the competitive
landscape remains rationale. We forecast a slight decline to EBITDA margins,
as pressure from increased competition is mitigated by operating leverage
benefits as DiGi grows in scale. This helps drive a still healthy 14% EPS
growth in 2007.
 Capital management surprise – Capital management is the key reason to stay
invested. Given robust 7% free cash flow yield and an underleveraged
balance sheet, a generous dividend policy is sustainable (even amidst our
assumptions of relatively high capex intensity); we forecast a 100% payout,
for a gross dividend yield for 2007 of 7%, excluding any further capital
reduction payout.
 WiMax licensing – Winning a WiMax license (sometime in 1Q07) would
address DiGi's lack of spectrum for next-generation services. We continue to
believe, though, that the lack of a 3G service in 2007 is not a competitive
handicap.
Karen Ang
+66-2-232-3613
[email protected]
 Telenor stake reduction postponed by one year – Telenor's disposal of a 12%
stake in DiGi stays an overhang, as the deadline moved one year out. That
Telenor stays in control of DiGi is a crucial point for any analysis post disposal
given its strong track record in running the company to date.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
317
0.42
123.1
37.6
6.7
19.6
0.0
2005A
471
0.63
48.4
25.3
5.3
23.4
0.0
2006E
735
0.98
56.1
16.2
7.6
38.5
6.2
2007E
840
1.12
14.3
14.2
7.2
52.1
7.0
2008E
945
1.26
12.4
12.6
7.0
56.2
7.9
54
16 January 2007
2004
2005
2006E
2007E
2008E
37.6
12.5
6.7
0.0
25.3
9.2
5.3
0.0
16.2
7.0
7.6
6.2
14.2
6.5
7.2
7.0
12.6
5.9
7.0
7.9
0.42
0.42
2.37
0.00
0.63
0.63
3.00
0.00
0.98
0.98
2.09
0.98
1.12
1.12
2.21
1.12
1.26
1.26
2.28
1.26
2,234
-1,727
507
-63
2
447
-129
0
317
317
976
2,884
-2,211
674
-14
2
662
-191
0
471
471
1,257
3,649
-2,631
1,018
11
0
1,028
-293
0
735
735
1,632
4,076
-2,897
1,179
-4
0
1,175
-335
0
840
840
1,795
4,403
-3,079
1,324
-3
0
1,321
-377
0
945
945
1,975
30.4
90.2
40.1
123.1
29.1
32.9
28.7
48.4
26.5
51.0
29.8
56.1
11.7
15.9
9.9
14.3
8.0
12.3
10.1
12.4
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
1,005
470
86
-507
-520
1
-202
-202
0
296
1,597
583
377
-669
-687
0
-380
-380
0
548
1,531
615
181
-766
-766
0
-1,414
0
-401
-649
1,609
616
153
-774
-774
0
-754
0
-754
81
1,731
651
135
-836
-836
0
-892
0
-892
2
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
3,580
635
191
2,687
1,803
715
680
1,777
4,232
1,183
214
2,791
1,984
1,007
300
2,248
3,781
534
250
2,946
2,211
1,200
300
1,570
4,029
615
257
3,109
2,373
1,340
300
1,656
4,202
617
241
3,298
2,494
1,447
300
1,708
43.7
19.6
18.4
2.5
27.7
43.6
23.4
25.6
-39.3
11.8
44.7
38.5
41.8
-14.9
16.0
44.0
52.1
49.1
-19.0
15.3
44.9
56.2
54.2
-18.5
14.9
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
55
16 January 2007
E & O Property Development Bhd (EOPD.KL)
Buy/Medium Risk
Price (11 Jan 07)
Target price
Market Cap
1M
RM1.90
RM2.60
36.8%
1.5%
38.4%
RM1,162M
US$330M
Price Performance (RIC: EOPD.KL, BB: ENOP MK)
Best Exposure to Firm Penang Market; TP Recently Raised to RM2.60
 Target price recently raised; Buy/Medium Risk (1M) — We recently raised
our target price 30% to RM2.60 to factor in our higher target P/E of 12.6x
(previously 10.1x) and our raised earnings estimates. We believe a higher P/E
is justified on good demand for niche property and rising land values in
Penang and the Klang Valley. Our target P/E is within the stock's historical
range of 9-18x (since March 2005).
 Earnings and RNAV upgraded — We recently raised our net profit estimates
for FY07-09 by 3-5%, factoring in higher unit launches and higher margins.
For its RNAV, we assumed a price of RM200-220psf for its Penang land
(+10-18%), leading to a 22% hike in our RNAV estimate to RM2.72/share.
 Strong presence in attractive markets — E&O Properties (ENOP) focuses on
well-located landbank and is able to leverage its strong branding. Moreover,
we recognize ENOP for its innovative designs and lifestyle products that
complement the good location of its projects in the Klang Valley and Penang.
 Prime developments — ENOP has a residual landbank of 1,701 acres in
prime locations around the Klang Valley and Penang. We believe this could
easily sustain its development efforts for the next 10 years.
 Catalysts — Potential catalysts to drive the share price include: (1) more land
transactions at higher prices in Penang; (2) strong demand for new launches
in Penang and the Klang Valley; (3) better-than-expected earnings; and (4)
higher dividend payouts.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
38
0.07
205.0
28.8
1.8
6.4
0.0
2006A
65
0.11
69.1
17.0
1.6
10.1
0.0
2007E
98
0.16
41.3
12.0
1.6
13.8
6.3
2008E
129
0.21
31.4
9.2
1.4
16.2
1.5
2009E
145
0.23
12.1
8.2
1.2
15.7
1.7
Valuation
Profitability Trend
25
20
15
10
5
0
15.0
10.0
5.0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
56
2009E
200
200
150
100
100
0
-100
50
-200
0
2005A
2006A
2007E
Ne t Inc o me
2008E
2009E
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
NAVps ordinary
DPS
or +852-2501-2791
2005
2006
2007E
2008E
2009E
28.8
28.8
1.8
0.0
17.0
17.0
1.6
0.0
12.0
12.0
1.6
6.3
9.2
9.2
1.4
1.5
8.2
8.2
1.2
1.7
0.07
0.07
1.07
na
0.00
0.11
0.11
1.19
na
0.00
0.16
0.16
1.21
na
0.12
0.21
0.21
1.40
na
0.03
0.23
0.23
1.62
na
0.03
Profit & Loss (RMM)
Net operating income (NOI)
G&A expenses
Other Operating items
EBIT including associates
Non-oper./net int./except.
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBIT
Adjusted EBITDA
Growth Rates (%)
NOI
EBIT adjusted
EPS adjusted
78
0
2
81
-17
64
-15
-11
38
38
78
78
122
0
-4
118
-15
103
-27
-11
65
65
122
122
174
0
0
174
-21
154
-43
-13
98
98
174
174
200
0
15
215
-20
195
-53
-13
129
129
200
200
186
0
45
231
-15
217
-56
-16
145
145
186
186
42.3
42.3
205.0
55.5
55.5
69.1
43.2
43.2
41.3
14.7
14.7
31.4
-6.9
-6.9
12.1
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
-154
0
-143
4
-4
0
164
150
0
14
-49
0
-8
17
-6
0
141
141
0
110
-7
0
-118
-23
-3
0
-74
0
-74
-104
23
0
-105
14
-3
0
-13
0
-13
24
125
0
9
14
-3
0
-34
-20
-14
104
1,568
84
25
862
459
706
1,793
194
26
1,011
604
782
1,880
90
29
1,019
604
860
1,885
114
32
895
604
990
2,007
218
35
871
584
1,136
17.7
6.4
2.5
53.2
4.5
16.0
10.1
3.9
52.4
8.2
22.4
13.8
5.3
59.7
8.5
38.9
16.2
6.9
49.5
10.2
36.9
15.7
7.4
32.2
12.7
Balance Sheet (RMM)
Total assets
Net fixed assets
Total liabilities
Total Debt
Shareholders' funds
Profitability/Solvency Ratios
EBIT margin adjusted (%)
ROE adjusted (%)
ROA adjusted (%)
Net debt to equity (%)
Interest coverage (x)
57
16 January 2007
Gamuda (GAMU.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM5.20
RM2.90
-44.2%
3.2%
-41.1%
RM4,114M
US$1,170M
Price Performance (RIC: GAMU.KL, BB: GAM MK)
More Construction Jobs, but What about Margins?
 High orderbook — The group’s outstanding construction orderbook is
RM4.3bn (including RM2.0bn from its Laos project RM2.0bn) but excluding
the potential revival of the double-tracking project (potentially RM4.5bn for
Gamuda’s 50% share)
 What about margins? — Despite rising its orderbook, we maintain our
cautious view given downside risks in margins. Rising material costs in
Middle East, intense competition for overseas jobs and possible job delays
could result in margin compression. In any event, we do not believe
Gamuda’s historical construction pretax margins of 17-26% are sustainable
(FY01-05)
 We are 6-13% below consensus — FY07E earnings may disappoint as its new
project – Laos Hydropower plant – will only commence in FY08E. Coupled
with potential downside risk in margins, we see downside risk in our FY07E
earnings, which is 6% below I/B/E/S estimates. Our FY08E net profit is 13%
below consensus
 Maintain cautious view — While we think the share price would be
underpinned by potentially more newsflow on new jobs, we maintain our
cautious view on uncertain margins. Our forecast and Sell / Low Risk (3L)
rating is maintained on unexciting valuations (FY08E 20x PE against 2-year
EPS CAGR of 12%)
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Jul
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
267
0.30
-5.1
17.1
1.8
12.8
3.1
2006A
169
0.20
-34.7
26.2
1.7
7.6
3.1
2007E
195
0.22
10.6
23.7
1.7
8.2
3.2
2008E
238
0.25
15.9
20.4
1.6
8.5
3.7
2009E
259
0.28
8.7
18.8
1.5
8.2
4.0
Valuation
Profitability Trend
25
20
15
10
5
0
25.0
20.0
15.0
10.0
5.0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
58
2009E
80
300
60
200
40
100
20
0
0
2005A
2006A
2007E
2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Jul
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
59
2005
2006
2007E
2008E
2009E
17.1
9.0
1.8
3.1
26.2
19.5
1.7
3.1
23.7
20.3
1.7
3.2
20.4
18.5
1.6
3.7
18.8
15.1
1.5
4.0
0.30
0.30
2.96
0.16
0.20
0.20
3.04
0.16
0.22
0.22
3.14
0.16
0.25
0.25
3.30
0.19
0.28
0.28
3.43
0.21
1,540
-1,237
303
4
106
414
-114
-33
267
267
329
1,227
-1,094
133
-2
148
279
-97
-13
169
169
159
1,208
-1,080
129
-6
175
298
-89
-14
195
195
156
1,273
-1,151
122
-3
229
349
-96
-14
238
238
150
1,359
-1,225
134
-3
246
377
-104
-15
259
259
163
-10.4
-6.4
-5.6
-5.1
-20.3
-56.2
-51.5
-34.7
-1.5
-3.0
-2.0
10.6
5.4
-5.3
-3.8
15.9
6.7
10.1
8.8
8.7
81
26
-124
-4
-15
-29
-56
13
-113
20
28
27
-32
-150
-15
-135
-87
0
-87
-209
68
27
7
-35
-15
-20
-194
-400
-96
-162
28
28
-23
-35
-15
-20
350
0
-129
344
26
29
-31
-35
-15
-20
-140
0
-140
-149
3,288
498
719
531
1,041
441
553
2,247
3,902
457
862
651
1,611
574
981
2,291
3,792
295
849
638
1,196
565
581
2,596
4,395
639
895
625
1,226
596
581
3,168
4,569
490
955
611
1,266
636
581
3,302
21.4
12.8
20.0
2.4
19.7
13.0
7.6
2.9
22.9
30.0
12.9
8.2
2.7
11.0
18.3
11.8
8.5
1.7
-1.8
15.5
12.0
8.2
2.0
2.8
15.0
16 January 2007
Hold/Low Risk
Price (11 Jan 07)
Target price
Market Cap
2L
RM32.50
RM32.50
0.0%
1.0%
1.0%
RM24,012M
US$6,830M
Price Performance (RIC: GENT.KL, BB: GENT MK)
Genting Bhd (GENT.KL)
Plenty of Good News
 Positive newsflow drives share price — Shortly after taking over Stanley
Leisure in the UK, Genting, via its Singapore-listed Genting International went
on to win the multi-billion dollar Integrated Resorts/Casino project in Sentosa
Singapore. These positive newsflows continue to support its share price.
 Sentosa could add RM1.50/share to RNAV — Although the project will only
be completed in 2009/10, the market seems to be pricing this in ahead.
Based on our conservative assumptions (with an IRR of 10%), the Sentosa
IR/casino project could add RM1.50/share to Genting’s RNAV. Using a 15%
IRR as guided by management, the IR project should add RM5.38/share to
its RNAV.
 Possible corporate exercise? — Judging from management’s track record to
seize market opportunities, further corporate exercises could be on the cards
to tap windows of opportunity.
 Genting offer better growth prospects — With a growing gaming business via
Genting International, Genting clearly offers better growth prospects than
Resorts World. Additionally, its oil and gas and plantation divisions also offer
better growth prospects.
Wai Kee Choong
+60-3-2383-2943
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
928
1.32
30.0
24.7
2.9
12.4
0.7
2005A
1,247
1.77
34.2
18.4
2.5
14.7
0.9
2006E
1,283
1.82
2.9
17.9
2.2
13.3
1.0
2007E
1,315
1.86
2.5
17.4
2.0
12.2
1.0
2008E
1,348
1.91
2.5
17.0
1.8
11.3
1.0
60
16 January 2007
2004
2005
2006E
2007E
2008E
24.7
11.5
2.9
0.7
18.4
8.6
2.5
0.9
17.9
8.5
2.2
1.0
17.4
6.8
2.0
1.0
17.0
6.3
1.8
1.0
1.32
1.32
11.17
0.24
1.77
1.77
12.82
0.29
1.82
1.90
14.49
0.31
1.86
1.86
16.13
0.31
1.91
1.91
17.81
0.31
4,647
-2,845
1,802
-24
0
1,778
-344
-506
928
928
2,176
5,454
-3,003
2,451
-12
0
2,439
-628
-565
1,247
1,247
2,861
6,204
-3,806
2,398
-39
55
2,414
-482
-593
1,338
1,283
2,941
8,959
-6,019
2,941
-188
0
2,753
-688
-750
1,315
1,315
3,632
9,509
-6,491
3,018
-143
0
2,876
-755
-772
1,348
1,348
3,733
9.7
15.5
14.2
30.0
17.4
36.0
31.5
34.2
13.7
-2.2
2.8
2.9
44.4
22.6
23.5
2.5
6.1
2.6
2.8
2.5
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
1,693
374
152
-1,303
-625
15
1,013
100
-114
1,407
2,043
410
-13
-1,475
-593
416
-84
-832
-132
453
2,724
543
-264
-1,878
-1,088
0
371
-359
-157
1,216
2,371
692
-972
-545
-546
0
-2,027
-1,518
-160
-201
2,428
715
-194
-545
-546
0
-1,715
-1,249
-162
168
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
16,596
5,913
554
7,045
5,296
877
3,693
11,301
18,554
6,079
661
7,429
4,626
913
2,873
13,927
22,003
7,295
752
9,298
6,895
1,039
5,059
15,108
22,153
7,095
1,086
9,139
5,889
1,500
3,541
16,264
22,199
7,263
1,153
8,914
4,749
1,592
2,292
17,450
46.8
12.4
16.1
-19.6
24.6
52.5
14.7
18.7
-23.0
17.1
47.4
13.3
17.1
-14.8
25.1
40.5
12.2
18.4
-21.8
17.9
39.3
11.3
18.8
-28.5
11.6
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
61
16 January 2007
IJM Corp (IJMS.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM7.70
RM8.65
12.3%
2.5%
14.8%
RM4,164M
US$1,184M
Price Performance (RIC: IJMS.KL, BB: IJM MK)
Top Sector Pick
 Highest target on Street — We have a Street-high TP of RM8.65/share. This is
based on a 10% premium to our RNAV as a result of a potential change in
substantial shareholders in IJM.
 A premium for changing of guards? — After IJM’s merger with Road Builder,
we estimate Tronoh’s (TMMS.KL - RM5.3; NR) stake in IJM will fall from
17.3% to 11.3%. This means Tronoh could not equity account IJM’s
earnings. We see this as a prelude to a potential sale in Tronoh’s stake in
IJM. In 2002, when IGB (IGBS.KL - RM1.78; NR) sold its 19% stake in IJM,
the shares of IJM re-rated to 6-22% above our RNAV.
 Marriage on track — IJM is currently doing a due diligence on Road Builder
(ROAD.KL - RM3.70; 1L) and indications are that everything is in order. IJM
dispatched the official offer to Road Builder on 10 Jan 07. Next is the
shareholders’ meeting on 25 Jan 2007 The targeted completion of the merger
is 2QCY07.
 Buy - IJM is the construction stock to own — Maintain Buy / Low Risk (1L) on
IJM with RM8.65 target price. IJM looks on track to register a 3-year EPS
CAGR of 16%, driven by growth in all its divisions. Key earnings driver is its
strong construction orderbook of RM4.8bn and high unbilled property sales
of >RM400m.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
148
0.33
-14.1
23.4
1.9
8.8
1.9
2006A
163
0.31
-7.1
25.2
1.8
8.4
1.9
2007E
202
0.37
20.5
20.9
1.7
9.4
2.1
2008E
235
0.42
15.3
18.2
1.6
10.2
2.5
2009E
265
0.48
12.6
16.1
1.4
10.7
2.8
Valuation
Profitability Trend
20
15.0
15
10.0
10
5.0
5
0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
62
2009E
200
100
0
-100
-200
-300
300
200
100
0
2005A
2006A
2007E 2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
63
2005
2006
2007E
2008E
2009E
23.4
16.1
1.9
1.9
25.2
12.4
1.8
1.9
20.9
12.3
1.7
2.1
18.2
11.5
1.6
2.5
16.1
10.5
1.4
2.8
0.33
0.33
4.01
0.15
0.31
0.30
4.30
0.15
0.37
0.37
4.61
0.17
0.42
0.42
4.96
0.19
0.48
0.48
5.36
0.21
1,442
-1,214
228
-35
35
227
-64
-15
148
148
235
1,666
-1,401
265
-49
43
260
-76
-23
160
163
321
2,278
-1,965
314
-37
37
313
-88
-23
202
202
339
2,418
-2,074
344
-36
52
360
-101
-25
235
235
371
2,565
-2,194
371
-34
66
403
-113
-25
265
265
399
12.2
13.4
2.9
-14.1
15.5
16.5
36.6
-7.1
36.8
18.3
5.7
20.5
6.1
9.7
9.3
15.3
6.1
7.8
7.6
12.6
-3
7
-68
-355
-169
-241
363
196
-55
6
99
56
-138
-297
-265
-26
331
323
-50
133
-69
26
-366
-144
-144
0
43
100
-57
-170
164
27
-83
-50
-50
0
-66
0
-66
48
176
28
-88
-50
-50
0
-74
0
-74
52
3,449
80
1,132
662
1,476
749
614
1,974
4,117
233
1,153
931
1,881
768
935
2,235
4,749
62
1,576
1,052
2,346
1,050
1,035
2,404
5,020
110
1,673
1,077
2,423
1,114
1,035
2,597
5,315
162
1,775
1,101
2,503
1,182
1,035
2,812
16.3
8.8
12.3
27.1
23.7
19.3
8.4
10.3
31.4
29.5
14.9
9.4
10.0
40.5
30.1
15.3
10.2
9.7
35.6
28.5
15.6
10.7
9.9
31.0
26.9
16 January 2007
IJM Plantations (IJMP.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM1.82
RM2.20
20.9%
2.7%
23.6%
RM991M
US$282M
Price Performance (RIC: IJMP.KL, BB: IJMP MK)
Highest ETR in Sector. M&A Potential?
 Maintain Buy / Low Risk (1L) rating; higher ETR in sector — P/E-based target
price of RM2.20/share gives a ~24% ETR, the highest in our plantation sector
coverage. IJMP shares have also been a laggard, rising 2.8% YTD compared
to other stocks (0.5-8.1%) in our plantation sector universe
 Attractive profile — IJMP has an attractive oil palm age profile (average just <
7 years). Upon more hectarage reaching peak yielding age, we project fresh
fruit bunches (FFB) to rise 12-16% p.a. over the next three years
 Expansion opportunities — IJMP signed a MOU with a subsidiary of Godrej
Industries (GODI.BO - Rs165.30; NR), to explore a collaboration to develop
oil palm land. This is a preliminary agreement and more feasibility studies
will be conducted. Management plans to double its plantation landbank to
60,000 hectares in the next five years, investing RM200m for landbank
expansion
 M&A potential? — IJMP could be a M&A candidate given its undemanding
valuations. The recent spate of M&A could refocus attention on wellmanaged, niche plantation companies such as IJMP
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
na
na
na
na
na
na
na
2006A
36
0.06
na
29.6
1.7
na
1.9
2007E
44
0.08
22.5
24.2
1.6
7.9
1.7
2008E
74
0.12
65.1
14.6
1.5
12.2
2.7
2009E
88
0.15
18.4
12.4
1.2
12.8
3.2
Valuation
Profitability Trend
25
20
15
10
5
0
15.0
10.0
5.0
0.0
2006A
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
64
2009E
80
100
80
60
40
20
0
60
40
20
0
2006A
2007E
Ne t Inc o me
2008E
2009E
FCF (RMm) (RHS)
16 January 2007
2005
2006
2007E
2008E
2009E
na
na
na
na
29.6
na
1.7
1.9
24.2
12.3
1.6
1.7
14.6
8.3
1.5
2.7
12.4
7.3
1.2
3.2
na
na
na
na
0.06
0.06
1.07
0.04
0.08
0.08
1.13
0.03
0.12
0.12
1.24
0.05
0.15
0.15
1.46
0.06
na
na
na
na
na
na
na
na
na
na
na
245
-186
59
-7
1
52
-17
0
36
36
78
290
-219
71
-10
1
61
-17
0
44
44
90
369
-256
113
-7
-3
103
-29
0
74
74
133
420
-299
122
-3
1
119
-33
2
88
88
142
na
na
na
na
na
na
na
na
18.5
20.8
16.4
22.5
27.4
59.8
47.4
65.1
13.8
7.6
6.9
18.4
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
na
na
na
na
na
na
na
na
na
na
49
19
-6
-31
-32
0
-26
-20
-13
-9
58
20
-5
-45
-45
0
-36
-25
-11
-23
85
20
-8
-45
-45
0
-43
-25
-18
-3
101
21
-5
-35
-35
0
-26
-50
-26
40
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
na
na
na
na
na
na
na
na
823
43
23
722
279
22
177
544
835
20
27
747
258
26
152
577
873
17
35
772
241
33
127
633
940
57
40
786
195
37
77
745
ROE adjusted
ROIC adjusted
Net debt to equity
na
na
na
na
na
31.8
na
na
24.8
24.6
31.2
7.9
7.0
22.9
20.9
36.1
12.2
10.6
17.4
16.8
33.9
12.8
10.7
2.7
9.4
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
65
16 January 2007
IOI Corp (IOIB.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM18.50
RM21.50
16.2%
3.0%
19.2%
RM22,943M
US$6,526M
Price Performance (RIC: IOIB.KL, BB: IOI MK)
Quality Upstream and Downstream; Still the Bull
 Keep riding on the upside; Buy / Low Risk (1L) — We have a TP of
RM21.50/share, which is based on a conservative CPO price assumption of
RM1,800/t in FY08E & RM1,900/t in FY09E. Despite the share price’s sterling
performance, ETR remains attractive.
 Plantations to drive growth — We forecast IOI to deliver a 3-year EPS CAGR of
14%, driven by plantations, which would account for 54-61% of its FY07-09E
pre-tax profits and downstream operations. Aside from firm CPO prices,
earnings are likely to be underpinned by higher production.
 Growth from maiden property project — Though competition in the housing
segment has intensified, we expect contributions from this division to be
driven by the maiden launch of a new project in Selangor in 2HFY07E.
 M&A to be another catalyst? — The group may be positioning itself for more
M&A following its proposed issue of US$500m exchangeable bonds. The
proposed issue would raise IOI's gross cash from RM1.2bn to RM3.1bn
(FY07E net gearing of 8.3%).
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
902
0.76
26.2
24.4
4.1
19.1
2.2
2006A
844
0.70
-8.0
26.5
3.5
15.3
2.6
2007E
1,223
1.00
43.2
18.5
3.2
19.4
3.0
2008E
1,372
1.12
11.9
16.5
2.9
19.9
3.3
2009E
1,471
1.20
7.0
15.4
2.7
19.5
3.6
Valuation
Profitability Trend
15.0
10.0
5.0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
66
20
2,000
2,000
15
1,500
1,500
10
1,000
1,000
5
500
0
0
2009E
500
0
2005A
2006A 2007E 2008E 2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
67
2005
2006
2007E
2008E
2009E
24.4
17.5
4.1
2.2
26.5
18.0
3.5
2.6
18.5
12.6
3.2
3.0
16.5
11.4
2.9
3.3
15.4
10.4
2.7
3.6
0.76
0.76
4.51
0.41
0.70
0.70
5.25
0.49
1.00
1.00
5.74
0.55
1.12
1.12
6.28
0.62
1.20
1.20
6.86
0.67
6,073
-4,804
1,269
-70
21
1,221
-134
-184
902
902
1,373
6,110
-4,896
1,214
-53
22
1,183
-211
-128
844
844
1,319
7,224
-5,474
1,750
-34
27
1,744
-349
-172
1,223
1,223
1,848
7,586
-5,690
1,896
-5
29
1,920
-384
-164
1,372
1,372
2,001
8,013
-5,985
2,028
-2
32
2,058
-412
-175
1,471
1,471
2,141
21.6
6.5
6.1
26.2
0.6
-4.4
-3.9
-8.0
18.2
44.2
40.1
43.2
5.0
8.3
8.3
11.9
5.6
7.0
7.0
7.0
1,065
104
-121
-513
-295
-219
729
1,178
-345
1,281
785
106
-289
-764
-319
-445
-760
-164
-468
-738
1,528
97
-69
-350
-300
-50
-580
-100
-480
598
1,654
105
-95
-350
-300
-50
-637
-100
-537
667
1,757
113
-113
-350
-300
-50
-684
-100
-584
723
10,509
1,969
822
4,770
4,304
492
3,303
6,205
10,312
1,230
959
4,926
3,531
525
2,552
6,781
11,040
1,829
1,134
5,023
3,531
621
2,452
7,509
11,813
2,496
1,191
5,111
3,513
652
2,352
8,300
12,638
3,219
1,258
5,188
3,502
689
2,252
9,136
22.6
19.1
18.3
21.5
34.7
21.6
15.3
14.8
19.5
27.3
25.6
19.4
19.8
8.3
24.6
26.4
19.9
20.9
-1.7
22.1
26.7
19.5
21.8
-10.6
19.8
16 January 2007
KL Kepong (KLKK.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM14.60
RM15.90
8.9%
3.8%
12.7%
RM10,403M
US$2,959M
Price Performance (RIC: KLKK.KL, BB: KLK MK)
Rising with the tide; Buy with RM15.90 Target Price
 Still upbeat, Buy/Low Risk (1L) for 13% ETR — We maintain our FY07-09E
forecasts, which factors in average CPO prices of RM1,700-RM1,900/tonne.
Maintaining Buy/Low Risk (1L) rating with a RM15.90 target price.
 Share price catalysts — Possible share price catalysts are: (1) stronger-thanexpected CPO prices in FY07E; and (2) additional new investments to drive
growth.
 New plantings on track — New plantings on its Indonesia landbank are on
track. Together with newly matured oil palm, management expects fresh fruit
bunches (FFB) production to rise 4-5% annually in FY07-08E
 Downstream positioning — KL Kepong has been growing its downstream
operations in new growth areas. The latest is the commissioning of a new
150,000 tonnes p.a. plant in China, which adds 38% to its current
downstream capacity.
 Good capital management potential — Compared with its Malaysia plantation
peers that have net gearing, we think KLK has strong potential for capital
management owing to its strong balance sheet.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Sep
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
421
0.59
-2.1
24.7
2.5
10.2
2.9
Andrew Chow, CFA
2006A
436
0.61
3.5
23.8
2.4
10.2
3.4
+60-3-2383-2948
[email protected]
2007E
656
0.92
50.5
15.8
2.3
14.8
3.8
2008E
734
1.03
11.8
14.2
2.1
15.6
4.2
2009E
741
1.04
1.0
14.0
2.0
14.8
4.6
Valuation
Profitability Trend
10.0
8.0
6.0
4.0
2.0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
68
20
800
600
15
600
400
10
400
200
5
200
0
0
0
2009E
-200
2005A
2006A
2007E 2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 30-Sep
2005
2006
2007E
2008E
2009E
24.7
14.3
2.5
2.9
23.8
14.0
2.4
3.4
15.8
9.1
2.3
3.8
14.2
8.1
2.1
4.2
14.0
7.9
2.0
4.6
0.59
0.59
5.93
0.42
0.61
0.61
6.04
0.50
0.92
0.92
6.41
0.55
1.03
1.03
6.82
0.62
1.04
1.04
7.20
0.67
3,790
-3,259
531
28
27
586
-159
-5
421
421
649
3,917
-3,375
542
29
26
596
-156
-4
436
436
666
4,228
-3,344
885
19
8
911
-237
-18
656
656
1,016
4,455
-3,468
986
24
8
1,018
-265
-20
734
734
1,126
4,590
-3,595
995
31
8
1,033
-284
-8
741
741
1,142
-2.4
-2.2
-2.6
-2.1
3.3
2.1
2.7
3.5
8.0
63.3
52.5
50.5
5.3
11.5
10.7
11.8
3.0
0.8
1.4
1.0
295
118
-173
-211
-309
-79
-70
93
-165
14
498
125
-29
-305
-350
0
-280
-15
-257
-87
717
132
-70
-301
-350
0
-307
-15
-284
109
824
139
-51
-295
-350
0
-340
-15
-317
189
848
147
-30
-288
-350
0
-367
-15
-344
194
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
5,207
645
577
2,487
834
336
184
4,372
5,287
572
596
2,605
831
347
169
4,456
5,580
681
643
2,713
843
374
154
4,737
5,899
870
678
2,794
849
394
139
5,050
6,169
1,063
698
2,849
847
406
124
5,322
ROE adjusted
ROIC adjusted
Net debt to equity
17.1
10.2
11.4
-10.5
4.0
17.0
10.2
11.1
-9.0
3.6
24.0
14.8
17.9
-11.1
3.1
25.3
15.6
19.1
-14.5
2.7
24.9
14.8
18.3
-17.7
2.3
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
69
16 January 2007
Mah Sing Group (MAHS.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM3.54
RM4.00
13.0%
3.5%
16.5%
RM538M
US$153M
Price Performance (RIC: MAHS.KL, BB: MSGB MK)
Value and growth from new projects
 Land for growth — Mah Sing’s (MS) acquisition of 1.145 acres of commercial
land (gross, net is 0.9 acre) at Kuala Lumpur for RM53m positions the group
well for strong demand for commercial properties, in our view. This
acquisition (the basement car park and pilling works are completed) fits into
MS’s business model of achieving quick turnaround.
 Raising capital for growth — The group has proposed a 1-for-4 rights, 1-for-5
bonus issue and a private placement amounting to 10% of its existing share
capital. Management estimates that this exercise will raise RM134m in cash.
 Exciting outlook for 2007E — We estimate proceeds from the capital exercise
will likely be used to finance five new development projects in FY07E with a
gross development value (GDV) of RM1.2bn. Including its existing projects,
Mah Sing would have 10 projects with a total GDV of more than RM1.5bn.
This will likely be developed in the next 4-5 years.
 Still positive — We remain bullish on MS because we see minimal dilution
from this capital-raising exercise (<4%). Prospects appear good and the
proceeds from the capital issue will likely be used to finance new
development projects to drive growth. Mah Sing appears on track to enjoy a
3-year EPS CAGR of 21% for 2005-08E, backed by RM431m unbilled sales.
We maintain our forecast and rating with a RM4.00 target price.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
25
0.14
na
24.8
2.4
na
1.7
2005A
48
0.26
84.0
13.5
2.0
20.5
3.4
2006E
65
0.35
32.2
10.2
1.7
22.9
3.5
2007E
74
0.40
14.0
8.9
1.4
22.0
4.0
2008E
88
0.47
17.8
7.6
1.2
21.8
4.7
Valuation
Profitability Trend
10
8
6
4
2
0
6.0
4.0
2.0
0.0
2005A
2006E
EV/EBITDA (x)
2007E
P/E (x) (RHS)
70
2008E
60
100
80
60
40
20
0
40
20
0
2005A
2006E
Ne t Inc o me
2007E
2008E
FCF (RMm) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
24.8
24.8
2.4
1.7
13.5
13.5
2.0
3.4
10.2
10.2
1.7
3.5
8.9
8.9
1.4
4.0
7.6
7.6
1.2
4.7
0.14
0.14
1.48
na
0.06
0.26
0.26
1.76
na
0.12
0.35
0.35
2.12
na
0.12
0.40
0.40
2.53
na
0.14
0.47
0.47
3.01
na
0.17
65
0
-22
42
-4
39
-13
-1
25
25
42
65
95
0
-20
75
-4
71
-21
-1
48
48
75
95
113
0
-13
100
-8
92
-26
-2
65
65
100
113
123
0
-13
110
-5
105
-30
-2
74
74
110
123
142
0
-13
129
-4
125
-35
-2
88
88
129
142
na
na
na
47.6
76.7
84.0
18.1
33.0
32.2
9.4
10.7
14.0
14.7
16.5
17.8
-169
22
-210
-11
-11
0
210
127
-1
30
42
20
-17
-3
-3
0
-36
-30
-6
3
40
13
-40
-3
-3
0
-23
-10
-13
14
54
13
-35
-3
-3
0
-33
-20
-13
18
35
13
-68
-3
-3
0
-35
-20
-15
-3
Balance Sheet (RMM)
Total assets
Net fixed assets
Total liabilities
Total Debt
Shareholders' funds
552
36
65
335
194
217
614
39
57
354
166
260
662
53
47
348
156
314
729
71
37
355
136
375
758
68
27
311
116
447
ROE adjusted (%)
ROA adjusted (%)
11.9
na
na
72.9
18.1
15.8
20.5
8.3
49.0
24.4
19.4
22.9
10.1
33.0
14.5
18.8
22.0
10.6
17.5
25.0
19.5
21.8
11.8
10.8
38.9
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
NAVps ordinary
DPS
Profit & Loss (RMM)
G&A expenses
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBIT
Adjusted EBITDA
Growth Rates (%)
NOI
EBIT adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
or +852-2501-2791
71
16 January 2007
Malakoff (MLKF.KL)
Sell/Low Risk
Price (12 Jan 07)
Target price
Market Cap
3L
RM10.20
RM10.35
1.5%
0.0%
1.5%
RM9,173M
US$2,610M
Price Performance (RIC: MLKF.KL, BB: MAL MK)
Billing Dispute with Tenaga Not a Deal-breaker
 Dispute with Tenaga over billings for 1,303MW Segari plant — Malakoff has
disputed the accuracy of metering devices installed and maintained by
Tenaga (TENA.KL - RM11.40; 1L) for power generated by Segari. It claims
underpayments. After investigation, Tenaga has alleged RM87.5m of
overpayments. Discussions are in progress and we expect an amicable
solution.
 Stock goes ex-dividend on 18 Jan — The final dividend of 17 sen/share less
28% tax will be paid on 30 Jan. The AGM is scheduled for 18 Jan. This is
largely academic. Shareholders at an EGM last month approved the business
sale to MMC for RM10.35/share. MMC shareholders also approved the
transaction at a separate EGM.
 Bondholders approval next — The threshold is 75% and we expect
management will get it. The underlying assets remain unchanged, and
acquirer MMC’s financial adviser CIMB Investment Bank is well-regarded.
MMC’s own proposed issue of up to RM2.9bn debt was approved by the
Securities Commission on 22 Dec. Malakoff shareholders should get cash by
2Q07.
 Sell — We see little reason to hold the stock given just 1.5% upside potential
to the offer price, and no further dividends expected until shareholders
receive their cash by 2Q07. Power alternatives we rate Buy include Tenaga
and Tanjong (TJPL.KL - RM14.20; 1L). Tobacco market leader BAT
(BATO.KL - RM43.75; 1L) also offers a utility-like cash flow stream.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Aug
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
511
0.58
9.9
17.7
2.6
15.6
2.9
2006A
442
0.50
-13.3
20.4
2.4
12.4
2.9
2007E
619
0.70
39.8
14.6
2.3
16.0
5.1
2008E
836
0.94
35.2
10.8
2.0
19.8
6.1
2009E
861
0.97
3.0
10.5
1.9
18.5
6.9
Valuation
Profitability Trend
20
15.0
15
10.0
10
5.0
5
0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
72
2009E
2,000
1,000
800
600
400
200
0
1,000
0
-1,000
-2,000
2005A
2006A 2007E 2008E 2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Aug
2005
2006
2007E
2008E
2009E
17.7
12.1
2.6
2.9
20.4
14.2
2.4
2.9
14.6
10.2
2.3
5.1
10.8
7.2
2.0
6.1
10.5
6.8
1.9
6.9
0.58
0.58
3.89
0.30
0.50
0.50
4.20
0.30
0.70
0.70
4.52
0.52
0.94
0.94
5.02
0.62
0.97
0.97
5.49
0.70
2,122
-1,155
967
-192
101
876
-289
-76
511
511
1,224
1,923
-1,057
866
-241
85
710
-236
-31
442
442
1,142
2,743
-1,521
1,222
-373
86
935
-272
-45
619
619
1,659
3,802
-2,117
1,685
-520
86
1,252
-351
-65
836
836
2,302
3,835
-2,211
1,624
-425
86
1,285
-360
-64
861
861
2,300
3.1
-2.7
0.7
9.9
-9.4
-10.5
-6.7
-13.3
42.6
41.2
45.2
39.8
38.6
37.9
38.8
35.2
0.9
-3.7
-0.1
3.0
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
1,046
257
140
-3,081
-2,649
-382
1,657
-463
-179
-377
450
276
-228
-749
-749
0
-230
-463
-191
-530
990
436
-6
-127
-127
0
-668
-463
-223
195
1,451
616
19
-100
-100
0
-859
-463
-383
492
1,515
676
0
0
0
0
-755
-308
-421
761
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
14,805
2,721
764
9,459
11,232
659
9,762
3,573
15,512
2,191
816
10,485
11,636
623
10,184
3,877
16,382
2,386
840
11,049
12,174
642
10,721
4,208
16,444
2,879
840
10,532
11,730
661
10,257
4,714
16,615
3,539
840
9,956
11,422
661
9,949
5,193
57.7
15.6
7.1
197.1
73.2
59.4
12.4
5.5
206.2
72.4
60.5
16.0
7.7
198.0
71.8
60.5
19.8
10.8
156.5
68.5
60.0
18.5
10.7
123.4
65.7
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
73
16 January 2007
Malaysia Airports (MAHB.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM2.29
RM1.74
-24.0%
1.2%
-22.9%
RM2,519M
US$717M
Price Performance (RIC: MAHB.KL, BB: MAHB
MK)
Restructuring needed to drive outperformance
 Full-year results (due out end-Feb-07) will likely fall short of market forecasts
— 9M06 net profit of RM111m amounts to 73% of our full-year estimates but
only 63% of consensus estimates. We remain negative on this stock in the
near term despite valuations being 35% below global airports; we see
downside risk to earnings and an unattractive yield (we estimate MAHB’s
yield is the lowest in sector and less than half that of the average for the
Malaysia market).
 Visit Malaysia Year and the launch of long-haul low-cost carriers could boost
traffic growth in 2007 — Following a lackluster 2006 in which airport
throughput was impacted by MAS’s international route withdrawals and
domestic route rationalization, we expect traffic growth to accelerate for 2007,
with a boost from AirAsia if it successfully launches this summer.
 However, we remain concerned about deteriorating margins — Managing
staff costs continues to be a challenge for the company, in our view. The
proportion of salaries to total operating costs has risen to 41%, +5ppts yoy in
9M06. This is significantly higher than for other Asian airports and the
company’s 3Q06 EBITDA margins fell 10ppts yoy to 34%, 20ppts below the
global airport average.
 A premature regional airports play — Although we are positive on MAHB’s
investments in the management of the new Hyderabad and Delhi airports and
its recent bids to manage the Jordan and Jeddah airports, we expect these to
only start contributing to earnings from 2008 at the earliest.
Corrine Png
+65-6432-1159
[email protected]
 Restructuring likely needed to sustain a re-rating — MAHB stock has risen
21% since Jan-06, in line with KLCI. We believe the market has been
building in expectations of a potential restructuring, but the timing remains a
wild card.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
2005A
2006E
2007E
2008E
125
182
153
166
181
0.11
0.17
0.14
0.15
0.16
47.8
45.6
-16.1
8.8
8.5
20.1
13.8
16.5
15.1
14.0
1.0
0.9
0.9
0.9
0.8
5.1
7.1
5.6
5.9
6.0
0.9
1.4
1.2
1.3
1.4
Valuation
Profitability Trend
6.0
4.0
2.0
0.0
2004A
2005A
2006E
EV/EBITDA (x)
2007E
P/E (x) (RHS)
74
20
200
15
150
10
100
5
50
0
0
2008E
300
200
100
0
-100
-200
-300
2004A
2005A
2006E 2007E
2008E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
20.1
7.5
1.0
0.9
13.8
5.3
0.9
1.4
16.5
6.1
0.9
1.2
15.1
5.7
0.9
1.3
14.0
5.0
0.8
1.4
0.11
0.11
2.27
0.02
0.17
0.17
2.41
0.03
0.14
0.14
2.52
0.03
0.15
0.15
2.65
0.03
0.16
0.16
2.78
0.03
1,025
-830
195
-7
8
196
-70
0
125
125
291
1,113
-833
280
-8
7
279
-97
0
182
182
374
1,135
-902
233
-5
7
235
-82
0
153
153
333
1,185
-930
255
-5
7
257
-91
0
166
166
369
1,231
-953
278
-5
7
280
-100
0
181
181
399
14.6
22.9
30.2
47.8
8.6
43.7
28.7
45.6
2.0
-16.6
-11.0
-16.1
4.4
9.5
10.6
8.8
3.9
9.0
8.2
8.5
305
96
-8
-86
-89
1
78
100
-16
297
285
95
115
-127
-150
23
-111
-79
-24
47
254
100
7
-450
-450
0
-35
0
-35
-230
266
113
-8
-150
-150
0
-29
0
-29
87
289
121
-6
-150
-150
0
-32
0
-32
107
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
4,079
514
441
2,915
1,581
238
200
2,498
4,040
561
376
2,884
1,383
285
121
2,656
4,174
331
384
3,234
1,399
301
121
2,775
4,322
418
400
3,270
1,411
312
121
2,912
4,483
525
416
3,300
1,422
324
121
3,061
ROE adjusted
ROIC adjusted
Net debt to equity
28.4
5.1
4.2
-12.6
7.4
33.7
7.1
6.1
-16.6
4.4
29.4
5.6
4.8
-7.6
4.2
31.1
5.9
4.9
-10.2
4.0
32.4
6.0
5.3
-13.2
3.8
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
75
16 January 2007
Malaysian Plantations Bhd (MPBM.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM2.42
RM2.93
21.1%
1.2%
22.3%
RM2,834M
US$806M
Price Performance (RIC: MPBM.KL, BB: MPB MK)
Hidden gem awaiting recognition
 Buy/Low Risk, target price of RM2.93 – The bank operates on a clean slate
with a small enough base to grow rapidly in the SME/consumer markets, in
our view. Management has much experience in its markets to ensure quality,
growth – and with a reputable shareholder in Temasek – good governance,
transparency and a "best practice" culture as well.
 Laying the foundations for growth – The company’s balance sheet has been
sufficiently cleaned up, in our view; provisioning coverage now stands at 51%
with the bulk of legacy NPLs taken care of. The group has developed a clear
business strategy to focus on the lucrative consumer/SME markets, boosting
its sales force from 50 to 1,000 over the past two years.
 We expect ROEs to expand to 13.8% by FY10E – ROE expansion will likely be
driven by: 1) strong 17% pa loan growth; 2) improving interest margins
through a greater focus on the high-yield consumer/SME market; and 3) lower
credit costs following the FY06/07E big bath.
 Outlook – We continue to expect growth in the under-served consumer/SME
market in which the group sets itself apart by targeting small enterprises and
high yield consumer loans not well covered by other banks. The current low
cross-sell ratio also suggests significant potential for improvement through
better penetration rates among existing customers.
Julian Chua, CFA
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
+60-3-2383-2942
[email protected]
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
213
0.16
-0.7
14.9
1.4
11.5
1.2
Robert Kong, CFA
2006A
-202
-0.12
-175.4
-19.7
1.6
-11.0
0.0
[email protected]
2007E
76
0.06
146.2
42.7
1.6
4.3
1.2
2008E
268
0.17
208.8
13.8
1.5
12.7
2.2
2009E
354
0.23
30.6
10.6
1.3
13.6
2.9
PE and PBV
Loan growth and LDR
60
40
20
0
-20
-40
2005A
2006A
P/E (x)
2007E
2008E
P/BV (x) (RHS)
76
2.0
30
95
1.5
20
1.0
10
90
85
0.5
0
0.0
-10
2009E
2005A
80
75
70
2006A
2007E
2008E
Lo an yo y (%)
LDR (%) (RHS)
2009E
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
DPS
Profit & Loss (RMM)
Net interest income
Bad debt provisions
Pre-tax profit
Tax
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
Balance Sheet (RMM)
Total assets
Customer loans
Gross NPLs
Liab. & shar. funds
or +852-2501-2791
ROE adjusted
Net interest margin
Cost/income ratio
NPLs/customer loans
Loans/deposit ratio
Total capital ratio
77
2005
2006
2007E
2008E
2009E
14.9
14.9
1.4
1.7
1.2
-19.7
-19.7
1.6
2.2
0.0
42.7
42.7
1.6
2.1
1.2
13.8
13.8
1.5
1.6
2.2
10.6
10.6
1.3
1.3
2.9
0.16
0.16
1.67
1.42
1.43
0.03
-0.12
-0.12
1.49
1.26
1.12
0.00
0.06
0.06
1.56
1.32
1.18
0.03
0.17
0.17
1.66
1.47
1.55
0.05
0.23
0.23
1.82
1.64
1.82
0.07
589
151
132
872
-357
515
-217
0
297
-83
0
213
213
490
166
107
763
-432
331
-614
0
-283
82
0
-202
-202
545
190
140
875
-470
405
-300
0
105
-29
0
76
76
635
205
165
1,005
-510
495
-130
0
365
-97
0
268
268
732
230
185
1,147
-540
607
-125
0
482
-128
0
354
354
-0.7
17.6
-175.4
-35.6
146.2
22.2
208.8
22.2
30.6
22.6
23,646
21,813
15,253
2,038
23,646
16,917
609
1,942
23,581
21,751
14,569
2,125
23,581
17,666
1,032
1,742
25,613
22,619
15,000
2,100
25,613
18,500
1,227
1,822
28,300
24,738
18,000
2,160
28,300
20,500
1,298
2,409
30,812
27,495
21,000
2,310
30,812
22,500
1,413
2,820
11.5
2.7
41.0
1.5
13.4
29.9
1.4
90.2
9.9
14.5
-11.0
2.3
56.6
1.8
14.6
48.5
4.1
82.5
10.2
15.1
4.3
2.4
53.7
1.9
14.0
58.4
2.0
81.1
8.8
12.8
12.7
2.6
50.7
1.9
12.0
60.1
0.8
87.8
11.3
15.1
13.6
2.7
47.1
1.8
11.0
61.2
0.6
93.3
12.4
16.1
16 January 2007
Maxis (MXSC.KL)
Hold/Low Risk
Price (12 Jan 07)
Target price
Market Cap
2L
RM10.10
RM10.60
5.0%
8.3%
13.2%
RM25,467M
US$7,246M
Price Performance (RIC: MXSC.KL, BB: MAXIS
MK)
India Value Accretive, Stable Malaysia
 Modest earnings growth keeps us subdued – We expect modest earnings
growth (3.3% 2006-09E CAGR) at best as the domestic business (accounting
for the bulk of net profits) matures. At 12.6x 2007E P/E, we think Maxis looks
fairly valued and maintain a Hold/Low Risk (2L) rating with a target price of
RM10.60.
 Robust dividends sustainable, as balance sheet strong – We forecast free
cash flow yields to stay low through 2009 as high capex in India and
Indonesia and start-up losses in Indonesia continue to drag. Still, we think
Maxis' robust dividend yields of 8.3% for 2007E and 8.7% for 2008E are
sustainable, as gearing will likely only top out at a comfortable 0.5x for this
period.
 Renewed focus on domestic business – We believe the lukewarm
performance in 2006 has injected a new sense of urgency into the domestic
cellular business. A key challenge in 2007 is the introduction of MNP,
although we expect any negative impact on Maxis as the dominant operator to
be short-lived.
 Aircel to drive value – IPO activities (Spice Telecom) and consolidation talks
(Hutch Essar sale) will likely fuel interest in the Indian market and help
smaller operators set benchmark valuations. We apply a 10x EV/EBITDA to
Aircel to reflect robust growth prospects (as well as sector valuations), such
that Aircel's contribution to NAV is 12%.
Karen Ang
+66-2-232-3613
[email protected]
 Indonesia wireless stays a dampener – The competitive environment
continues to deteriorate for Natrindo Telepon Selular as incumbents get more
entrenched. Assuming commercial launch in 2007, we forecast NTS to cause
14% dilution to Maxis’ Malaysian profits.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
1,449
0.59
29.6
17.2
4.6
29.2
4.6
2005A
1,674
0.67
14.6
15.0
4.1
29.2
4.7
2006E
1,952
0.78
16.0
12.9
3.7
30.2
7.6
2007E
1,998
0.80
2.4
12.6
3.4
28.1
8.3
2008E
2,111
0.85
5.7
11.9
3.2
27.5
8.7
78
16 January 2007
2004
2005
2006E
2007E
2008E
17.2
7.7
4.6
4.6
15.0
6.7
4.1
4.7
12.9
6.5
3.7
7.6
12.6
6.6
3.4
8.3
11.9
6.1
3.2
8.7
0.59
0.65
2.17
0.46
0.67
0.67
2.44
0.48
0.78
0.78
2.74
0.76
0.80
0.80
2.96
0.83
0.85
0.85
3.20
0.88
5,689
-3,373
2,316
-14
36
2,338
-740
0
1,598
1,449
3,215
6,371
-3,921
2,450
10
20
2,480
-840
34
1,674
1,674
3,507
7,747
-4,986
2,761
-113
8
2,657
-879
174
1,952
1,952
3,763
9,109
-6,383
2,726
-222
0
2,503
-869
364
1,998
1,998
4,058
9,964
-6,873
3,091
-342
0
2,749
-905
267
2,111
2,111
4,677
21.6
42.9
33.7
29.6
12.0
5.8
9.1
14.6
21.6
12.7
7.3
16.0
17.6
-1.3
7.8
2.4
9.4
13.4
15.3
5.7
3,211
899
15
-1,088
-1,079
-9
-953
-114
-861
1,170
2,825
1,057
79
-1,352
-1,352
0
-827
128
-955
646
2,837
1,001
-74
-4,486
-2,710
-1,776
379
1,581
-1,202
-1,229
3,089
1,332
68
-3,630
-3,876
246
274
1,687
-1,414
-272
3,349
1,586
-70
-3,505
-3,746
241
-851
662
-1,514
-1,030
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
8,672
2,238
581
4,250
3,301
2,289
683
5,371
10,120
3,477
625
4,504
3,797
2,362
811
6,323
12,866
2,248
871
6,435
5,736
2,706
2,392
7,130
15,087
1,965
895
8,973
7,545
2,837
4,077
7,543
16,391
947
990
11,146
8,255
2,919
4,713
8,135
ROE adjusted
ROIC adjusted
Net debt to equity
56.5
29.2
36.7
-29.0
11.3
55.0
29.2
39.4
-42.2
11.4
48.6
30.2
31.7
2.0
25.1
44.5
28.1
20.8
28.0
35.1
46.9
27.5
19.4
46.3
36.7
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
79
16 January 2007
Maybank (MBBM.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM11.30
RM12.65
11.9%
6.3%
18.2%
RM43,480M
US$12,368M
Price Performance (RIC: MBBM.KL, BB: MAY MK)
Capital management story may re-emerge in 2007
 Buy/Low Risk (1L), target price of RM12.65 – Maybank underperformed the
KLCI by 14.5ppts in 2006, in our view, on perceptions that there would be no
M&A or rerating catalysts for the stock. While unlikely to be a domestic
consolidator, management has earmarked Indonesia for potential M&A to
boost growth; if this does not occur however, we think the capital
management story could re-emerge.
 Maybank has one of the best dividend yields in the region – While similar to
Public Bank's FY07E dividend yield, Maybank has more scope for capital
management given its emphasis on low capital intensity fee income growth.
Its Tier 1 capital ratio of 9.4% is also above Public Bank's 8.3%. The
potential sale of RM2bn of NPLs in 1H07 would not only boost recoveries but
also release additional capital, in our view.
 1Q07 profit hit by lumpy charge-offs – Earnings were affected by mark-tomarket losses on interest rate swaps (RM119m) as well as chunky NPL
formation (RM79m). Unrealized swap losses were offset by gains in the
hedged underlying asset, so there was an overall slight positive economic
impact.
 Outlook – We expect volatility on interest rate swaps to subside as consensus
expectations are for interest rates to remain stable at present levels. We
expect a 25bps rise in the OPR for 1H07 and might even see some writebacks on these swaps. We expect sales of RM2bn NPLs to generate positive
recoveries for 3Q07 and 4Q07.
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Robert Kong, CFA
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
2,503
0.68
0.3
16.7
2.6
16.1
9.1
2006A
2,804
0.74
9.7
15.2
2.6
16.9
7.5
2007E
2,982
0.78
4.8
14.5
2.5
17.5
6.3
2008E
3,150
0.81
4.1
14.0
2.3
17.5
6.6
2009E
3,314
0.84
3.7
13.5
2.2
17.3
7.2
PE and PBV
Loan growth and LDR
2.7
2.6
2.5
2.4
2.3
2.2
2.1
17
16
15
14
13
12
2005A
2006A
P/E (x)
2007E
2008E
P/BV (x) (RHS)
80
2009E
10
102
8
6
100
98
4
2
96
94
92
0
2005A
2006A
2007E
2008E
Lo an yo y (%)
LDR (%) (RHS)
2009E
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
DPS
Profit & Loss (RMM)
Net interest income
Bad debt provisions
Pre-tax profit
Tax
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
Balance Sheet (RMM)
Total assets
Customer loans
Gross NPLs
Liab. & shar. funds
or +852-2501-2791
ROE adjusted
Net interest margin
Cost/income ratio
NPLs/customer loans
Loans/deposit ratio
Total capital ratio
81
2005
2006
2007E
2008E
2009E
16.7
16.7
2.6
2.5
9.1
15.2
15.2
2.6
2.5
7.5
14.5
14.5
2.5
2.5
6.3
14.0
14.0
2.3
2.3
6.6
13.5
13.5
2.2
2.2
7.2
0.68
0.68
4.41
4.41
4.48
1.03
0.74
0.74
4.42
4.42
4.45
0.85
0.78
0.78
4.58
4.58
4.58
0.71
0.81
0.81
4.88
4.88
4.88
0.75
0.84
0.84
5.19
5.19
5.19
0.81
4,260
1,158
1,712
7,130
-2,811
4,319
-824
-1
3,494
-950
-42
2,503
2,503
4,525
1,195
2,412
8,132
-3,217
4,915
-883
0
4,031
-1,165
-62
2,804
2,804
4,593
1,445
2,225
8,263
-3,265
4,998
-860
4
4,142
-1,118
-41
2,982
2,982
4,642
1,760
2,380
8,782
-3,525
5,257
-881
4
4,379
-1,182
-47
3,150
3,150
4,800
1,985
2,550
9,335
-3,780
5,555
-946
4
4,613
-1,245
-53
3,314
3,314
0.3
12.2
9.7
13.8
4.8
1.7
4.1
5.2
3.7
5.7
191,895
177,513
127,456
11,120
191,895
131,068
7,862
16,401
224,205
199,282
137,879
9,212
224,205
136,218
6,425
16,766
220,079
211,970
142,800
9,996
220,079
149,000
7,097
17,375
230,934
214,122
150,900
10,412
230,934
156,000
7,809
18,530
240,516
224,725
159,200
10,507
240,516
162,500
8,091
19,712
16.1
2.4
39.4
1.5
8.7
70.7
0.7
97.2
11.5
15.1
16.9
2.3
39.6
1.5
6.7
69.8
0.7
101.2
9.9
13.8
17.5
2.2
39.5
1.5
7.0
71.0
0.6
95.8
10.3
18.2
17.5
2.2
40.1
1.6
6.9
75.0
0.6
96.7
10.3
19.5
17.3
2.1
40.5
1.6
6.6
77.0
0.6
98.0
10.5
21.2
16 January 2007
Media Prima Bhd (MPRM.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM2.41
RM2.80
16.2%
2.9%
19.1%
RM1,841M
US$524M
Price Performance (RIC: MPRM.KL, BB: MPR MK)
Trading at cheaper P/Es than media peers
 Undervalued — Based on IBES estimates, Media Prima is trading at an 18x
P/E for 2007 – a steep discount to Astro’s (AAAN.KL - RM5.4; NR) 30x for
fiscal year January 2008. Star Pubs (STAR.KL - RM3.18; 1L) is trading at a
P/E of 18x 2007E earnings but offers a far weaker earnings growth profile; its
revenue growth appears crimped by pagination and pricing constraints.
 TV taking share from print — The company’s 9M revenue rose 38%; the 12% 9M revenue growth posted by newspaper publishers Star Pubs and NSTP
(NSTP.KL - RM2.5; 1L) pale in comparison. Media Prima’s growth was driven
by both pricing and volume. Media Prima has been reducing discounts but
the segmentation possibilities offered by its four stations do seem to appeal to
marketers.
 Momentum continued into 4Q06 — Ad revenue growth slowed a little in
October/November following Hari Raya but picked up during the year-end
festive season. Also, 3Q06 included the media focus surrounding Malaysia’s
wedding of the year. TV3 had broadcast rights to the nuptials of the
celebrities Siti Nurhaliza and “Datuk K’.
 Working on 2007 earnings visibility — Media Prima locked-in its top 20
clients into raising ad spend by 10-15% in 2006. In return the clients
received scarce prime time TV3 slots and better rates. Negotiations for 2007
are still in progress. Media Prima is now seeking to lock-in its top 30 clients,
which account for 60-65% of revenue. Success here could bring upside to
our 11% FY07 revenue growth forecast.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
38
0.06
na
41.7
5.1
na
0.0
2005A
56
0.08
42.1
29.3
39.7
38.3
0.8
2006E
65
0.09
10.4
26.5
6.9
44.2
1.2
2007E
110
0.13
48.6
17.9
4.3
31.8
2.9
2008E
156
0.19
37.4
13.0
3.4
31.8
4.1
Valuation
Profitability Trend
25
20
15
10
5
0
10.0
8.0
6.0
4.0
2.0
0.0
2005A
2006E
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
82
2009E
200
200
150
150
100
100
50
50
0
0
2005A
2006E
2007E
2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
41.7
na
5.1
0.0
29.3
18.3
39.7
0.8
26.5
11.4
6.9
1.2
17.9
7.9
4.3
2.9
13.0
6.3
3.4
4.1
0.06
0.06
0.48
0.00
0.08
0.08
0.06
0.02
0.09
0.09
0.35
0.03
0.13
0.13
0.55
0.07
0.19
0.19
0.70
0.10
328
-266
62
-18
5
49
-16
4
38
38
86
400
-326
74
-15
13
72
-17
1
56
56
98
493
-371
122
-25
-6
91
-24
-2
65
65
151
576
-406
170
-29
8
149
-37
-3
110
110
202
657
-443
214
-29
26
211
-51
-4
156
156
246
na
na
na
na
21.7
18.7
13.7
42.1
23.4
65.5
54.6
10.4
16.8
39.3
33.5
48.6
14.1
25.7
21.8
37.4
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
25
24
-32
-11
-13
0
-5
-2
0
9
52
24
-7
-196
-38
-158
66
152
0
-78
81
29
-21
-25
-25
0
75
0
-9
130
117
32
-20
-36
-20
0
-39
0
-16
42
146
32
-19
-20
-20
0
-62
0
-39
65
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
786
144
107
161
530
54
390
255
827
66
138
161
793
81
455
33
980
196
170
157
724
92
381
256
1,144
238
199
242
710
102
381
434
1,251
303
227
231
697
111
381
554
ROE adjusted
ROIC adjusted
Net debt to equity
26.2
na
na
96.5
60.5
24.4
38.3
46.0
nm
93.2
30.6
44.2
122.1
72.4
59.8
35.0
31.8
94.6
33.1
46.8
37.4
31.8
82.3
14.2
40.8
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
83
16 January 2007
MISC (MISCe.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM8.75
RM7.50
-14.3%
3.4%
-10.9%
RM32,548M
US$9,251M
Price Performance (RIC: MISCe.KL, BB: MISF MK)
Tanker cycle is over, 2007 could see worse
 Tanker downturn — Tankers failed to rally in 4Q06 and ended the year with a
whimper despite fair annual averages. 2007 is set to worsen, in our view; with
capacity peaking only in 2009E, a lot of pre-2010-15 scrapping will likely be
needed.
 Negative market outlook — Lower demand growth for oil, combined with
higher deliveries, will likely shift pricing dynamics, potentially halving average
2007 rates.
 Current shipping environment — Despite hopes of container rate hikes and
resilience in bulk driven by iron ore, shipping overall remains in a downturn,
weighed by record orderbooks and declining demand volume in containers
and tankers.
 Maintain Sell/Low Risk (3L) rating — Our target price is RM7.50 on a 10%
discount of RM8.3NAV. The share price still fully reflects energy stories, in
our view.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Mar
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
4,764
1.28
108.1
6.8
2.1
35.8
3.4
2006A
2,950
0.79
-38.1
11.0
1.9
18.2
3.4
2007E
2,807
0.75
-4.9
11.6
1.7
15.7
3.4
2008E
1,778
0.48
-36.7
18.3
1.7
9.3
3.4
Charles de Trenck
2009E
1,859
0.50
4.6
17.5
1.6
9.4
3.4
+852-2501-2756
[email protected]
Valuation
Profitability Trend
20
15.0
15
10.0
10
5.0
5
0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
84
2009E
2,000
1,500
1,000
500
0
-500
6,000
4,000
2,000
0
2005A
2006A 2007E 2008E 2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
2005
2006
2007E
2008E
2009E
6.8
8.9
2.1
3.4
11.0
8.8
1.9
3.4
11.6
9.1
1.7
3.4
18.3
9.8
1.7
3.4
17.5
9.2
1.6
3.4
1.28
1.28
4.11
0.30
0.79
0.79
4.58
0.30
0.75
0.75
5.04
0.30
0.48
0.48
5.22
0.30
0.50
0.50
5.42
0.30
10,651
-7,657
2,994
-359
2,104
4,739
-19
44
4,764
4,764
4,297
10,766
-7,924
2,842
-344
533
3,032
-30
-53
2,950
2,950
4,105
11,764
-9,209
2,555
-116
406
2,844
-6
-32
2,807
2,807
3,972
10,959
-9,031
1,928
-185
74
1,817
-5
-34
1,778
1,778
3,732
11,172
-9,094
2,078
-254
75
1,899
-6
-34
1,859
1,859
4,002
40.0
23.4
19.3
108.1
1.1
-5.1
-4.5
-38.1
9.3
-10.1
-3.2
-4.9
-6.8
-24.5
-6.0
-36.7
1.9
7.8
7.2
4.6
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
4,268
1,304
-7
370
-2,665
3,018
-2,119
-1,264
-855
2,519
4,718
1,262
546
-2,688
-3,368
680
-2,931
-1,669
-1,262
-902
3,115
1,417
-998
-2,519
-3,176
657
1,076
3,090
-2,014
1,673
3,578
1,804
-166
-4,205
-3,005
-1,200
-422
2,020
-2,442
-1,049
3,691
1,924
656
-4,205
-3,005
-1,200
-366
2,020
-2,386
-880
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
25,431
4,377
1,314
18,064
9,876
1,492
8,215
15,555
26,534
3,430
1,526
19,754
9,182
2,348
6,608
17,352
30,336
5,124
2,019
20,856
11,293
1,575
9,300
19,042
30,420
4,070
1,284
22,058
10,715
927
9,591
19,704
34,646
3,186
2,083
23,139
14,198
2,134
11,711
20,448
40.3
35.8
15.5
24.7
34.6
38.1
18.2
14.1
18.3
27.6
33.8
15.7
11.9
21.9
32.8
34.1
9.3
8.3
28.0
32.7
35.8
9.4
8.6
41.7
36.4
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
85
16 January 2007
MK Land (MKLH.KL)
Sell/Medium Risk
Price (11 Jan 07)
Target price
Market Cap
3M
RM0.66
RM0.49
-25.2%
0.8%
-24.4%
RM791M
US$225M
Price Performance (RIC: MKLH.KL, BB: MKL MK)
Weak outlook
 Sell/Medium Risk (3M) rating with RM0.49 target price — We maintain our
rating with a RM0.49 target price based on a 40% discount to our RNAV
estimate of RM0.81/share. Following our FY07-09E net profit cut by up to
61% on the company’s poor 1QFY07 results, our net profit forecasts are up to
64% below consensus
 Watch the balance sheet — Other than earnings, we remain cautious on its
financial position. Total borrowing (as at September 2006) is RM424m, of
which RM220m or 52% (versus RM70m cash) is short-term debt. More
concerning is the group’s operating cash flow, which is negative RM42m as at
September 2006.
 Weak outlook for 2007E — MK Land’s unbilled sales continues to slide,
falling from RM368m in 4QFY06 to RM324m in 1QFY07. Earnings visibility is
poor given falling unbilled sales (<0.8x of FY06 turnover). Other than weaker
buying sentiment and rising interest rates, we believe that MK Land’s project
delays have been a contributory factor to weak buying interest.
 A long year ahead — Prospects appear unexciting. Condominium demand
remains lackluster and the group’s plan to change its product mix to include
more landed properties are only likely to boost materially from FY08E
onwards, in our view.
Andrew Chow, CFA
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
+60-3-2383-2948
[email protected]
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
120
0.08
-26.2
7.8
0.7
11.8
6.1
2006A
47
0.04
-57.9
18.5
0.7
4.4
0.0
2007E
24
0.02
-43.6
32.7
0.7
2.2
0.8
2008E
34
0.03
34.7
24.3
0.7
3.1
1.0
2009E
38
0.03
9.2
22.3
0.7
3.3
1.1
Valuation
Profitability Trend
40
15.0
14.0
13.0
12.0
11.0
10.0
2005A
30
20
10
0
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
86
2009E
200
150
100
100
0
50
-100
-200
0
2005A
2006A
2007E 2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
NAVps ordinary
DPS
or +852-2501-2791
2005
2006
2007E
2008E
2009E
7.8
7.8
0.7
6.1
18.5
18.5
0.7
0.0
32.7
32.7
0.7
0.8
24.3
24.3
0.7
1.0
22.3
22.3
0.7
1.1
0.08
0.08
0.88
na
0.04
0.04
0.04
0.90
na
0.00
0.02
0.02
0.92
na
0.01
0.03
0.03
0.94
na
0.01
0.03
0.03
0.97
na
0.01
Profit & Loss (RMM)
G&A expenses
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBIT
Adjusted EBITDA
Growth Rates (%)
NOI
EBIT adjusted
EPS adjusted
197
0
-13
184
-19
164
-44
0
120
120
184
197
94
0
-13
81
-9
73
-25
0
47
47
81
94
80
0
-13
67
-33
33
-9
0
24
24
67
80
95
0
-13
82
-35
48
-13
0
34
34
82
95
101
0
-13
88
-35
53
-15
0
38
38
88
101
-20.4
-20.6
-26.2
-52.0
-55.7
-57.9
-15.6
-18.3
-43.6
19.6
23.9
34.7
5.9
7.1
9.2
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
127
13
65
-100
0
-100
-70
-30
-43
-44
49
13
35
2
0
2
-47
-30
-17
4
-72
13
-109
-30
0
-30
66
70
-4
-36
159
13
112
-30
0
-30
-36
-30
-6
94
-132
13
-183
-28
0
-28
44
50
-6
-116
2,044
141
913
979
394
1,064
2,080
128
994
993
439
1,087
2,249
92
1,011
1,142
509
1,107
2,162
186
1,028
1,026
479
1,135
2,384
70
1,045
1,216
529
1,168
20.3
11.8
5.9
23.8
10.2
19.4
4.4
2.3
28.6
10.6
13.3
2.2
1.1
37.7
2.4
20.0
3.1
1.6
25.9
2.8
16.0
3.3
1.7
39.4
2.9
Balance Sheet (RMM)
Total assets
Net fixed assets
Total liabilities
Total Debt
Shareholders' funds
ROE adjusted (%)
ROA adjusted (%)
87
16 January 2007
NSTP (NSTP.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM2.50
RM3.15
26.0%
2.0%
28.0%
RM543M
US$154M
Price Performance (RIC: NSTP.KL, BB: NST MK)
Cash plus a smaller piece of a much larger pie could be worth RM4.65
 Reportedly closer to cementing a merger — A major stumbling block to
closing the proposed merger with Utusan Melayu (UTUS.KL - RM1.84; NR) is
dominant political party UMNO, the majority shareholder in Utusan, wishing
to retain a controlling stake in the merged entity. This condition is difficult to
satisfy given the much higher market capitalization and net assets of NSTP.
 One solution: NSTP shareholders to get cash and shares — Bernama on 6
December reported NSTP and Utusan would be valued at RM3.80 and
RM2.50, respectively. Our scenario analysis suggests UMNO and its
perceived allies would hold 20% of the merged entity if NSTP shareholders
get RM1.00 in cash and the balance in shares.
 Enough to win over the skeptics? — Bernama in a separate report on 6
December noted objections by various senators to the merger. These
centered around shareholding structure and editorial control. The reported
structure could allay the former, and the latter could be satisfied if Utusan
executive director Nasir Ali is appointed CEO of the merged entity as
reported.
 NSTP could be worth RM4.65/share — Our 29 November note suggests that
the merged entity could make RM128m in net profit. Assuming new debt at
8% is raised to finance the cash payment to NSTP, the merged entity could
earn 13 sen EPS. At a P/E of 10x 2008E earnings , NSTP shareholders’ stake
would be worth RM3.65. Together with the RM1.00 cash payment, NSTP
could be worth RM4.65/share. However, we do not factor this into our target
price.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
2
0.01
-16.3
nm
0.6
0.2
2.0
2005A
12
0.06
490.5
43.8
0.6
1.4
2.0
2006E
-10
-0.04
-178.4
nm
0.6
-1.1
2.0
2007E
23
0.11
338.4
23.4
0.6
2.6
2.0
2008E
54
0.25
133.0
10.1
0.6
5.8
2.0
Valuation
Profitability Trend
100
15.0
50
10.0
0
5.0
-50
-100
0.0
2005A
2006E
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
88
2009E
80
80
60
40
20
0
-20
60
40
20
0
2005A
2006E
2007E
2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
89
2004
2005
2006E
2007E
2008E
nm
14.1
0.6
2.0
43.8
7.4
0.6
2.0
nm
14.9
0.6
2.0
23.4
6.7
0.6
2.0
10.1
4.0
0.6
2.0
0.01
0.01
4.19
0.05
0.06
0.06
4.21
0.05
-0.04
-0.04
4.13
0.05
0.11
0.11
4.20
0.05
0.25
0.25
4.42
0.05
524
-528
-5
-8
24
12
-10
0
2
2
42
532
-497
35
-12
6
29
-17
0
12
12
79
516
-523
-7
-11
8
-10
0
0
-10
-10
38
536
-499
37
-13
8
32
-9
0
23
23
81
569
-492
77
-12
7
73
-19
0
54
54
122
-34.0
-173.8
-33.0
-16.3
1.6
861.9
89.2
490.5
-3.0
-118.9
-52.4
-178.4
3.8
656.1
114.7
338.4
6.3
110.5
50.0
133.0
-90
47
-135
161
-20
0
-210
-202
-8
-139
63
44
13
-20
-20
0
-58
-50
-8
-14
20
44
-5
-20
-20
0
-8
0
-8
-8
63
44
-5
-20
-20
0
-8
0
-8
35
89
44
-13
-20
-20
0
-8
0
-8
61
1,263
28
132
733
352
73
278
911
1,210
21
113
723
295
65
228
915
1,183
13
110
699
286
57
228
898
1,208
48
114
675
295
58
228
913
1,261
109
121
650
302
55
228
959
8.0
0.2
-1.4
27.5
23.4
14.9
1.4
1.9
22.7
20.0
7.3
-1.1
-0.7
24.0
20.3
15.1
2.6
3.1
19.7
20.0
21.4
5.8
6.6
12.4
19.2
16 January 2007
Plus Expressways (PLUE.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM2.80
RM2.70
-3.6%
4.6%
1.0%
RM14,000M
US$3,982M
Price Performance (RIC: PLUE.KL, BB: PLUS MK)
Limited Catalysts; Better Yield Alternatives
 Maintain Sell / Low Risk (3L) on better yield alternatives — We stick to our
forecast and Sell / Low Risk (3L) rating. On our estimates, PLUS’ 3-year EPS
CAGR of 11% looks unexciting. FY06-07E gross dividend yield of 4%-5% is
decent, but we see better dividend alternatives such as Buy-rated BAT
(BATO.KL - RM43.50; 1L) and Maybank (MBBM.KL - RM11.30; 1L).
 Unexciting traffic growth outlook in ‘07E — Our model assumes traffic growth
assumptions of 2.0% in FY07E and 4% in FY08E. A positive development is
that the government highlighted that petrol prices will not be raised in 2007E.
 Traffic upside, but only in FY08E — On our estimates, upside in traffic
volume would only materialize in FY08E on the completion of the lane
widening works along the North-South Expressway in late FY07E.
 Longer-term upside from overseas foray — The group has made a foray into
Indonesia, with a 55% stake in PT Lintas Marga Sedaya, which has a 35-year
concession for a privatized toll highway project. However, this is a greenfield
project with no earnings uplift for the next three years.
 Company targets — The group’s three key performance indicators (KPI) are:
(1) 20% growth in length of expressways by ‘08E, (2) 15% of revenue from
new businesses by ‘08E; and (3) minimum 12% growth in FY06-07E
dividend.
Andrew Chow, CFA
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
+60-3-2383-2948
[email protected]
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
768
0.15
4.9
18.2
4.0
23.4
3.7
2005A
732
0.15
-4.7
19.1
3.4
19.1
4.5
2006E
1,152
0.23
57.3
12.2
3.0
26.1
4.6
2007E
928
0.19
-19.4
15.1
2.8
19.0
3.7
2008E
1,014
0.20
9.3
13.8
2.5
19.1
4.0
Valuation
Profitability Trend
25
20
15
10
5
0
20.0
15.0
10.0
5.0
0.0
2004A
2005A
2006E
2007E
EV/EBITDA (x)
P/E (x) (RHS)
90
2008E
1,500
1,500
1,000
1,000
500
500
0
0
2004A
2005A 2006E 2007E 2008E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
91
2004
2005
2006E
2007E
2008E
18.2
14.6
4.0
3.7
19.1
14.1
3.4
4.5
12.2
10.8
3.0
4.6
15.1
10.1
2.8
3.7
13.8
9.4
2.5
4.0
0.15
0.15
0.70
0.10
0.15
0.21
0.83
0.13
0.23
0.23
0.93
0.13
0.19
0.19
1.02
0.10
0.20
0.20
1.11
0.11
1,650
-500
1,150
-377
0
773
-5
0
768
768
1,344
1,671
-524
1,148
-408
332
1,071
-8
0
1,064
732
1,335
2,047
-549
1,498
-332
0
1,166
-14
0
1,152
1,152
1,705
2,158
-548
1,610
-322
0
1,289
-361
0
928
928
1,825
2,314
-591
1,723
-314
0
1,409
-394
0
1,014
1,014
1,957
4.4
3.3
3.5
4.9
1.3
-0.2
-0.7
-4.7
22.5
30.5
27.7
57.3
5.4
7.5
7.0
-19.4
7.2
7.0
7.2
9.3
1,181
195
1
-221
-248
27
-850
-200
-350
110
1,593
188
-62
486
-235
721
-904
-214
-400
1,175
1,065
207
52
-450
-450
0
-1,193
-400
-461
-577
1,072
214
6
-500
-500
0
-1,093
-400
-371
-520
1,306
234
8
-250
-250
0
-920
-200
-406
136
10,783
1,360
600
8,416
7,285
98
7,063
3,498
12,008
2,535
631
8,766
7,846
70
6,968
4,161
12,051
1,958
330
9,667
7,377
86
6,468
4,673
12,074
1,437
327
10,200
6,988
91
6,068
5,086
12,308
1,574
566
10,049
6,772
97
5,868
5,536
81.5
23.4
12.8
163.0
66.9
79.9
19.1
13.1
106.5
62.6
83.3
26.1
16.7
96.5
58.1
84.5
19.0
13.3
91.1
54.4
84.6
19.1
13.7
77.6
51.5
16 January 2007
PPB Oil Palms Bhd (PPBO.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM11.70
RM15.10
29.1%
1.9%
31.0%
RM5,211M
US$1,482M
Price Performance (RIC: PPBO.KL, BB: PBOB MK)
Keeping the Faith; Recently Raised TP to RM15.10/share
 TP raised to RM15.10 — We recently raised our target for PPB Oil (PPBO)
41% to RM15.10/share to work in the potential uplift following the proposed
Wilmar (WLIL.SI - S$2.56; NR) share swap deal (2.3 Wilmar for every 1 PPBO
share).
 Maintain Buy / Low Risk (1L) — On our TP, the implied ETR is ~31%. PPB
Oil offers a cheaper entry (14% discount) into the enlarged Wilmar group,
which is poised to become a blue-chip agribusiness company. We think
PPBO shareholders should accept the VGO.
 Exposure to leading agribusiness — The enlarged entity will be an integrated
agribusiness group with operations in most major markets. Also, the enlarged
entity is a leading processor of edible oils in China and is poised to be a one
of the top 15 listed companies in Singapore (by market cap).
 Giving Synergy a run for its money — The proposed enlarged entity could
rival Synergy Drive in terms of plantation land, with 573,405 hectares of oil
palm land (planted area of 160,786 hectares). However, the Wilmar merger
would have a stronger global downstream business and entrenched position
in strong growth markets such as China.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
Andrew Chow, CFA
2004A
187
0.42
37.8
27.9
4.1
15.6
1.6
+60-3-2383-2948
[email protected]
2005A
140
0.31
-25.3
37.3
3.9
10.8
1.6
2006E
158
0.35
13.0
33.1
3.6
11.4
1.2
2007E
248
0.56
57.1
21.0
3.2
16.2
1.9
2008E
298
0.67
20.5
17.5
2.8
17.3
2.3
Valuation
Profitability Trend
25
20
15
10
5
0
15.0
10.0
5.0
0.0
2005A
2006E
EV/EBITDA (x)
2007E
P/E (x) (RHS)
92
2008E
400
50
300
0
200
-50
100
-100
-150
0
2005A
2006E
Ne t Inc o me
2007E
2008E
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
93
2004
2005
2006E
2007E
2008E
27.9
19.2
4.1
1.6
37.3
24.2
3.9
1.6
33.1
19.5
3.6
1.2
21.0
13.3
3.2
1.9
17.5
11.3
2.8
2.3
0.42
0.42
2.82
0.18
0.31
0.31
2.99
0.18
0.35
0.35
3.24
0.14
0.56
0.56
3.64
0.22
0.67
0.67
4.11
0.27
588
-366
222
-2
43
264
-69
-9
187
187
267
584
-420
163
-2
43
204
-57
-8
140
140
213
712
-497
215
-19
35
231
-65
-8
158
158
270
843
-500
344
-25
38
357
-100
-9
248
248
404
970
-554
416
-29
42
429
-120
-10
298
298
482
31.0
33.8
28.7
37.8
-0.8
-26.6
-20.4
-25.3
22.0
31.9
26.8
13.0
18.4
59.5
49.5
57.1
15.0
21.0
19.4
20.5
215
45
-22
-119
-130
9
-71
-7
-65
26
144
50
-39
-183
-191
6
21
81
-64
-18
175
55
-11
-300
-300
0
155
200
-45
29
267
60
-11
-300
-300
0
29
100
-71
-4
322
66
-11
-300
-300
0
14
100
-86
36
1,692
51
52
1,286
387
53
119
1,305
1,879
32
64
1,434
496
69
201
1,383
2,217
61
78
1,680
713
84
401
1,504
2,520
57
92
1,920
831
99
501
1,689
2,860
93
106
2,154
948
114
601
1,912
45.5
15.6
11.6
5.2
8.4
36.5
10.8
7.3
12.2
12.7
37.9
11.4
9.1
22.6
21.0
47.8
16.2
12.7
26.3
22.9
49.7
17.3
13.7
26.6
23.9
16 January 2007
Public Bank (PUBM.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM7.80
RM6.91
-11.4%
5.4%
-6.0%
RM27,010M
US$7,683M
Price Performance (RIC: PUBM.KL, BB: PBK MK)
2007E Growth Already Priced In
 Sell/Low Risk (3L), TP RM6.91 – We recently rolled over our target price
based on FY07E forecast. The RM1.2bn hybrid capital will boost Tier 1
capital to 8.7% from 8.3%, but we do not expect any special dividend to be
released. As such, no surplus capital is factored into our price target.
 Still pursuing growth at the expense of margins – Admittedly the good
dividend yield of nearly 6%, among the highest in the region, should provide
support for the stock. The recent strong stock performance (+14% in the past
month) already captures 2007E growth. However, we do not anticipate nearterm catalysts; slowing loans momentum, narrowing interest margins and
lean capital structure limit upside for the stock, in our view.
 Loan growth expected to slow going into 2007E – Management is guiding for
similar domestic loan growth this year of about RM10bn, translating into an
expansion of about 13% compared with an estimated 16-17% for 2006.
Meanwhile, Public Bank HK has got off to a slow start although for FY07E. We
have imputed an optimistic 15% loan growth given its small base of
HK$15bn.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
1,271
0.39
21.3
20.1
3.0
14.7
11.6
2005A
1,450
0.44
12.8
17.8
3.1
16.9
7.1
+60-3-2383-2942
[email protected]
2006E
1,634
0.49
11.3
16.0
3.2
19.2
5.4
2007E
1,753
0.52
6.9
15.0
2.9
19.9
5.8
Robert Kong, CFA
2008E
1,834
0.55
4.6
14.3
2.7
19.3
6.0
[email protected]
Julian Chua, CFA
PE and PBV
Loan growth and LDR
3.2
3.0
2.8
2.6
2.4
2.2
17
16
15
14
13
12
2004A
2005A
P/E (x)
2006E
2007E
P/BV (x) (RHS)
94
Yield
2008E
30
84
82
20
80
10
78
0
2004A
76
2005A
2006E
2007E
Lo an yo y (%)
LDR (%) (RHS)
2008E
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
DPS
Profit & Loss (RMM)
Net interest income
Bad debt provisions
Pre-tax profit
Tax
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
Balance Sheet (RMM)
Total assets
Customer loans
Gross NPLs
Liab. & shar. funds
or +852-2501-2791
ROE adjusted
Net interest margin
Cost/income ratio
NPLs/customer loans
Loans/deposit ratio
Total capital ratio
95
2004
2005
2006E
2007E
2008E
20.1
20.1
3.0
3.0
11.6
17.8
17.8
3.1
3.0
7.1
16.0
16.0
3.2
3.1
5.4
15.0
15.0
2.9
2.9
5.8
14.3
14.3
2.7
2.7
6.0
0.39
0.39
2.57
2.33
2.64
0.91
0.44
0.44
2.50
2.27
2.60
0.55
0.49
0.49
2.47
1.88
2.54
0.42
0.52
0.52
2.67
2.08
2.72
0.45
0.55
0.55
2.87
2.29
2.92
0.47
2,321
489
634
3,444
-1,323
2,121
-271
4
1,854
-510
-73
1,271
1,271
2,484
531
794
3,809
-1,384
2,425
-382
6
2,049
-512
-86
1,450
1,450
2,835
633
833
4,301
-1,501
2,800
-473
7
2,334
-607
-94
1,634
1,634
3,040
720
885
4,645
-1,628
3,017
-562
10
2,465
-641
-71
1,753
1,753
3,220
800
955
4,975
-1,726
3,249
-640
9
2,618
-681
-103
1,834
1,834
21.3
14.7
12.8
14.3
11.3
15.5
6.9
7.7
4.6
7.7
92,208
73,985
56,912
1,510
92,208
72,246
1,315
8,635
111,664
97,097
68,102
1,406
111,664
84,130
1,289
8,539
132,317
115,597
84,400
1,815
132,317
103,700
1,761
8,447
144,864
130,958
94,050
2,116
144,864
116,400
1,954
9,129
152,941
140,820
102,900
2,418
152,941
123,840
2,136
9,831
14.7
3.1
38.4
1.7
2.7
87.1
0.5
78.8
13.8
17.8
16.9
2.6
36.3
1.4
2.1
91.7
0.6
80.9
11.4
17.1
19.2
2.5
34.9
1.2
2.2
97.0
0.6
81.4
8.7
14.8
19.9
2.3
35.0
1.2
2.3
92.3
0.6
80.8
8.6
14.3
19.3
2.3
34.7
1.2
2.4
88.3
0.7
83.1
8.6
13.9
16 January 2007
Resorts World Bhd (RWBW.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM14.50
RM10.90
-24.8%
1.7%
-23.2%
RM15,870M
US$4,514M
Price Performance (RIC: RWBW.KL, BB: RNB MK)
All About Newsflow
 Positive news underpins share price — Resorts World shares have had one of
their best runs since 4Q06, driven mainly by news of parent Genting and
sister company, Genting International, winning the multi-billion dollar
Singapore Sentosa IR/Casino project.
 Long-term growth prospects remain questionable — Its core domestic
business (accounting for 90% of visitor arrivals) and rising competition in the
high-roller segment will likely see margins trend lower over time.
 Structural weaknesses domestically — Growth in visitor arrivals from the mass
domestic market will likely continue to slow. With half of the population
younger than the age of 21, we think Resorts is structurally disadvantaged
with a shrinking customer base. We expect growth to stabilize at around 3%.
Resorts has stopped building new hotels to focus on raising occupancy to
closer to 80%.
 Shares could fall after all the good news — Although the share price could
remain strong in the short term on expectations that Resorts may look to
expand into the high growth Macau region, we expect the stock to trend lower
once the newsflow tapers off.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
Wai Kee Choong
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
+60-3-2383-2943
[email protected]
2004A
753
0.69
47.8
21.0
3.3
16.9
1.4
2005A
969
0.89
28.6
16.3
2.8
18.8
1.7
2006E
1,009
0.92
4.2
15.7
2.5
16.9
1.7
2007E
1,017
0.93
0.8
15.6
2.2
15.0
1.7
2008E
1,041
0.95
2.4
15.2
2.0
13.6
1.7
96
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
97
2004
2005
2006E
2007E
2008E
21.0
13.0
3.3
1.4
16.3
8.9
2.8
1.7
15.7
8.8
2.5
1.7
15.6
7.9
2.2
1.7
15.2
7.2
2.0
1.7
0.69
0.69
4.35
0.20
0.89
0.89
5.11
0.24
0.92
0.92
5.84
0.24
0.93
0.93
6.60
0.24
0.95
0.95
7.38
0.24
2,839
-1,968
871
-50
13
834
-81
0
753
753
1,082
3,614
-2,300
1,314
-24
16
1,306
-338
0
969
969
1,546
3,728
-2,492
1,236
7
18
1,261
-252
0
1,009
1,009
1,478
4,030
-2,729
1,301
22
51
1,373
-357
0
1,017
1,017
1,558
4,170
-2,847
1,323
38
83
1,445
-405
0
1,041
1,041
1,594
4.8
-3.2
-2.0
47.8
27.3
50.8
42.9
28.6
3.2
-5.9
-4.4
4.2
8.1
5.2
5.4
0.8
3.5
1.8
2.3
2.4
933
211
108
-408
-339
-87
-575
9
-146
-50
1,137
233
-29
-390
-410
8
-662
-457
-165
85
1,171
241
-21
-288
-300
0
-578
-396
-189
305
1,290
257
-55
-288
-300
0
-260
-94
-189
742
1,285
271
-25
-288
-300
0
-195
-44
-189
802
6,574
746
113
3,570
1,812
507
995
4,762
6,989
715
127
3,728
1,405
476
534
5,584
7,372
1,020
131
3,801
988
491
138
6,385
8,172
1,762
141
3,844
960
530
44
7,213
9,011
2,564
146
3,874
946
549
0
8,065
38.1
16.9
27.6
5.2
17.3
42.8
18.8
30.2
-3.2
8.7
39.6
16.9
29.4
-13.8
2.1
38.7
15.0
27.8
-23.8
0.6
38.2
13.6
27.0
-31.8
0.0
16 January 2007
RHB Capital (RHBC.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM3.56
RM3.10
-12.9%
2.1%
-10.8%
RM6,492M
US$1,847M
Price Performance (RIC: RHBC.KL, BB: RHBC MK)
M&A Expectations Already Built-In
 Sell/Low Risk (3L), TP RM3.10 – The best-performing bank stock last year,
but stock price already 9% above our 2007E M&A value of RM3.31 (2.0x
P/NTA multiple for RHB Bank, other businesses at 1x P/NTA). Our target
price of RM3.10 is the simple average of the sum-of-parts value and
fundamental value of RM2.90. Execution risks with regard the timing, nature
of the consideration remain.
 RHBC is fundamentally overvalued – Our DDM-driven value of RM2.90
implies a target P/E of 12.9x, below its post-crisis mean P/E of 13.2x. We
would argue that absent a M&A catalyst, the discount is justified given the
host of legacy issues that remain unresolved (as detailed below).
 Legacy issues remain – RHBC interco loan to RHB (RHBS.KL - RM1.45; NR),
rising regularly each quarter (now RM1.21bn), and the refinancing of RHB
Bank's RM1.1bn INCPS are still works in progress. We view unlocking the
value in RHB Bank as key to a corporate revamp at RHBC and parent RHB.
RHB itself has a debt burden of RM2.3bn (excluding RHBC interco loan),
which includes a US$265m Secured Bonds due June 2007.
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Robert Kong, CFA
[email protected]
 Recent results trend a concern – While core pre-provision profits have been
strong +26% yoy on the back of 23% NII growth, we would have preferred to
see accompanying healthy consumer asset quality (auto NPLs +42% ytd,
housing NPLs +15% ytd) and stronger growth in housing (+4%
ytd)/consumer credit (+9% ytd)/SME (flat) rather than low-margin HP (+26%
ytd) and corporate loans (+16% ytd).
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
na
na
na
na
na
na
na
2005A
316
0.17
na
20.6
1.4
7.2
1.0
2006E
376
0.21
19.2
17.2
1.3
8.0
2.1
2007E
409
0.22
8.8
15.9
1.3
8.2
2.5
2008E
464
0.25
13.3
14.0
1.2
8.7
2.8
PE and PBV
Loan Growth and LDR
15
10
103
8
6
102
101
4
2
100
99
0.9
0
0.8
2006E
P/E (x)
2007E
P/BV (x) (RHS)
98
10
1.0
0.9
5
2005A
1.0
2008E
98
0
2005A
2006E
Lo an yo y (%)
2007E
2008E
LDR (%) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
na
na
na
na
na
20.6
20.6
1.4
1.4
1.0
17.2
17.2
1.3
1.3
2.1
15.9
15.9
1.3
1.3
2.5
14.0
14.0
1.2
1.2
2.8
na
na
na
na
na
na
0.17
0.17
2.49
1.85
2.49
0.04
0.21
0.21
2.65
2.01
2.65
0.08
0.22
0.22
2.82
2.17
2.82
0.09
0.25
0.25
3.00
2.36
3.00
0.10
na
na
na
na
na
na
na
na
na
na
na
na
na
1,626
442
488
2,556
-1,244
1,311
-623
-110
579
-146
-117
316
316
1,925
464
483
2,872
-1,335
1,537
-704
-109
724
-195
-152
376
376
2,060
478
505
3,043
-1,445
1,598
-698
-109
791
-217
-164
409
409
2,150
510
570
3,230
-1,565
1,665
-641
-109
915
-256
-195
464
464
na
na
na
na
19.2
17.2
8.8
4.0
13.3
4.2
Balance Sheet (RMM)
Total assets
Customer loans
Gross NPLs
Liab. & shar. funds
na
na
na
na
na
na
na
na
89,950
80,335
51,010
4,332
89,950
49,912
2,737
4,547
103,020
90,157
55,700
4,595
103,020
58,900
2,650
4,836
106,221
98,056
58,900
4,653
106,221
61,800
2,788
5,137
109,160
101,241
61,500
4,797
109,160
64,400
2,929
5,477
ROE adjusted
Net interest margin
Cost/income ratio
NPLs/customer loans
Loans/deposit ratio
Total capital ratio
na
na
na
na
na
na
na
na
na
na
7.2
2.0
48.7
1.4
8.5
63.2
1.3
102.2
9.4
13.7
8.0
2.1
46.5
1.4
8.3
57.7
1.3
94.6
9.4
13.6
8.2
2.1
47.5
1.4
7.9
59.9
1.2
95.3
9.4
13.7
8.7
2.1
48.5
1.5
7.8
61.1
1.1
95.5
9.6
13.9
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
Tangible BVPS
DPS
Profit & Loss (RMM)
Net interest income
Bad debt provisions
Pre-tax profit
Tax
Attributable profit
Adjusted earnings
Growth Rates (%)
EPS adjusted
or +852-2501-2791
99
16 January 2007
Road Builder (M) Holdings (ROAD.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM3.70
RM3.85
4.1%
2.8%
6.9%
RM1,976M
US$562M
Price Performance (RIC: ROAD.KL, BB: RBH MK)
Exposure to THE Infrastructure Company to Own in Malaysia
 7% ETR on offer — Despite the share price’s strong performance, RBH
remains attractive and offers a 7% ETR. This is based on our RNAV-driven
target price of RM3.85/share.
 Marriage on track — Road Builder's (RBH) board of directors have accepted
the offer and will present the offer to shareholders at an extraordinary general
meeting, likely in March 2007.
 A good fit — We see compelling synergies between IJM and RBH. IJM's
(IJMS.KL - RM7.70; 1L) recurrent earnings should broaden and RBH should
benefit from IJM's strong international presence and execution track record.
The enlarged group would enjoy a stronger balance sheet to compete for
infrastructure jobs and is the second-largest construction company in
Malaysia.
 Cheaper exposure to IJM — Investors buying into RBH will have exposure to
IJM at a 3.9% discount. We remain positive on IJM as it is poised to be
Malaysia’s premier construction and infrastructure company with strong
domestic and international presence.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
 Good play on 9MP — In our view, RBH's focus on domestic construction jobs
and its strong balance sheet positions it well for new contracts from the 9th
Malaysia Plan (9MP). The group's orderbook is RM1.0bn, but we expect this
to rise following more new opportunities under the 9MP.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
65
0.12
-26.9
29.7
1.4
4.7
2.2
2006A
67
0.13
3.3
28.7
1.3
4.7
2.4
2007E
90
0.17
34.4
21.4
1.3
6.1
2.8
2008E
106
0.20
17.8
18.2
1.2
6.9
3.3
2009E
129
0.25
21.8
14.9
1.2
8.1
4.0
Valuation
Profitability Trend
25
20
15
10
5
0
10.0
8.0
6.0
4.0
2.0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
100
2009E
300
150
200
100
100
50
0
-100
0
2005A
2006A
2007E 2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
101
2005
2006
2007E
2008E
2009E
29.7
8.3
1.4
2.2
28.7
8.8
1.3
2.4
21.4
10.5
1.3
2.8
18.2
9.8
1.2
3.3
14.9
8.6
1.2
4.0
0.12
0.17
2.72
0.08
0.13
0.14
2.79
0.09
0.17
0.17
2.89
0.10
0.20
0.20
3.00
0.12
0.25
0.25
3.14
0.15
1,025
-815
211
-51
33
192
-54
-49
90
65
248
990
-767
223
-56
-16
151
-53
-25
72
67
259
1,127
-918
210
-43
0
167
-50
-27
90
90
246
1,201
-965
236
-42
0
194
-58
-29
106
106
272
1,173
-906
267
-36
0
231
-69
-32
129
129
304
-11.6
7.4
6.8
-26.9
-3.4
5.9
4.4
3.3
13.8
-5.9
-5.1
34.4
6.5
12.5
10.8
17.8
-2.4
13.1
11.5
21.8
234
37
24
-209
-183
-41
-187
-157
-30
-163
120
36
-132
-154
-141
-33
-94
-57
-32
-127
-46
36
-198
12
-10
0
61
100
-39
28
65
36
-106
15
-10
0
-46
0
-46
35
239
37
41
21
-10
0
-56
0
-56
205
4,294
390
432
665
2,585
447
2,020
1,709
4,598
252
908
592
2,828
402
2,297
1,770
4,832
280
1,034
575
2,984
457
2,397
1,848
4,951
315
1,101
558
3,013
487
2,397
1,938
5,046
519
1,075
540
3,002
476
2,397
2,044
24.2
4.7
9.9
95.4
54.2
26.1
4.7
9.1
115.5
56.5
21.8
6.1
7.2
114.5
56.5
22.7
6.9
7.6
107.4
55.3
25.9
8.1
8.4
91.9
54.0
16 January 2007
Sime Darby (SIME.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM7.40
RM8.55
15.5%
4.8%
20.3%
RM18,455M
US$5,250M
Price Performance (RIC: SIME.KL, BB: SDY MK)
Limited Downside while Awaiting Synergy Benefits
 Solid 20% ETR — We have a target price of RM8.55/share, which factors in
the potential upside from Synergy Drive’s (SD) proposal. Being the largest
global crude palm oil (CPO) producer and the fifth-largest stock in Malaysia
(by market cap), we think SD may attract premium valuations. Sime Darby
shareholders would benefit, receiving 1.23 shares of SD upon completion of
the merger.
 Great timing on firm CPO price; the bigger the better — Though we agree that
merger benefits may not accrue in the near-term, the timing of this merger is
good given the strong outlook for CPO prices in the next 1-2 years. SD could
attract strong investor interest given its 5-6% market share of global CPO
supply.
 Short-term pain for long-term gains — Near-term earnings of the enlarged
group may be affected by merger costs, but longer-term prospects are good if
SD’s management can reap merger benefits such as unified procurement,
optimization of human resources and capital management.
 An option to lock in exposure — Although the targeted completion date is
only in October 2007, we view the merger proposal as an option for investors
to secure exposure to SD, which we view as attractive. The proposed merger
is progressing well, with the acceptance of SD’s proposal by Sime’s board of
directors on 20th Dec 2006.
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
978
0.41
na
18.1
2.2
na
3.8
2006A
1,128
0.46
11.8
16.2
2.1
13.4
4.5
2007E
1,242
0.50
10.0
14.7
1.9
13.6
4.8
2008E
1,375
0.56
10.7
13.3
1.8
14.1
5.3
2009E
1,503
0.61
9.3
12.1
1.7
14.3
5.8
Valuation
Profitability Trend
8.0
15
2,000
6.0
14
1,500
4.0
13
1,000
2.0
12
500
11
0
0.0
2005A
2006A
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
102
2009E
1,500
1,000
500
0
2005A
2006A 2007E 2008E 2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Other Per Share Data
NAV
Discount to NAV
7.46
1%
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Payout Ratio (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBIT
Growth Rates (%)
Sales
EBIT adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROA adjusted
Net debt to equity
103
2005
2006
2007E
2008E
2009E
18.1
2.2
3.8
68.3
16.2
2.1
4.5
72.0
14.7
1.9
4.8
70.0
13.3
1.8
5.3
70.0
12.1
1.7
5.8
70.0
0.41
0.34
3.35
0.28
0.46
0.45
3.57
0.33
0.50
0.50
3.82
0.35
0.56
0.56
4.10
0.39
0.61
0.61
4.40
0.43
18,646
-17,072
1,574
-7
-202
1,365
-431
-132
801
978
1,574
20,162
-18,448
1,714
-32
-40
1,642
-439
-83
1,121
1,128
1,714
20,825
-18,858
1,967
-84
-37
1,847
-499
-107
1,242
1,242
1,967
21,959
-19,795
2,163
-74
-42
2,048
-553
-120
1,375
1,375
2,163
23,180
-20,832
2,348
-63
-48
2,237
-604
-130
1,503
1,503
2,348
na
na
na
8.1
8.9
11.8
3.3
14.8
10.0
5.4
10.0
10.7
5.6
8.5
9.3
723
361
-847
-817
-303
-465
-308
117
-598
-403
1,160
377
-398
-582
-557
-43
195
577
-563
773
1,529
397
-122
-700
-700
0
-826
-200
-626
3
1,586
419
-208
-700
-700
0
-893
-200
-693
-7
1,697
440
-224
-700
-700
0
-957
-200
-757
39
16,235
2,591
2,962
4,397
7,051
3,883
2,691
9,184
17,538
3,212
3,454
4,656
7,744
3,925
3,340
9,794
18,190
3,215
3,567
4,959
7,673
4,054
3,140
10,517
19,012
3,208
3,761
5,240
7,694
4,274
2,940
11,319
19,926
3,248
3,970
5,500
7,731
4,512
2,740
12,194
8.4
na
na
1.1
22.7
8.5
13.4
6.7
1.3
25.4
9.4
13.6
6.9
-0.7
23.0
9.9
14.1
7.4
-2.4
20.6
10.1
14.3
7.7
-4.2
18.3
16 January 2007
SP Setia (SETI.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM5.00
RM5.60
12.0%
6.7%
18.7%
RM3,357M
US$955M
Price Performance (RIC: SETI.KL, BB: SPSB MK)
Heading in the Right Direction
 Good 19% ETR for solid developer — We recently raised our TP 14% to
RM5.60/share to factor in a hike in our RNAV estimate to RM6.21/share
(RM5.41 previously, +15%). The rise in our RNAV follows on from higher
landbank value assumptions on SP Setia’s (Setia) prime land in Klang Valley,
Johor and Penang.
 Still a Buy (1L) — Maintain forecast and positive view. Setia stays on our Buy
list for its undemanding FY07E PE of 12.5x against a 3-year EPS CAGR of
13%, driven by RM804m unbilled sales. FY07E-09E gross div yield of 6.78.7% appears compelling.
 Commercial upside — Riding on good prospects for commercial properties,
Setia will venture into more commercial development at its existing projects.
These include eight acres of commercial development at Setia Alam and 15
acres of commercial development at Pusat Bandar Puchong. The estimated
total gross development value is RM567m.
 New projects to drive growth — Other than resilient housing demand for its
existing project, we forecast earnings to be driven by the launch of two new
developments in Penang – Setia Pearl Island and Setia Vista and one new
residential development in Klang Valley – Setia Hills in Ampang (RM110m
GDV).
Andrew Chow, CFA
+60-3-2383-2948
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Oct
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
203
0.31
23.2
16.1
2.1
13.7
5.0
2006A
240
0.36
16.3
13.8
2.0
14.7
6.0
2007E
266
0.40
10.8
12.5
1.8
15.2
6.7
2008E
318
0.48
19.3
10.5
1.7
17.1
8.0
2009E
348
0.52
9.4
9.6
1.6
17.5
8.7
Valuation
Profitability Trend
15
15.0
10.0
10
5.0
5
0
0.0
2005A
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
104
2009E
500
400
300
200
100
0
400
300
200
100
0
2005A
2006A
2007E
2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Oct
Valuation Ratios
P/E adjusted (x)
P/E reported (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
NAVps ordinary
DPS
or +852-2501-2791
2005
2006
2007E
2008E
2009E
16.1
16.1
2.1
5.0
13.8
13.8
2.0
6.0
12.5
12.5
1.8
6.7
10.5
10.5
1.7
8.0
9.6
9.6
1.6
8.7
0.31
0.31
2.41
na
0.25
0.36
0.36
2.56
na
0.30
0.40
0.40
2.71
na
0.33
0.48
0.48
2.89
na
0.40
0.52
0.52
3.09
na
0.44
Profit & Loss (RMM)
G&A expenses
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBIT
Adjusted EBITDA
Growth Rates (%)
NOI
EBIT adjusted
EPS adjusted
278
0
-6
273
17
290
-86
0
203
203
270
278
285
0
33
318
16
334
-94
0
240
240
275
285
335
0
38
372
-3
370
-104
0
266
266
324
335
411
0
31
442
-1
441
-124
0
318
318
400
411
438
0
37
476
7
483
-135
0
348
348
426
438
23.0
23.4
23.2
2.2
2.0
16.3
17.7
17.9
10.8
22.8
23.2
19.3
6.6
6.5
9.4
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
469
9
351
13
-15
64
-273
-252
-90
210
58
9
-149
-159
-15
-144
-161
-50
-106
-263
124
10
-105
-15
-15
0
-145
-20
-120
-36
210
11
-77
-15
-15
0
-168
-20
-143
27
258
13
-52
-15
-15
0
-25
-20
0
218
2,435
404
816
859
572
1,576
2,626
304
876
922
587
1,704
2,743
268
794
940
567
1,804
2,870
295
734
947
547
1,923
2,998
513
694
945
527
2,053
21.4
13.7
8.1
10.7
na
23.8
14.7
9.5
16.6
na
25.2
15.2
9.9
16.6
130.8
28.8
17.1
11.3
13.1
394.4
29.2
17.5
11.8
0.7
na
Balance Sheet (RMM)
Total assets
Net fixed assets
Total liabilities
Total Debt
Shareholders' funds
ROE adjusted (%)
ROA adjusted (%)
105
16 January 2007
Star Publications (STAR.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM3.18
RM3.65
14.8%
5.8%
20.6%
RM2,349M
US$668M
Price Performance (RIC: STAR.KL, BB: STAR MK)
Poor 2007 Already Priced In
 Look forward to 2008 — Our 25% EPS growth forecast rests on a 1) stronger
ringgit leading to lower newsprint cost; 2) cover price and ad rate hikes on
better economic conditions as the 9th Malaysia Plan spending multiplies
through the economy. Nearer-term catalysts include a potential special
dividend. Star Pubs had RM540m cash (73 sen/share) as at 30 Sept.
 Share price fell 17% last year — Revenue up to 9M06 was flat on pagination
and pricing constraints (details in our 27 Mar note “Downgrade to Sell”). EPS
is set to contract in 2007 in the absence of one-off gains. The stronger ringgit
will not help much. We estimate Star Pubs’ RM177m inventories as at 30
Sept cover the bulk of this year’s newsprint requirements.
 We see little downside from here — The 6-7% gross dividend yield lends
support; and later in the year a stronger economy and ringgit should allow for
a cover price and ad rate hikes and lower newsprint costs. We recently
adjusted our EPS and cash flow estimates up, and our DCF-based target price
was raised to RM3.65/share. Our Quantitative Team says Star lies in their
Contrarian quadrant.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
 Risks — 1) Overly optimistic consensus as our FY07 forecast is 15% below
IBES. 2) Newsprint prices rising further in US$ terms. 3) Increasing inroads
by free daily Sun (now at 265k copies/day from 3Q06: 230k, 2Q06: 150k). 4)
Exceptionally aggressive moves by New Straits Times Press (NSTP.KL RM2.50; 1L) to grow circulation. 5) Free-to-air TV operator Media Prima
(MPRM.KL - RM2.41; 1L) enticing existing Star advertisers over to TV.
Financial Summary
Year to
31-Dec
2004
2005
2006E
2007E
2008E
2009E
Reported Reported
Turnover Net Profit
EPS
(RMm)
(RMm)
(Sen)
693.0
141.3
22.0
713.6
155.5
22.3
708.7
160.7
21.8
725.0
130.6
17.7
774.8
162.9
22.1
784.4
165.0
22.4
FD EPS
(sen)
20.5
20.9
21.8
17.7
22.1
22.4
FD EPS
growth
(%)
15.9
1.8
4.4
-18.7
24.7
1.3
FD PE
(x)
15.5
15.2
14.6
17.9
14.4
14.2
Gross
DPS
(sen)
17.5
18.5
22.0
18.5
22.0
22.0
Gross
Yield Price/NTA
(%)
(x)
5.5
2.5
5.8
2.2
6.9
2.1
5.8
2.0
6.9
1.9
6.9
1.9
Source: Company Reports and Citigroup Investment Research estimates
Valuation
Profitability Trend
15.0
10.0
5.0
0.0
2005A
2006E
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
106
20
200
15
150
10
100
5
50
0
0
2009E
250
200
150
100
50
0
-50
2005A
2006E
Ne t Inc o me
2007E
2008E
2009E
FCF (RMm) (RHS)
16 January 2007
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
107
2004
2005
2006E
2007E
2008E
15.5
na
2.4
5.5
15.2
10.5
2.1
5.8
14.6
10.2
2.0
6.9
17.9
10.2
2.0
5.8
14.4
8.2
1.9
6.9
0.21
0.21
1.31
0.18
0.21
0.21
1.52
0.18
0.22
0.22
1.58
0.22
0.18
0.18
1.62
0.19
0.22
0.22
1.68
0.22
693
-533
160
6
0
166
-25
0
141
141
204
714
-543
171
21
0
192
-36
0
155
155
215
709
-549
160
38
0
198
-38
0
161
161
208
725
-571
154
13
0
167
-37
0
131
131
202
775
-577
198
16
0
214
-51
0
163
163
246
na
na
na
na
3.0
6.7
5.3
1.8
-0.7
-6.4
-3.2
4.4
2.3
-3.7
-2.9
-18.7
6.9
28.4
21.7
24.7
133
44
-54
-93
-30
0
-29
0
-70
12
271
44
76
-269
-280
0
107
0
-107
110
235
48
-4
-40
-40
0
-116
0
-116
79
173
48
-5
-30
-30
0
-98
0
-98
45
214
48
-11
-33
-30
0
-106
0
-106
76
1,233
246
97
612
372
5
250
861
1,525
417
98
764
406
11
250
1,118
1,600
495
97
756
437
11
250
1,163
1,632
540
100
738
437
12
250
1,195
1,693
608
107
720
452
12
250
1,241
29.5
na
na
0.5
22.5
30.1
15.7
14.4
-14.9
18.3
29.4
14.1
12.5
-21.1
17.7
27.9
11.1
12.3
-24.3
17.3
31.7
13.4
15.6
-28.8
16.8
16 January 2007
Tanjong PLC (TJPL.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM13.90
RM16.30
17.3%
5.9%
23.2%
RM5,605M
US$1,594M
Price Performance (RIC: TJPL.KL, BB: TJN MK)
Committed to Tropical Islands for Another Five Years
 The price for €17.4m government grant — Tropical Island is required to
maintain its assets and a minimum 500 full-time staff until 31 Oct 2010.
Some would be dismayed with this commitment. We believe management
continues to have shareholders’ best interests in mind. In the meantime, 10x
CY07E P/E and the 6-7% gross yield, paid quarterly, limit downside.
 9M is 81% of IBES consensus and our full-year estimate — But we retain our
forecasts. The 4Q loss at Tropical Islands will be higher as it is closes for
improvement work; and prize payouts could swing against Tanjong.
Nevertheless, forecast risks are on the upside. Upside stock catalysts are
clarity on the Malaysian PPAs and the possible demerging of the power
division.
 3Q: 63% prize payout ratio is below 65% long-term average — This takes the
9M average to 70%. We are relieved to find the luck factor swinging Tanjong’s
way after three quarters of high 74-75% payouts. Numbers forecast turnover
rose 4% yoy/5% ytd, as expected. We maintain our full-year 70% prize payout
ratio assumption. Every 1%-pt reduction adds 3.3% to our EPS estimate.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
 Upside in power — RM530m power EBIT was 80% of our full-year estimate.
3Q power EBIT surged 18% qoq to RM198m. We maintain our estimates here
pending clarification on its sustainability. YtD power EBIT soared 80%, driven
by the newly acquired Egypt power plants. Over in Malaysia, we await
developments on the supplementary agreements proposed by the
government.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Jan
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
392
0.98
-5.8
14.2
2.3
17.2
5.5
2006A
374
0.93
-5.1
15.0
2.1
14.8
5.1
2007E
441
1.09
17.9
12.7
1.9
15.8
5.9
2008E
517
1.28
17.2
10.8
1.8
17.0
6.3
2009E
554
1.37
7.1
10.1
1.6
16.6
6.6
Valuation
Profitability Trend
8.0
20
7.5
15
7.0
10
6.5
5
6.0
0
2005A
2006A
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
108
2009E
1,000
600
0
400
-1,000
200
-2,000
-3,000
0
2005A
2006A 2007E
Ne t Inc o me
2008E 2009E
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Jan
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
ROE adjusted
ROIC adjusted
Net debt to equity
109
2005
2006
2007E
2008E
2009E
14.2
7.8
2.3
5.5
15.0
7.7
2.1
5.1
12.7
7.1
1.9
5.9
10.8
7.1
1.8
6.3
10.1
6.5
1.6
6.6
0.98
0.98
5.96
0.76
0.93
0.93
6.62
0.72
1.09
1.09
7.20
0.82
1.28
1.28
7.89
0.87
1.37
1.37
8.64
0.92
2,997
-2,389
608
-75
7
540
-148
0
392
392
808
3,210
-2,652
557
-67
10
501
-132
5
374
374
799
3,816
-3,079
737
-192
13
558
-123
6
441
441
982
3,954
-3,098
856
-205
13
663
-153
7
517
517
1,101
4,049
-3,171
878
-178
20
720
-173
7
554
554
1,123
10.3
-7.8
-4.0
-5.8
7.1
-8.3
-1.2
-5.1
18.9
32.2
23.0
17.9
3.6
16.1
12.1
17.2
2.4
2.6
2.0
7.1
734
200
104
-602
-419
0
141
411
-237
273
557
241
-60
-90
-149
0
-471
-105
-233
-4
601
245
-66
-3,107
-2,507
-600
1,962
2,170
-208
-543
784
245
-17
-80
-80
0
-368
-130
-238
336
828
245
-10
-80
-80
0
-383
-130
-253
366
5,572
1,400
225
3,002
3,049
75
2,219
2,523
5,796
1,396
279
2,896
3,007
74
2,114
2,789
8,206
853
331
2,731
5,190
88
4,284
3,017
8,350
1,189
343
2,566
5,060
88
4,154
3,289
8,517
1,555
352
2,401
4,933
90
4,024
3,584
27.0
17.2
13.9
32.4
46.8
24.9
14.8
12.3
25.7
43.1
25.7
15.8
13.2
113.7
58.7
27.8
17.0
12.3
90.1
55.8
27.7
16.6
12.8
68.9
52.9
16 January 2007
Tenaga (TENA.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM11.40
RM13.70
20.2%
3.5%
23.7%
RM48,847M
US$13,895M
Price Performance (RIC: TENA.KL, BB: TNB MK)
1Q Should Set Stage for a Good Year, Including Higher Dividend
 Robust 5-6% 1Q power demand growth, driven by exports — Domestic
demand should accelerate in ensuing quarters on 9th Malaysia Plan
spending. We expect 1Q07 result release on 25 Jan. We estimate net profit
ex-forex will more than double to RM1bn (1Q06: RM451m), on the tariff hike
and write-backs following bad debt collection. Management is also expected
to announce its FY07 targets.
 Dividend policy on the way — Tenaga’s financials are on a far stronger footing
now. We expect RM3.1bn FY07 free cash flow (6.4% free cash flow yield),
which will add to the RM4bn cash as at 31 Aug 06. Management has already
met its 55% gross gearing target. We expect the surplus to be returned to
shareholders. A policy should be announced by mid-year.
 22% foreign shareholding as at 6 Dec near 25% limit — A separate foreign
tranche listing would be necessary in the event the ceiling is hit. We recently
adjusted our EPS estimates on housekeeping. These also have a cash flow
impact, which raised our DCF-based target price to RM13.70/share. Tenaga
is a top country and regional sector pick. The recent Johor floods will not
materially affect earnings.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
 Management contract renewals and Indonesian coal mine to be resolved —
The 3-year contracts of CEO Che Khalib and CFO Izzaddin Idris expire in midyear. We would hope major shareholder Khazanah soon clarifies their
positions. The dispute with its Indonesian coal-mine partner is still being
discussed. Tenaga has this at RM280m (6.5 sen/share) on its balance sheet.
Financial Summary
Year to
31-Aug
2005
2006
2007E
2008E
2009E
Reported Core Net Reported Core FD Core FD Core FD Core
Gross
Revenue Net Profit
Profit
EPS EPS
EPS EPS grth
PE DPS Yield Price/NTA
(RMm)
(RMm) (RMm)
(Sen) (sen)
(sen)
(%)
(x) (sen)
(%)
(x)
18977.5
1280.0 1138.2
31.8 28.3
28.3 -19.0
40.3 16.2
1.4
2.9
20384.2
2126.9 1802.0
52.5 44.5
43.7
54.6
26.1 14.8
1.3
2.4
23259.2
3422.2 3422.2
79.2 79.2
78.9
80.5
14.5 40.0
3.5
2.2
24496.7
3423.6 3423.6
79.2 79.2
78.9
0.0
14.4 50.0
4.4
2.0
25704.2
3808.2 3808.2
88.1 88.1
88.1
11.7
12.9 61.0
5.4
1.8
Source: Company Reports and Citigroup Investment Research estimates
Valuation
Profitability Trend
15.0
10.0
5.0
2006A
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
110
4,000
30
3,000
20
2,000
10
1,000
0
0.0
2005A
40
2009E
6,000
4,000
2,000
0
0
2005A
2006A 2007E
Ne t Inc o me
2008E
2009E
FCF (RMm) (RHS)
16 January 2007
Fiscal year end 31-Aug
2005
2006
2007E
2008E
2009E
40.3
14.2
2.9
1.4
26.1
11.3
2.4
1.3
14.5
8.4
2.2
3.5
14.4
7.9
2.0
4.4
12.9
7.0
1.8
5.4
0.28
0.32
4.00
0.16
0.44
0.51
4.70
0.15
0.79
0.79
5.23
0.40
0.79
0.79
5.68
0.50
0.88
0.88
6.18
0.61
18,978
-16,216
2,762
-1,176
233
1,819
-496
-43
1,280
1,138
5,554
20,384
-16,925
3,459
-1,050
343
2,752
-590
-35
2,127
1,802
6,780
23,259
-17,858
5,402
-803
18
4,617
-1,155
-40
3,422
3,422
8,722
24,497
-19,006
5,490
-890
18
4,619
-1,155
-40
3,424
3,424
9,011
25,704
-19,673
6,031
-917
18
5,131
-1,283
-40
3,808
3,808
9,751
7.1
-7.6
-0.6
-19.0
7.4
25.3
22.1
54.6
14.1
56.1
28.7
80.5
5.3
1.6
3.3
0.0
4.9
9.8
8.2
11.7
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
5,111
2,793
354
-3,374
-3,805
349
-2,737
-2,357
-324
-1,000
6,783
3,320
632
-3,987
-4,000
0
-1,695
-2,548
-278
1,100
7,140
3,320
-267
-4,000
-4,000
0
-1,790
-1,560
-970
1,350
7,316
3,520
-110
-4,000
-4,000
0
-1,494
0
-1,494
1,822
7,880
3,720
-127
-3,000
-3,000
0
-1,649
0
-1,649
3,230
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
63,495
2,871
2,163
54,721
47,294
2,405
29,988
16,201
65,092
3,972
1,852
55,201
45,546
2,489
27,116
19,547
67,573
5,322
2,126
55,881
44,794
2,659
25,556
22,779
70,171
7,144
2,242
56,361
45,422
2,833
25,556
24,749
72,907
10,374
2,355
55,641
45,959
2,918
25,556
26,948
29.3
7.4
4.1
167.4
64.9
33.3
10.1
5.1
118.4
58.1
37.5
16.3
7.5
88.8
52.9
36.8
14.5
7.5
74.4
50.8
37.9
14.9
8.2
56.3
48.7
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
111
16 January 2007
Telekom Malaysia (TLMM.KL)
Buy/Low Risk
Price (12 Jan 07)
Target price
Market Cap
1L
RM9.70
RM12.00
23.7%
4.9%
28.7%
RM32,957M
US$9,378M
Price Performance (RIC: TLMM.KL, BB: T MK)
A Laggard Stock Looking for Love
 A Malysian telco top pick – The stock has been a major laggard in 2006 in
the Asian telcos space, with low expectations priced in, in our view. We think
the tables are turning in 2007 and see four reasons to buy the stock with a
target price of RM12.00.
 I. Excelcomindo (XL) revving up for growth – Initiatives in 2006 including the
management revamp and network build-out (putting it right behind Indosat
by network size) positions XL for strong, above-industry growth in 2007, in
our view. We now value TM on a SOTP valuation with XL based on DCF.
 II. Capital management – TM will unveil capital management initiatives after
the 2007-09 business plan is finalized. TM's strong balance sheet (0.6x
2006E D/E) and improving free cash flow (3.2% FCF yield in 2007E vs.
negative in 2006E) would allow for higher yields than the 5% implied by its
75% payout ratio.
 III. Domestic business upside – We think 2007 could mark an inflection point
for TM's fixed-line and wireless business as initiatives surrounding broadband
data take off. We forecast revenue declines in the fixed-line business to abate
while renewed focus at Celcom could push high single-digit revenue growth.
Tentative KPI improvements in 3Q06, if sustained, would likely help
sentiment.
Karen Ang
+66-2-232-3613
[email protected]
 IV. India rising – The imminent listing of 49%-owned Indian wireless
company, Spice Telecom, and merger activities surrounding the sale of a
stake in Hutchison Essar should help crystallize value in Spice Telecom, in
our view, and could lead to more transparency.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
2,194
0.66
34.3
14.8
1.7
12.1
3.1
2005A
1,650
0.49
-25.8
19.9
1.7
8.5
3.6
2006E
1,825
0.54
10.4
18.0
1.7
9.3
4.4
2007E
2,233
0.66
22.3
14.7
1.6
11.0
4.9
2008E
2,545
0.75
13.9
12.9
1.5
12.0
5.8
112
16 January 2007
2004
2005
2006E
2007E
2008E
14.8
5.8
1.7
3.1
19.9
6.0
1.7
3.6
18.0
5.4
1.7
4.4
14.7
5.1
1.6
4.9
12.9
4.8
1.5
5.8
0.66
0.78
5.75
0.30
0.49
0.26
5.72
0.35
0.54
0.57
5.87
0.43
0.66
0.64
6.14
0.48
0.75
0.74
6.41
0.56
13,251
-11,489
1,762
-470
1,880
3,173
-496
-63
2,614
2,194
6,519
13,942
-11,873
2,069
-350
-141
1,578
-658
-44
875
1,650
5,995
16,422
-13,178
3,244
-490
232
2,986
-894
-165
1,926
1,825
7,247
17,975
-14,218
3,757
-724
145
3,178
-867
-133
2,178
2,233
7,992
19,307
-15,026
4,281
-767
180
3,694
-1,014
-160
2,520
2,545
8,458
12.3
-7.2
17.6
34.3
5.2
17.4
-8.0
-25.8
17.8
56.8
20.9
10.4
9.5
15.8
10.3
22.3
7.4
14.0
5.8
13.9
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
5,037
3,673
74
680
-2,672
3,060
-261
-308
-818
5,456
5,504
3,445
1,566
-6,514
-4,161
-3,058
-1,377
-498
-1,016
-2,386
4,474
4,004
-1,831
-5,710
-5,565
-145
-420
1,079
-1,390
-1,649
6,678
4,235
-219
-5,662
-5,662
0
-266
1,239
-1,255
748
7,368
4,176
102
-4,776
-4,776
0
-1,769
203
-1,628
820
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
37,675
8,952
3,375
19,739
18,222
4,128
10,785
19,453
41,184
6,690
3,536
22,321
21,800
6,178
11,819
19,384
42,698
5,041
4,782
23,950
22,778
5,851
12,834
19,920
45,395
5,790
5,187
25,353
24,553
6,223
14,114
20,842
47,193
6,610
5,536
25,841
25,459
6,848
14,273
21,734
49.2
12.1
4.9
9.4
35.7
43.0
8.5
5.4
26.5
37.9
44.1
9.3
8.0
39.1
39.2
44.5
11.0
9.0
39.9
40.4
43.8
12.0
9.9
35.3
39.6
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
113
16 January 2007
TSH Resources (TSHR.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM1.64
RM2.00
22.0%
4.9%
26.8%
RM605M
US$172M
Price Performance (RIC: TSHR.KL, BB: TSH MK)
Earnings Recovery Expected into 2007
 Next growth phase on track — We expect 13% FY06-09E EPS CAGR driven
by rising crude palm oil production and the new palm oil refinery jointventure with leading edible oils player Wilmar (WLIL.SI - S$2.56; NR). The
new palm oil mills and biomass power plant are now operating smoothly.
Subsidiary Ekowood’s (EKOW.KL - RM0.79; NR) 2Q earnings recovery is
sustained into 3Q.
 DCF-based target price raised to RM2.00/share following 3Q result — Our
FY06 EPS estimate was upgraded 21%. Our earnings changes also affected
our DCF model. Our FY07-08 estimates rose by a smaller 3-9% as we had
already built in some recovery assumptions into our forecasts. The 750k pa
palm oil refinery JV should be operational by Dec 06. FY09 estimates
introduced.
 Plantations offsetting weaker areas — RM12m 3Q net profit fell 10% qoq, but
soared 36% yoy. Weaker cocoa operations and falling wood products turnover
drove the qoq fall. Still, wood products operating profit was resilient, dropping
marginally to RM4.9m from RM5.0m despite turnover falling 10% to
RM38.5m. Plantations operating profit rose 10% qoq/22% yoy.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
 We would be happier with longer-term funding — Total debt rose to RM170m
(41% gearing) as at 30 Sep from RM112m (28%) as at 31 Dec 05. We are
comfortable with gearing up to fund the refinery, upcoming Ekopaper plant
and plantations acquisitions in Indonesia. But we would prefer longer
tenures. Only RM61m of the debt is long-term.
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
55
0.16
32.3
10.4
1.4
18.2
4.2
2005A
30
0.09
-45.4
19.1
1.2
8.1
4.2
2006E
46
0.13
46.9
13.0
1.4
11.2
4.3
2007E
57
0.15
22.8
10.6
1.3
12.8
4.9
2008E
64
0.18
13.9
9.3
1.2
13.4
6.1
Valuation
Profitability Trend
25
20
15
10
5
0
15.0
10.0
5.0
0.0
2005A
2006E
2007E
2008E
EV/EBITDA (x)
P/E (x) (RHS)
114
2009E
80
100
60
50
40
0
20
-50
-100
0
2005A
2006E
2007E
Ne t Inc o me
2008E
2009E
FCF (RMm) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
10.4
8.8
1.4
4.2
19.1
11.2
1.2
4.2
13.0
9.3
1.4
4.3
10.6
8.0
1.3
4.9
9.3
7.1
1.2
6.1
0.16
0.20
1.15
0.07
0.09
0.09
1.32
0.07
0.13
0.13
1.16
0.07
0.15
0.15
1.26
0.08
0.18
0.18
1.37
0.10
480
-410
70
-2
0
68
-11
15
72
55
84
546
-492
53
-4
0
50
-14
-6
30
30
70
589
-524
65
-4
2
63
-9
-8
46
46
88
728
-648
80
-4
4
80
-14
-9
57
57
105
784
-692
92
-4
6
94
-20
-10
64
64
119
19.2
27.9
21.1
32.3
13.8
-23.3
-16.1
-45.4
7.9
21.4
25.0
46.9
23.7
23.1
19.3
22.8
7.7
15.0
13.3
13.9
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
4
14
-69
-13
0
0
0
5
-5
-9
33
17
-18
-66
-77
0
45
20
-20
12
96
23
15
-75
-75
0
35
53
-18
55
61
25
-38
-70
-70
0
-18
0
-18
-28
91
27
-16
-25
-25
0
-21
0
-21
45
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
621
12
91
372
223
15
97
398
732
25
116
430
273
18
117
459
859
57
127
506
362
35
170
497
923
49
141
551
382
44
170
541
984
94
147
549
395
47
170
589
ROE adjusted
ROIC adjusted
Net debt to equity
17.5
18.2
12.2
21.3
19.6
12.9
8.1
6.6
20.1
20.3
14.9
11.2
8.4
22.7
25.5
14.4
12.8
9.1
22.3
23.9
15.2
13.4
9.5
12.8
22.4
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
115
16 January 2007
UMW Holdings Bhd (UMWS.KL)
Buy/Low Risk
Price (11 Jan 07)
Target price
Market Cap
1L
RM7.65
RM8.80
15.0%
5.5%
20.5%
RM3,903M
US$1,110M
Price Performance (RIC: UMWS.KL, BB: UMWH
MK)
Returns as a Consumer Play; Growth Upside from Oil & Gas
 Buy, TP RM8.80 — Two potential catalysts for the stock this year are: (1)
return of consumer confidence boosting car sales; and (2) unlocking of value
in 30.4%-owned Wuxi Seamless Oil Pipe via an IPO. Besides, we expect
UMW’s dividend yield to rise from 4.8% in FY06 to 6.2% in FY08E. Our
Quant Radar Screen has UMW in the Attractive quadrant.
 No longer in reverse gear — New-car sales have contracted 10% year-to-date
because buyers delayed purchases in anticipation of the NAP, and fuel prices
as well as interest rates rose. We expect demand to rebound in 2007: (1)
changes to car duties is a low-risk event; (2) the inflation rate should
moderate to below 3%; and (3) the Ninth Plan should boost spending.
 Re-rated in 2006 due to oil and gas — UMW’s share price rose 28% last year
on the strength of the company’s oil and gas earnings, which we estimate will
double in 2006. We think this story is not done yet: oil and gas earnings are
forecast to double again in two years after capacity expansion at Wuxi. After
the IPO (expected 1H07), we expect Wuxi to remain an associate of UMW.
 50% dividend payout — Management is increasingly becoming comfortable
with the health of UMW’s balance sheet and higher payout ratios. But we do
not expect the balance sheet to be geared up in the near term.
Julian Chua, CFA
+60-3-2383-2942
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
31 Dec
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2004A
165
0.33
-28.5
23.2
1.8
8.1
2.7
2005A
284
0.55
67.5
13.8
1.7
12.7
5.0
2006E
289
0.56
1.5
13.6
1.6
11.9
4.8
2007E
326
0.63
12.9
12.1
1.5
12.6
5.5
2008E
370
0.72
13.6
10.6
1.4
13.4
6.3
Valuation
Profitability Trend
15
8.0
6.0
10
4.0
5
2.0
0
0.0
2005A
2006E
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
116
2009E
600
400
200
0
-200
-400
-600
500
400
300
200
100
0
2005A
2006E
2007E 2008E
2009E
Ne t Inc o me
FCF (RMm) (RHS)
16 January 2007
2004
2005
2006E
2007E
2008E
23.2
8.1
1.8
2.7
13.8
4.4
1.7
5.0
13.6
4.4
1.6
4.8
12.1
6.1
1.5
5.5
10.6
5.6
1.4
6.3
0.33
0.33
4.27
0.21
0.55
0.55
4.62
0.38
0.56
0.56
4.92
0.37
0.63
0.63
5.26
0.42
0.72
0.72
5.65
0.48
6,244
-5,972
272
26
53
350
-82
-103
165
165
368
9,869
-9,316
553
14
116
683
-181
-218
284
284
694
9,906
-9,271
636
13
124
773
-216
-268
289
289
799
8,967
-8,537
431
21
210
662
-179
-157
326
326
617
9,704
-9,263
442
23
252
717
-186
-160
370
370
635
19.6
-25.3
-19.1
-28.5
58.1
103.4
88.3
67.5
0.4
15.0
15.2
1.5
-9.5
-32.2
-22.8
12.9
8.2
2.5
3.0
13.6
254
97
-40
-246
-527
-59
116
112
-104
124
651
141
21
-424
-527
46
298
374
-139
525
67
163
-467
-500
-499
-1
51
205
-153
-382
429
186
-100
-100
-100
0
-153
0
-153
176
483
194
-100
-100
-100
0
-175
0
-175
207
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
3,931
1,201
526
794
1,080
872
176
2,851
5,689
1,717
813
1,244
2,426
1,621
715
3,263
6,129
1,335
850
1,580
2,541
1,550
920
3,588
6,519
1,511
900
1,493
2,591
1,600
920
3,928
6,964
1,719
950
1,400
2,641
1,650
920
4,323
ROE adjusted
ROIC adjusted
Net debt to equity
5.9
8.1
17.1
-36.0
5.8
7.0
12.7
26.0
-30.7
18.0
8.1
11.9
20.9
-11.6
20.4
6.9
12.6
10.4
-15.1
19.0
6.5
13.4
10.5
-18.5
17.5
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
[email protected]
or +852-2501-2791
117
16 January 2007
YTL Power (YTLP.KL)
Sell/Low Risk
Price (11 Jan 07)
Target price
Market Cap
3L
RM2.16
RM1.60
-25.9%
4.6%
-21.3%
RM11,404M
US$3,244M
Price Performance (RIC: YTLP.KL, BB: YTLP MK)
Share Buybacks a Substantial Portion of Trading Volume
 Share buyback 24% of 1QFY07 trading volume – The company bought back
14m shares in the quarter for a total RM27m. The buybacks continued into
2Q. 25m shares were bought in Nov for RM57m, equivalent to 31% of total
value traded (average cost: RM2.26/share). Buybacks decelerated in Dec.
17m shares were bought for RM36m (RM2.15/share av cost), 25% of value
traded.
 Impending treasury share distribution overhang — 197m shares would be
distributed based on the 1:25 ratio and 4.9bn shares in issue as at 30 Sep.
This is about 60 days trading volume. Still, YTL Power could well continue
buying back shares. Its buyback accounted for 41% of volume in the 8 weeks
post the previous distribution on 21 Feb 05.
 Expensive even with UK water euphoria — Ascribing a generous 30%
premium to Wessex Water’s c. £1.6bn Regulatory Asset Base (@ RM6.80:£1)
values it at RM14.1bn. Stripping that and associate Jawa Power at 8x
earnings (RM1.6bn) values the remaining assets (mainly the 10 year-old
power plants) at RM3.2bn or US$0.7m/MW. Replacement cost is c.
US$0.5m/MW.
 1Q net soared 24% yoy on a low tax rate – Pretax rose a smaller 10%. Growth
was mainly due to associate Jawa Power rebounding off a low base. EBIT rose
just 4%, primarily on a weaker ringgit.
Chi-Chang Teh, CFA
+60-3-2383-2939
[email protected]
Year to
Net Profit
Diluted EPS
EPS growth
P/E
P/B
ROE
Yield
30 Jun
(RMM)
(RM)
(%)
(x)
(x)
(%)
(%)
2005A
742
0.12
9.6
17.7
2.1
15.1
4.6
2006A
874
0.14
16.6
15.2
1.9
16.0
4.6
2007E
838
0.14
-3.8
15.8
1.7
14.0
4.6
2008E
846
0.14
1.0
15.6
1.6
13.1
4.6
2009E
834
0.14
-1.2
15.8
1.5
12.0
4.6
Valuation
Profitability Trend
15
15
15
15
15
14
9.0
8.8
8.6
8.4
8.2
8.0
7.8
2005A
2006A
2007E
EV/EBITDA (x)
2008E
P/E (x) (RHS)
118
2009E
1,500
900
850
800
750
700
650
1,000
500
0
-500
2005A
2006A 2007E
Ne t Inc o me
2008E 2009E
FCF (RMm) (RHS)
16 January 2007
2005
2006
2007E
2008E
2009E
17.7
9.5
2.1
4.6
15.2
9.1
1.9
4.6
15.8
9.0
1.7
4.6
15.6
8.9
1.6
4.6
15.8
8.9
1.5
4.6
0.12
0.12
1.05
0.10
0.14
0.14
1.15
0.10
0.14
0.14
1.24
0.10
0.14
0.14
1.34
0.10
0.14
0.14
1.44
0.10
3,674
-2,156
1,518
-646
161
1,033
-291
0
742
742
1,995
3,758
-2,183
1,575
-621
250
1,204
-329
0
874
874
2,015
3,739
-2,208
1,531
-621
250
1,160
-322
0
838
838
1,993
3,742
-2,220
1,521
-609
250
1,163
-316
0
846
846
1,984
3,745
-2,243
1,502
-603
250
1,149
-315
0
834
834
1,964
8.9
5.1
5.5
9.6
2.3
3.7
1.0
16.6
-0.5
-2.8
-1.1
-3.8
0.1
-0.6
-0.5
1.0
0.1
-1.3
-1.0
-1.2
Cash Flow (RMM)
Operating cash flow
Net working capital
Investing cash flow
Capital expenditure
Financing cash flow
Borrowings
Dividends paid
Change in cash
1,400
477
191
-1,552
-1,505
-46
174
493
-323
22
1,335
440
58
-323
-268
-55
-513
-161
-350
498
1,278
462
18
-984
-930
-54
259
609
-350
552
1,262
462
0
-985
-930
-55
259
609
-350
536
1,248
462
0
-984
-930
-54
259
609
-350
523
Balance Sheet (RMM)
Total assets
Accounts receivable
Net fixed assets
Total liabilities
Accounts payable
Total Debt
Shareholders' funds
21,890
4,551
581
14,296
16,662
525
12,768
5,228
22,244
4,783
605
14,124
16,515
525
12,607
5,729
23,446
5,315
558
14,592
17,229
525
13,216
6,217
24,686
5,837
558
15,060
17,972
525
13,825
6,714
25,912
6,345
558
15,528
18,714
525
14,434
7,198
54.3
15.1
8.2
157.2
70.9
53.6
16.0
8.4
136.6
68.8
53.3
14.0
8.1
127.1
68.0
53.0
13.1
7.8
119.0
67.3
52.5
12.0
7.5
112.4
66.7
Valuation Ratios
P/E adjusted (x)
P/BV (x)
Dividend yield (%)
Per Share Data (RM)
EPS adjusted
EPS reported
BVPS
DPS
Profit & Loss (RMM)
Net sales
Operating expenses
EBIT
Pre-tax profit
Tax
Reported net income
Adjusted earnings
Adjusted EBITDA
Growth Rates (%)
Sales
EBIT adjusted
EBITDA adjusted
EPS adjusted
[email protected]
or +852-2501-2791
ROE adjusted
ROIC adjusted
Net debt to equity
119
16 January 2007
120
16 January 2007
Analyst Certification Appendix A-1
I, Wai Kee Choong, research analyst and the author of this report, hereby certify that all of the views expressed in this research report
accurately reflect my personal views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation
was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
IMPORTANT DISCLOSURES
A household member of a member of Corrine Png's team holds a long position in the shares of Public Bank.
A household member of a member of Robert Kong, CFA's team holds a long position in the shares of Public Bank.
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of IOI Corporation, Resorts World Bhd and Telekom
Malaysia. This position reflects information available as of the prior business day.
Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of AMMB Holdings, IOI
Corporation and LION DIVERSIFIED HOLDINGS BHD.
Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from ASIATIC DEVELOPMENT
BHD, DiGi.Com, Genting Bhd, IOI Corporation, LION DIVERSIFIED HOLDINGS BHD, Malayan Banking, PPB Oil Palms Berhad, Resorts World Bhd, Singapore Airlines and
Telenor.
Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from
ASIATIC DEVELOPMENT BHD, DiGi.Com, Genting Bhd, Resorts World Bhd, Singapore Airlines and Telenor.
Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from AirAsia Bhd, AMMB Holdings,
ASIATIC DEVELOPMENT BHD, ASTRO ALL ASIA NET, B.A.T (M), Bumiputra Commerce Holdings Bhd, DiGi.Com, Genting Bhd, HONG LEONG BANK, IOI Corporation, JT
International Bhd, KFC HLDGS (MAL), KL Kepong, Malakoff, Malayan Banking, Malaysia Airports Holdings Bhd, Malaysian International Shipping Corp., Malaysian
Plantations Bhd, Maxis Communications Bhd, MMC CORPORATION, PPB Oil Palms Berhad, Public Bank, Resorts World Bhd, RHB Capital, Sime Darby, Singapore Airlines,
Star Publications, Telekom Malaysia, Telenor, Tenaga, UMW Holdings Bhd, YTL CORP and YTL Power in the past 12 months.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as investment banking client(s): ASIATIC DEVELOPMENT BHD,
DiGi.Com, Genting Bhd, IOI Corporation, LION DIVERSIFIED HOLDINGS BHD, Malayan Banking, PPB Oil Palms Berhad, Resorts World Bhd, Singapore Airlines and Telenor.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were
non-investment-banking, securities-related: AirAsia Bhd, AMMB Holdings, ASIATIC DEVELOPMENT BHD, ASTRO ALL ASIA NET, B.A.T (M), Bumiputra Commerce Holdings Bhd,
DiGi.Com, Genting Bhd, HONG LEONG BANK, IOI Corporation, JT International Bhd, KFC HLDGS (MAL), KL Kepong, Malakoff, Malayan Banking, Malaysia Airports Holdings
Bhd, Malaysian International Shipping Corp., Malaysian Plantations Bhd, Maxis Communications Bhd, MMC CORPORATION, PPB Oil Palms Berhad, Public Bank, Resorts
World Bhd, RHB Capital, Sime Darby, Singapore Airlines, Star Publications, Telekom Malaysia, Telenor, Tenaga, UMW Holdings Bhd, YTL CORP and YTL Power.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were
non-investment-banking, non-securities-related: ASIATIC DEVELOPMENT BHD, ASTRO ALL ASIA NET, B.A.T (M), Bumiputra Commerce Holdings Bhd, Genting Bhd, HONG
LEONG BANK, JT International Bhd, KFC HLDGS (MAL), KL Kepong, Malakoff, Malayan Banking, Malaysia Airports Holdings Bhd, Malaysian International Shipping Corp.,
Maxis Communications Bhd, MMC CORPORATION, PPB Oil Palms Berhad, Resorts World Bhd, Sime Darby, Singapore Airlines, Telekom Malaysia, Telenor, Tenaga, YTL CORP
and YTL Power.
Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the
Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the
Private Client Division, Institutional Sales and Trading, and Investment Banking.
The Firm is a market maker in the publicly traded equity securities of Telenor.
For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citigroup Investment Research product ("the
Product"), please contact Citigroup Investment Research, 388 Greenwich Street, 29th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same
important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at
www.citigroupgeo.com. Private Client Division clients should refer to www.smithbarney.com/research. Valuation and Risk assessments can be found in the text of the most
recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.
Citigroup Investment Research Ratings Distribution
Data current as of 31 December 2006
Citigroup Investment Research Global Fundamental Coverage (3106)
% of companies in each rating category that are investment banking clients
Malaysia -- Asia Pacific (39)
Singapore -- Asia Pacific (47)
Telecommunications Services -- Europe (19)
Citigroup Investment Research Quantitative World Radar Screen Model Coverage (6737)
Citigroup Investment Research Quantitative Decision Tree Model Coverage (334)
Citigroup Investment Research Quantitative European Value & Momentum Screen (602)
121
Buy
43%
45%
56%
18%
49%
48%
26%
60%
29%
31%
48%
50%
30%
50%
Hold
41%
41%
10%
25%
21%
20%
53%
50%
44%
24%
0%
0%
41%
42%
Sell
15%
34%
33%
8%
30%
21%
21%
25%
27%
22%
52%
47%
30%
33%
16 January 2007
Citigroup Investment Research Asia Quantitative Radar Screen Model Coverage (1858)
Citigroup Investment Research Quant Emerging Markets Radar Screen Model Coverage (1252)
Citigroup Investment Research Australia Quantitative Top 100 Model Coverage (100)
Citigroup Investment Research Australia Quantitative Bottom 200 Model Coverage (172)
Citigroup Investment Research Australia Quantitative Scoring Stocks Model Coverage (10)
20%
22%
20%
28%
30%
43%
30%
4%
50%
20%
60%
18%
60%
25%
40%
50%
40%
7%
0%
0%
20%
20%
20%
26%
30%
37%
30%
10%
50%
60%
Guide to Fundamental Research Investment Ratings:
Citigroup Investment Research's stock recommendations include a risk rating and an investment rating.
Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S).
Investment ratings are a function of Citigroup Investment Research's expectation of total return (forecast price appreciation and dividend yield within the next 12 months)
and risk rating.
For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are: Buy (1) (expected total return of 10% or more for Low-Risk
stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15%
for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return).
For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are: Buy (1) (expected total return of 15% or
more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for
Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks,
10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).
Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target
price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or
other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management.
Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected
performance and risk.
Guide to Quantitative Research Investment Ratings:
Citigroup Investment Research Quantitative Research World Radar Screen recommendations are based on a globally consistent framework to measure relative value and
momentum for a large number of stocks across global developed and emerging markets. Relative value and momentum rankings are equally weighted to produce a global
attractiveness score for each stock. The scores are then ranked and put into deciles. A stock with a decile rating of 1 denotes an attractiveness score in the top 10% of the
universe (most attractive). A stock with a decile rating of 10 denotes an attractiveness score in the bottom 10% of the universe (least attractive).
Citigroup Investment Research Quantitative Decision Tree model recommendations are based on a predetermined set of factors to rate the relative attractiveness of stocks.
These factors are detailed in the text of the report. Each month, the Decision Tree model forecasts whether stocks are attractive or unattractive relative to other stocks in
the same sector (based on the Russell 1000 sector classifications).
Citigroup Investment Research Quantitative European Value & Momentum Screen recommendations are based on a European consistent framework to measure relative
value and momentum for a large number of stocks across the European Market. Relative value and momentum rankings are equally weighted to produce a European
attractiveness score for each stock. The scores are then ranked and put into deciles. A stock with a decile rating of 1 denotes an attractiveness score in the top 10% of the
universe (most attractive). A stock with a decile rating of 10 denotes an attractiveness score in the bottom 10% of the universe (least attractive).
Citigroup Investment Research Asia Quantitative Radar Screen and Emerging Markets Radar Screen model recommendations are based on a regionally consistent
framework to measure relative value and momentum for a large number of stocks across regional developed and emerging markets. Relative value and momentum
rankings are equally weighted to produce a global attractiveness score for each stock. The scores are then ranked and put into quintiles. A stock with a quintile rating of 1
denotes an attractiveness score in the top 20% of the universe (most attractive). A stock with a quintile rating of 5 denotes an attractiveness score in the bottom 20% of
the universe (least attractive).
Citigroup Investment Research Quantitative Australian Stock Selection Screen rankings are based on a consistent framework to measure relative value and earnings
momentum for a large number of stocks across the Australian market. Relative value and earnings momentum rankings are weighted to produce a rank within a relevant
universe for each stock. The rankings are then put into deciles. A stock with a decile rating of 1 denotes an attractiveness score in the top 10% of the universe (most
attractive). A stock with a decile rating of 10 denotes an attractiveness score in the bottom 10% of the universe (least attractive).
Citigroup Investment Research Quantitative Research Australian Scoring Stocks model recommendations are based on a predetermined set of factors to rate the relative
attractiveness of stocks. These factors are detailed in the text of the report. Each month, the Australian Scoring Stocks model calculates whether stocks are attractive or
unattractive relative to other stocks in the same universe(the S&P/ASX 100) and records the 5 most attractive buys and 5 most attractive sells on the basis of the criteria
described in the report.
For purposes of NASD/NYSE ratings-distribution-disclosure rules, a Citigroup Investment Research Quantitative World Radar Screen and European Value & Momentum
Screen recommendation of (1), (2) or (3) most closely corresponds to a buy recommendation; a recommendation from this product group of (4), (5), (6) or (7) most closely
corresponds to a hold recommendation; and a recommendation of (8), (9) or (10) most closely corresponds to a sell recommendation.
For purposes of NASD/NYSE ratings distribution disclosure rules, a Citigroup Investment Research Asia Quantitative Radar Screen or Quantitative Emerging Markets Radar
Screen recommendation of (1) most closely corresponds to a buy recommendation; a Citigroup Investment Research Asia Quantitative Radar Screen or Quantitative
Emerging Markets Radar Screen recommendation of (2), (3), (4) most closely corresponds to a hold recommendation; and a recommendation of (5) most closely corresponds
to a sell recommendation.
For purposes of NASD/NYSE ratings-distribution-disclosure rules, a Citigroup Investment Research Quantitative Research Decision Tree model recommendation of
"attractive" most closely corresponds to a buy recommendation. All other stocks in the sector are considered to be "unattractive" which most closely corresponds to a sell
recommendation.
Recommendations are based on the relative attractiveness of a stock, they can not be directly equated to buy, hold and sell categories. Accordingly, your decision to buy or
sell a security should be based on your personal investment objectives and only after evaluating the stock's expected relative performance.
For purposes of NASD/NYSE ratings-distribution-disclosure rules, a Citigroup Investment Research Quantitative Australian Stock Selection Screen model ranking in the top
122
16 January 2007
third of the universe most closely corresponds, subject to market conditions, to a buy recommendation. A ranking in the bottom third of the universe, subject to market
conditions, most closely corresponds to a sell recommendation. All other stocks in the universe correspond to a hold recommendation. However, because Citigroup
Investment Research Quantitative Australian Stock Selection Screen model rankings are based on the relative attractiveness of a stock as compared to other stocks in the
same universe, they can not be directly equated to buy, hold and sell categories. Accordingly, your decision to buy or sell a security should be based on your personal
investment objectives and only after evaluating the stock's expected absolute performance.
For purposes of NASD/NYSE ratings-distribution-disclosure rules, membership of the Citigroup Investment Research Quantitative Australian Scoring Stocks Model buy
portfolio most closely corresponds to a buy recommendation; membership of the Citigroup Investment Research Quantitative Australian Scoring Stocks Model sell portfolio
most closely corresponds to a sell recommendation. However, because Citigroup Investment Research Quantitative Australian Scoring Stocks Model recommendations are
based on the relative attractiveness of a stock, they can not be directly equated to buy, hold and sell categories. Accordingly, your decision to buy or sell a security should
be based on your personal investment objectives and only after evaluating the stock's expected absolute performance.
OTHER DISCLOSURES
Within the past 5 years, Citigroup Global Markets Inc. or its affiliates has acted as manager or co manager of an offering of equity securities of Genting Bhd, IOI
Corporation, LION DIVERSIFIED HOLDINGS BHD and Maxis Communications Bhd.
Within the past 5 years, Citigroup Global Markets Inc. or its affiliates has acted as manager or co manager of an offering of fixed income securities of AMMB Holdings,
Bumiputra Commerce Holdings Bhd, Genting Bhd, IOI Corporation, Malayan Banking, Singapore Airlines, Star Publications and UMW Holdings Bhd.
Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to ASTRO ALL ASIA NET, MAGNUM CORP BERHAD, Malakoff, Public Bank,
Singapore Airlines, Telekom Malaysia, Telenor and Tenaga. (For an explanation of the determination of significant financial interest, please refer to the policy for managing
conflicts of interest which can be found at www.citigroupgeo.com.)
Citigroup Global Markets Inc. or its affiliates beneficially owns 2% or more of any class of common equity securities of Telekom Malaysia.
Citigroup Global Markets Inc. or its affiliates beneficially owns 5% or more of any class of common equity securities of IOI Corporation.
Citigroup Global Markets Inc. or its affiliates holds a long position in any class of common equity securities of AMMB Holdings, B.A.T (M), DiGi.Com, Gamuda, Genting Bhd,
IOI Corporation, Malayan Banking, Malaysian International Shipping Corp., Maxis Communications Bhd, New Straits Times Press, PLUS Expressways, PPB GROUP BERHAD,
Public Bank, Resorts World Bhd, RHB Capital, Sime Darby, Singapore Airlines, SP Setia, Telekom Malaysia, Tenaga, YTL CORP and YTL Power.
For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as
principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the
Product. The Firm regularly trades in the securities of the subject company(ies) discussed in the Product. The Firm may engage in securities transactions in a manner
inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis.
Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any
insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although
information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and
condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures
section of the Product. The Firm's research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to,
discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should
be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and
estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without
notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the
companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citigroup Investment Research does not set
a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of Citigroup Investment Research to provide research coverage
of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for
informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the
Product must take into account existing public information on such security or any registered prospectus.
Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting
requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not
subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and
their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in
a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed
accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in
certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details.
Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product
may be placed only through Citigroup Global Markets Inc.
The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made
available in Australia to wholesale clients through Citigroup Global Markets Australia Pty Ltd. (ABN 64 003 114 832 and AFSL No. 240992) and to retail clients through
Citigroup Wealth Advisors Pty Ltd. (ABN 19 009 145 555 and AFSL No. 240813), Participants of the ASX Group and regulated by the Australian Securities & Investments
Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty
Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through
bankers and relationship managers. If there is any doubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the
Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. If the Product
is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. (“CGM Canada”), CGM Canada has approved the Product. Citigroup
Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. The Product may not be distributed to private clients in Germany. The Product is distributed in Germany
by Citigroup Global Markets Deutschland AG & Co. KGaA, which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). Frankfurt am Main, Reuterweg
16, 60323 Frankfurt am Main. If the Product is made available in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Ltd., it is attributable to Citigroup Global
Markets Asia Ltd., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures
123
16 January 2007
Commission. If the Product is made available in Hong Kong by The Citigroup Private Bank to its clients, it is attributable to Citibank N.A., Citibank Tower, Citibank Plaza, 3
Garden Road, Hong Kong. The Citigroup Private Bank and Citibank N.A. is regulated by the Hong Kong Monetary Authority. The Product is made available in India by
Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board of India. Bakhtawar, Nariman Point, Mumbai 400-021. If the Product
was prepared by Citigroup Investment Research and distributed in Japan by Nikko Citigroup Ltd., it is being so distributed under license. Nikko Citigroup Limited is
regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka
Securities Exchange. Akasaka Park Building, 2-20, Akasaka 5-chome, Minato-ku, Tokyo 107-6122. The Product is made available in Korea by Citigroup Global Markets
Korea Securities Ltd., which is regulated by Financial Supervisory Commission and the Financial Supervisory Service. Hungkuk Life Insurance Building, 226 Shinmunno
1-GA, Jongno-Gu, Seoul, 110-061. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd, which is regulated by Malaysia Securities
Commission. Menara Citibank, 165 Jalan Ampang, Kuala Lumpur, 50450. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de
Bolsa, which is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available through
Citigroup Global Markets New Zealand Ltd., a Participant of the New Zealand Exchange Limited and regulated by the New Zealand Securities Commission. Level 19, Mobile
on the Park, 157 lambton Quay, Wellington. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which
is regulated by Komisja Papierów Wartosciowych i Gield. Bank Handlowy w Warszawie S.A. ul. Senatorska 16, 00-923 Warszawa. The Product is made available in the
Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued
by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the
Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation
or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No.
135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through
Citigroup Global Markets Singapore Pte. Ltd., a Capital Markets Services Licence holder, and regulated by Monetary Authority of Singapore. 1 Temasek Avenue, #39-02
Millenia Tower, Singapore 039192. The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore branch, a licensed bank in
Singapore that is regulated by Monetary Authority of Singapore. Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration
number 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities
Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private
customers in South Africa. The Product is made available in Taiwan through Citigroup Global Markets Inc. (Taipei Branch), which is regulated by Securities & Futures
Bureau. No portion of the report may be reproduced or quoted in Taiwan by the press or any other person. No. 8 Manhattan Building, Hsin Yi Road, Section 5, Taipei 100,
Taiwan. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand.
18/F, 22/F and 29/F, 82 North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand. The Product is made available in United Kingdom by Citigroup Global Markets
Limited, which is authorised and regulated by Financial Services Authority. This material may relate to investments or services of a person outside of the UK or to other
matters which are not regulated by the FSA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre,
Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc, which is regulated by NASD, NYSE and
the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made
available by Citigroup Global Markets Limited, which is regulated by Financial Services Authority. Many European regulators require that a firm must establish, implement
and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to Citigroup
Investment Research's Products can be found at www.citigroupgeo.com. Compensation of equity research analysts is determined by equity research management and
Citigroup's senior management and is not linked to specific transactions or recommendations. The Product may have been distributed simultaneously, in multiple formats,
to the Firm's worldwide institutional and retail customers. The Product is not to be construed as providing investment services in any jurisdiction where the provision of
such services would be illegal. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and
investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the
amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to
change. If in doubt, investors should seek advice from a tax adviser. Advice in the Product has been prepared without taking account of the objectives, financial situation
or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives,
financial situation and needs.
© 2007 Citigroup Global Markets Inc. Citigroup Investment Research is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and
registered throughout the world. Citigroup and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout
the world. Nikko is a registered trademark of Nikko Cordial Corporation. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure is prohibited by
law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient. The Firm
accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which
the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of
the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or
hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does
not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the
Firm shall have no liability arising out of, or in connection with, any such referenced website.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
Flash: Banpu
124