Market Focus - 150303 - 4Q14 Results Roundup - DBS(edited)

www.dbsvickers.com

ed: JS / sa: WMT

KLCIKLCIKLCIKLCI :::: 1,817.131,817.131,817.131,817.13

Analyst Bernard CHING 603 2604 3918 [email protected] Malaysia Research Team 603 2604 3333 [email protected] TOP STOCK PICKS

Source: AllianceDBS

DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity

3 Mar 2015

Malaysia Market Focus

Results Roundup Refer to important disclosures at the end of this report

Another uninspiring results season

• Still uninspiring despite more corporates meeting earnings expectations

• FBMKLCI’s 2014 earnings growth in negative territory; 2015 earnings cut by 1.5%

• Valuation is rich amid dismal earnings outlook

• Stay defensive and focus on bottom up stock picking

More met expectations in 4Q14. 65% of stocks in our coverage universe met our expectations, as compared to 52% in 3Q14 while the percentage of stocks missing estimates declined from 45% to 21%. Despite the improvement, we still deem 4Q14 earnings season as uninspiring as we cut CY15F earnings by 1.5% while FBMKLCI’s CY14 earnings shrunk 4.0% y-o-y.

Earnings risk moderated but not over yet. Despite our earnings cut, sectors that contributed to earnings downgrade such as banks and plantation still make up 46.4% of CY15 earnings growth. We expect earnings risk to remain high over the next 1-2 quarters given weak domestic growth drivers (dampened consumer sentiment, impending GST implementation) and normalization in the credit market (cyclical slowdown in loan growth, rising delinquencies).

Rich valuation. We find it difficult to justify FBMKLCI’s CY15 PE valuation of 16.7x (mean 15.7x) in view of the earnings risk and macro headwinds ahead. We maintain our base case end-2015 KLCI target of 1,750 (14.5x 2016 PE) while the worst case target is 1,600 (13.3x PE at -1SD). We continue to advocate a defensive strategy and focus on a bottom-up stock selection strategy.

Sector weightings. We continue to like construction (capex spending), technology (cyclical demand recovery and stronger USD) and utilities (resilient demand amid sector reform) sectors. We upgraded shipping to Overweight as lower bunker cost, following the recent crude oil price slump, will boost bottomline. We downgraded the gloves sector to Neutral as potential upside has narrowed following recent share price run up.

Bottom-up stock picks have outperformed. Our top stock picks (refer to our strategy report dated 15 Dec 2014) have generally done well with a simple average return of 9.6% YTD, outperforming the FBMKLCI by 6.4%. We dropped Hartalega and Globetronics from our top buy list following the recent price run up which has narrowed potential upside. We replaced these stocks with Time dotComTime dotComTime dotComTime dotCom and MISCMISCMISCMISC.

Price Price Price Price Mkt Mkt Mkt Mkt CapCapCapCap

Target Target Target Target PricePricePricePrice

Performance (%)Performance (%)Performance (%)Performance (%)

RMRMRMRM US$mUS$mUS$mUS$m RMRMRMRM 3 mth3 mth3 mth3 mth 12 mth12 mth12 mth12 mth RatingRatingRatingRating Tenaga Nasional 14.72 22,973 16.00 3.2 23.3 BUY Petronas Gas Bhd 23.06 12,618 25.40 1.5 (2.0) BUY MISC 8.42 10,394 9.30 15.2 32.4 BUY Gamuda 5.26 3,416 6.00 (0.6) 18.7 BUY IJM Corp 7.18 2,969 7.75 5.9 24.7 BUY TIME dotCom Bhd 5.59 887 6.00 12.9 53.2 BUY Unisem 2.10 392 2.40 16.7 96.3 BUY Muhibbah Engineering

2.29 273 3.50 (1.3) (7.7) BUY Pantech Group 0.77 127 0.95 (13.5) (14.9) BUY Sasbadi Holdings 1.51 53 2.25 (3.2) N.A BUY

Market Focus

Results Roundup

Page 2

Despite improvement, 4Q14 results were still uninspiring

65% of stocks in our coverage universe reported 4Q14 results

which met our expectations, as compared to 52% in 3Q14

while the percentage of stocks missing estimates declined from

45% to 21%. Despite the improvement, we still deem 4Q14

earnings season to be uninspiring as there were 1.5

disappointments for every one that beat estimates, while

earnings downgrades were twice as many as upgrades.

4Q14 summary of financial performance

PerformancePerformancePerformancePerformance vs vs vs vs AAAAlliancelliancelliancellianceDBSDBSDBSDBS (%)(%)(%)(%) vs Consensus (%)vs Consensus (%)vs Consensus (%)vs Consensus (%)

Above 14 15

In line 65 54

Below 21 31

Source: AllianceDBS

Automotive (lower volume), building materials (intense

competition), consumer (weak sentiment), and plantation (low

ASP) sectors reported results that were below expectations,

while shipping (lower bunker cost) and utilities (lower fuel cost)

sectors exceeded expectations. Furthermore, oil & gas and

telco sectors reported a mixed set of results.

Among big caps (top 30 stocks), IOI (lower tax, higher

associates contribution), KLK (oleochemicals contribution not

as weak as expected), MISC (LNG segment not as weak as

expected), Telekom (higher ARPU for internet services), and

Tenaga (lower fuel cost and better generation mix) beat

expectations while notable disappointments came from CIMB

(higher provisions and opex), Petronas Dagangan (drop in

ASP), Astro (lower subscriber net adds and weaker ARPU

growth), Sime (lower FFB output and weaker industrial

contribution), FGV (loss making downstream business), Axiata

(consolidation of Axis, weaker IDR and weaker Celcom

revenues), Maxis (higher traffic related costs and sales &

marketing expenses), and UMW Holdings (lower contribution

from auto segment and derivative losses).

Sector performance

SectorSectorSectorSector 4444Q14Q14Q14Q14 (RM m)(RM m)(RM m)(RM m)

4444Q13Q13Q13Q13 (RM m)(RM m)(RM m)(RM m)

YYYY----oooo----y y y y change %change %change %change %

vs vs vs vs expectationexpectationexpectationexpectation

CommentsCommentsCommentsComments

AutomotiveAutomotiveAutomotiveAutomotive 116.62 141.99 (17.9%) Below UMW’s earnings declined due to lower volume and unfavourable product mix, though MBM saw higher Perodua contributions due to good sales of its Axia launch.

AviationAviationAviationAviation 73.94 95.61 (22.7%) In line Long-haul yields remain depressed, but there were signs of improvement for shorter-haul yields. Capacity management is the core strategy for AirAsia and AAX in 2015.

BankingBankingBankingBanking 5,395.47 5,822.54 (7.3%) In line Higher provisions and weak non-interest income were key drags on earnings.

Building MaterialsBuilding MaterialsBuilding MaterialsBuilding Materials 93.88 172.96 (45.7%) Below ASP and margins eroded as competition in Peninsular Malaysia cement market intensified due to new incoming supply.

ChemicalsChemicalsChemicalsChemicals 500.00 450.00 11.1% In line Weak quarter as expected. Improved plant utilisation and availability were offset by declining petrochemical prices.

ConglomerateConglomerateConglomerateConglomerate 480.59 321.65 49.4% In line MMC's earnings were lifted by a lower effective tax rate, while there was growth at its energy & utilities segment and throughput at PTP.

ConstructionConstructionConstructionConstruction 373.37 776.64 (51.9%) In line Results were largely in line barring lumpy items, though construction earnings were relatively soft. However, our top picks like IJM and Muhibbah continue to secure orders.

ConsumerConsumerConsumerConsumer 347.00 465.87 (25.5%) Below The weaker consumer sentiment was reflected in the largely soft quarter, and Petronas Dagangan’s performance was dragged by the steep decline in oil prices.

Financial nonFinancial nonFinancial nonFinancial non----bankbankbankbank 134.09 118.91 12.8% In line Growth was mainly from BURSA, where earnings were driven by equities revenue.

Market Focus

Results Roundup

Page 3

Sector performance (cont’d)

SectorSectorSectorSector 4444Q14Q14Q14Q14 (RM m)(RM m)(RM m)(RM m)

4444Q13Q13Q13Q13 (RM m)(RM m)(RM m)(RM m)

yyyy----oooo----y y y y change %change %change %change %

vs vs vs vs expectationexpectationexpectationexpectation

CommentsCommentsCommentsComments

GamingGamingGamingGaming 1,053.60 875.54 20.3% In line Genting counters benefited from foreign exchange gains and non-gaming segments, but NFOs and gaming operations felt the adverse impact of weaker consumer sentiment.

GloveGloveGloveGlove 160.40 170.32 (5.8%) In line The decline in unit profitability seems to have bottomed out this quarter, with some glove makers even reporting q-o-q increases in EBIT/k gloves. Capacity expansion is the core theme for this sector in 2015.

HealthcareHealthcareHealthcareHealthcare 267.66 252.68 5.9% In line Both KPJ and IHH reported improvements in operating margin during the results season.

MediaMediaMediaMedia 233.68 273.58 (14.6%) In line Adex sales remained weak for media companies amid poor consumer sentiment.

Oil & GasOil & GasOil & GasOil & Gas 549.25 649.18 (15.4%) Mixed Earnings from Bumi Armada and MMHE were weaker on allowances for trade receivables and depleting orderbook respectively. Other companies were in line, reporting weak results which were expected due to the monsoon season and also cut backs in workflow from the likes of PETRONAS.

PlantationPlantationPlantationPlantation 983.40 2,330.47 (57.8%) Below Upstream planters were affected by low CPO prices and production was plagued by bad weather. Refiners reported weak margins as the M'sian and Indonesian governments waived export taxes.

PortPortPortPort 9.88 11.41 (13.4%) Below Suria's earnings were dampened by higher port operation expenses; we are still awaiting the launch of the Jesselton Quay project as its re-rating catalyst.

PropertyPropertyPropertyProperty 450.69 448.20 0.6% In line Profit recognition driven by progressive milestone completions of unbilled sales.

REITREITREITREIT 427.02 410.98 3.9% In line Rental reversions were still positive at retail assets, though flattish for office due to oversupply conditions.

ShippingShippingShippingShipping 663.40 597.70 11.0% Above Petroleum shipping rates were on a firm uptrend, with average time-charter rates up by 44-77% y-o-y in the quarter. Chemical and LNG shipping rates remain lacklustre. Cheaper bunker prices could provide a respite to chemical shipping operations which mainly trade in the spot market.

TechnologyTechnologyTechnologyTechnology 65.46 (2.78) 2450.5% In line Apart from robust demand, the better performances for tech companies were also partly driven by the stronger USD.

TelecommunicationTelecommunicationTelecommunicationTelecommunication 1,845.75 2,103.51 (12.3%) Mixed Mobile operators suffered from weaker than expected margins amid tepid industry growth. Fixed-line operators fared better due to internet and data services.

UtilitiesUtilitiesUtilitiesUtilities 2,790.94 1,980.60 40.9% Above Lifted by TNB's strong earnings due to lower coal prices, more favourable fuel mix and lower effective tax rate.

Source: AllianceDBS

Market Focus

Results Roundup

Page 4

Earnings estimates cut

Following 4Q14 results season, we adjusted our FBMKLCI

earnings (free float adjusted) for CY14 and CY15F by -3.3%

and -1.5%, respectively. Key contributors to CY15F earnings

cut include CIMB, IOI, Genting and Maybank which more than

offset the earnings upgrades of Tenaga and MISC.

Following our earnings cut, earnings growth estimates for CY15

have been adjusted from 7.8% to 9.8%. That said, this comes

from a much lower base in CY14, as earnings declined 4% y-o-y.

FBMKLCI earnings change (calendarised)

27272727----FebFebFebFeb----11115555

30303030----JanJanJanJan----11115555

ChangeChangeChangeChange

% Change% Change% Change% Change

CY14CY14CY14CY14 CY15CY15CY15CY15




RM m RM m

RM m RM m

RM m RM m

AMMB Holdings Bhd 949.49 1,033.55 949.49 1,091.11 0.0 -57.6 0.0% -5.3%

Astro Malaysia Holdings Bhd 151.22 209.43 151.22 209.43 0.0 0.0 0.0% 0.0%

Axiata Group Bhd 1,299.80 1,536.87 1,392.71 1,558.23 -92.9 -21.4 -6.7% -1.4%

British American Tobacco Malaysia 451.70 507.45 481.98 507.45 -30.3 0.0 -6.3% 0.0%

CIMB Group Holdings Bhd 1,881.22 2,281.55 2,457.19 2,618.26 -576.0 -336.7 -23.4% -12.9%

DiGi.Com Bhd 974.92 1,044.06 945.98 1,045.98 28.9 -1.9 3.1% -0.2%

Felda Global Ventures Holdings 80.26 232.91 197.06 301.86 -116.8 -69.0 -59.3% -22.8%

Genting Bhd 1,067.15 929.93 978.98 1,034.26 88.2 -104.3 9.0% -10.1%

Genting Malaysia Bhd 712.22 700.36 667.76 763.10 44.5 -62.7 6.7% -8.2%

Hong Leong Bank Bhd 741.76 814.29 741.76 814.29 0.0 0.0 0.0% 0.0%

Hong Leong Financial Group Bhd 358.07 396.55 347.87 375.96 10.2 20.6 2.9% 5.5%

IHH Healthcare Bhd 252.65 310.25 263.30 311.82 -10.6 -1.6 -4.0% -0.5%

IOI Corp Bhd 662.18 659.22 801.66 789.53 -139.5 -130.3 -17.4% -16.5%

KLCC Property Holdings Bhd 172.33 178.34 166.24 172.23 6.1 6.1 3.7% 3.5%

Kuala Lumpur Kepong Bhd 484.61 476.93 485.20 475.60 -0.6 1.3 -0.1% 0.3%

Malayan Banking Bhd 3,102.21 3,178.24 3,001.94 3,278.20 100.3 -100.0 3.3% -3.0%

Maxis Bhd 665.42 730.13 716.19 782.09 -50.8 -52.0 -7.1% -6.6%

MISC Bhd 641.02 805.61 608.97 696.42 32.1 109.2 5.3% 15.7%

Petronas Chemicals Group Bhd 887.40 981.39 974.04 981.39 -86.6 0.0 -8.9% 0.0%

Petronas Dagangan Bhd 150.77 195.14 192.98 241.05 -42.2 -45.9 -21.9% -19.0%

Petronas Gas Bhd 675.47 695.13 669.78 696.12 5.7 -1.0 0.8% -0.1%

PPB Group Bhd 462.57 474.31 462.57 474.31 0.0 0.0 0.0% 0.0%

Public Bank Bhd 3,581.55 3,970.60 3,581.55 3,970.60 0.0 0.0 0.0% 0.0%

RHB Capital Bhd 550.30 571.12 542.80 570.34 7.5 0.8 1.4% 0.1%

Sapurakencana Petroleum Bhd 891.87 810.85 891.87 810.85 0.0 0.0 0.0% 0.0%

Sime Darby Bhd 1,323.23 1,373.17 1,378.93 1,428.23 -55.7 -55.1 -4.0% -3.9%

Telekom Malaysia Bhd 492.91 581.64 456.76 542.07 36.2 39.6 7.9% 7.3%

Tenaga Nasional Bhd 3,203.56 3,674.25 3,084.14 3,258.44 119.4 415.8 3.9% 12.8%

UMW Holdings Bhd 372.92 579.48 496.45 579.48 -123.5 0.0 -24.9% 0.0%

YTL Corp Bhd* 655.54 711.28 758.01 724.81 -102.5 -13.5 -13.5% -1.9%

FBMKLCI (free float weighted)FBMKLCI (free float weighted)FBMKLCI (free float weighted)FBMKLCI (free float weighted) 27,896.32 27,896.32 27,896.32 27,896.32 30,644.05 30,644.05 30,644.05 30,644.05 28,845.38 28,845.38 28,845.38 28,845.38 31,103.51 31,103.51 31,103.51 31,103.51 ----949.1949.1949.1949.1 ----459.5459.5459.5459.5 ----3.3%3.3%3.3%3.3% ----1.5%1.5%1.5%1.5%

* Earnings for stocks not under coverage are based on consensus estimates Source: AllianceDBS, Bloomberg Finance L.P

Market Focus

Results Roundup

Page 5

FBMKLCI earnings growth (calendarised)

% Weight % Weight % Weight % Weight in Indexin Indexin Indexin Index Market CapMarket CapMarket CapMarket Cap

Free Float Free Float Free Float Free Float Weighted Weighted Weighted Weighted Mkt CapMkt CapMkt CapMkt Cap

Under Under Under Under CoverageCoverageCoverageCoverage

FrFrFrFree Float Weighted NPee Float Weighted NPee Float Weighted NPee Float Weighted NP

Company NameCompany NameCompany NameCompany Name

2014201420142014 2015201520152015 2016201620162016

RM m RM m

RM m RM m RM m

AMMB Holdings Bhd 2.4 19,260.6 11,171.2 Yes

949.5 1,033.5 1,169.4

Astro Malaysia Holdings Bhd 1.0 17,009.7 5,098.6 Yes

151.2 209.4 276.2

Axiata Group Bhd 6.5 61,472.3 35,675.7 Yes

1,299.8 1,536.9 1,707.8

British American Tobacco Malaysia 1.8 19,730.1 9,865.1 Yes

451.7 507.5 514.2

CIMB Group Holdings Bhd 7.3 50,121.3 31,337.3 Yes

1,881.2 2,281.6 2,645.4

DiGi.Com Bhd 4.0 49,371.3 23,698.2 Yes

974.9 1,044.1 1,146.0

Felda Global Ventures Holdings 1.5 8,463.7 4,316.5 Yes

80.3 232.9 276.0

Genting Bhd 4.2 32,904.1 19,616.4 Yes

1,067.2 929.9 974.8

Genting Malaysia Bhd 2.3 23,305.5 12,197.0 Yes

712.2 700.4 813.3

Hong Leong Bank Bhd 1.6 25,830.9 8,713.1 Yes

741.8 814.3 900.2

Hong Leong Financial Group Bhd 0.6 17,707.6 3,541.5 Yes

358.1 396.6 442.5

IHH Healthcare Bhd 2.3 45,554.6 15,258.5 Yes

252.6 310.3 366.0

IOI Corp Bhd 3.7 29,965.1 17,520.5 Yes

662.2 659.2 875.0

KLCC Property Holdings Bhd 0.6 12,511.0 3,127.7 No

172.3 178.3 183.5

Kuala Lumpur Kepong Bhd 2.5 24,174.7 12,130.6 Yes

484.6 476.9 557.4

Malayan Banking Bhd 8.0 85,738.4 39,601.1 Yes

3,102.2 3,178.2 3,672.8

Maxis Bhd 3.4 52,925.3 18,506.2 Yes

665.4 730.1 789.7

MISC Bhd 1.8 37,585.1 12,403.1 Yes

641.0 805.6 853.5

Petronas Chemicals Group Bhd 3.7 43,760.0 15,753.6 Yes

887.4 981.4 1,031.2

Petronas Dagangan Bhd 1.4 19,451.8 5,835.5 Yes

150.8 195.1 205.8

Petronas Gas Bhd 3.7 45,629.6 18,251.8 Yes

675.5 695.1 716.2

PPB Group Bhd 1.7 17,284.6 8,642.3 Yes

462.6 474.3 484.0

Public Bank Bhd 11.6 70,742.6 56,940.3 Yes

3,581.5 3,970.6 4,363.0

RHB Capital Bhd 1.1 20,476.8 5,529.1 Yes

550.3 571.1 628.1

Sapurakencana Petroleum Bhd 3.2 17,077.6 10,929.7 Yes

891.9 810.8 837.5

Sime Darby Bhd 5.7 57,950.1 29,099.8 Yes

1,323.2 1,373.2 1,606.2

Telekom Malaysia Bhd 2.5 26,481.9 15,027.9 Yes

492.9 581.6 667.1

Tenaga Nasional Bhd 7.3 83,074.0 46,130.9 Yes

3,203.6 3,674.3 3,889.2

UMW Holdings Bhd 1.4 12,944.7 7,340.0 Yes

372.9 579.5 634.1

YTL Corp Bhd 1.6 17,112.4 8,858.6 No

655.5 711.3 731.9

TotalTotalTotalTotal

1,045,617.21,045,617.21,045,617.21,045,617.2 512,118.0512,118.0512,118.0512,118.0

27,896.327,896.327,896.327,896.3 30,644.030,644.030,644.030,644.0 33,958.233,958.233,958.233,958.2

% coverage / earnings growth

98.36 98.27

-4.0 9.8 10.8

Current implied P/E

18.4 16.7 15.1

Source: AllianceDBS

Market Focus

Results Roundup

Page 6

Valuation is expensive

The benchmark FBMKLCI has rebounded by 3.2% YTD amid a

slight recovery in global crude oil prices which is positive for

net oil & gas exporting nations such as Malaysia.

That said, we had cautioned investors back in Dec 2014 to sell

on strength and buy on weakness given earnings risk and

macro headwinds (slow consumption, cyclical decline in credit

growth, lower commodity prices). With CY15F earnings for the

FBMKLCI cut by another 1.5% following the 4Q14 earnings

season, the Malaysian benchmark index is now trading at

16.7x PE which is rich as compared to historical mean of 15.7x.

It is also trading at a premium to ASEAN peers but with much

lower earnings growth. As such, we continue to take a

cautious stance on the market and maintain our base case

end-2015 FBMKLCI target of 1,750 (14.5x 2016 PE). Our worst

case target is 1,600 (13.3x PE at -1SD).

ASEAN 5 CY15 earnings growth comparison

9.8%

9.9%

11.2%

13.3%

13.3%

17.4%

Malaysia

Singapore

South East Asia

Philippines

Thailand

Indonesia

Source: Bloomberg Finance L.P

FBMKLCI P/E trend

8

12

16

20

24FBMKLCI Index PE (x)

Mean

15.7x

- 1 s.d.

13.3x

+ 1 s.d.

18.1x


Although earnings risk for FBMKLCI has moderated following

the recent earnings cut, the key contributors to earnings cut

over the past few quarters i.e. banks and plantation sectors still

contribute about 46.4% of earnings growth in CY15F, down

from our previous projection of 60.1% in Dec 2014. We

expect earnings risk to remain high over the next 1-2 quarters

given weak domestic growth drivers (dampened consumer

sentiment, impending GST implementation) and normalisation

in the credit market (cyclical slowdown in loan growth, rising

delinquencies).

FBMKLCI CY15F earnings growth contributors by sector

39.4%

2.1%

16.7%

4.1%7.0%

-2.9%

19.9%

13.8%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Banking Media Telco Consumer Plantation Oil & Gas Utilities Others

KLCI CY15 Earnings Growth Contributors


We continue to advocate a defensive strategy and focus on a

bottom-up stock selection strategy.

Market Focus

Results Roundup

Page 7

Sector weightings

Sector Views

OverweightOverweightOverweightOverweight

Construction Shipping (↑) Technology Utilities

NeutralNeutralNeutralNeutral

Automotive Aviation Banks Gaming Gloves (↓) Healthcare Oil & Gas Plantation Property REITs Telecommunication

UnderweightUnderweightUnderweightUnderweight Consumer

Source: AllianceDBS

We continue to favour sectors which are resilient amid a

slowdown in domestic consumption. ConstructionConstructionConstructionConstruction remains an

Overweight due to continued government spending on

infrastructure projects as well as projects under the Economic

Transformation Programme (ETP). This is further supported by

PM’s reassurance in mid-Jan that development expenditure for

2015 will not be cut despite the slump in oil-related revenue.

We continue to like the TTTTechnologyechnologyechnologyechnology sector as the steady

recovery in the US has boosted exports of E&E products, which

led to a cyclical recovery of this sector. Although export

growth may slow down, it will be from a higher base in 2014.

Furthermore, these companies will also benefit from a weaker

MYR against the USD.

UUUUtilitiestilitiestilitiestilities sector also remains an Overweight as we continue to

like its resiliency. It is also a beneficiary of energy sector reform

in Malaysia which will lead to improved earnings visibility over

the longer term, boosting the prospects of higher dividend

payouts going forward.

We upgrade the SSSShippinghippinghippinghipping sector to Overweight as lower

bunker cost following the recent crude oil price slump will

boost bottomline.

We downgraded the GlovesGlovesGlovesGloves sector from overweight to Neutral

as stocks within our coverage have performed well since our

recommendation upgrade in Dec and thereby, narrowing

further potential upside.

We continue to keep the CCCConsumeronsumeronsumeronsumer sector Underweight,

which is vindicated judging by the earnings disappointment in

4Q14. The current weak consumer sentiment is unlikely to

change for the better in view of implementation of GST in

April 2015, which will lead to another round of inflationary

pressure. Nevertheless, we like the education sub-segment for

its resilience towards economic cycles.

Top stock picks

Our top stock picks (refer to our strategy report dated 15 Dec

2014) have generally done well with a simple average return of

9.6% YTD, outperforming the FBMKLCI by 6.4%.

Performance of top stock picks

Stock 31-Dec-14 2-Mar-15 YTD perf

Tenaga Nasional 13.80 14.66 6.2%

Petronas Gas 22.16 23.10 4.2%

Gamuda 5.01 5.29 5.6%

IJM Corp 6.57 7.20 9.6%

Muhibbah Engineering 1.87 2.29 22.5%

Hartalega 7.03 8.00 13.8%

Globetronics 4.30 4.88 13.5%

Unisem 1.78 2.10 18.0%

Pantech 0.77 0.76 -1.3%

Sasbadi 1.48 1.54 4.1%

Simple average 9.6%

Price at


We dropped Hartalega and Globetronics from our top buy list

following recent price run up which has narrowed potential

upside. We replaced these stocks with Time dotComTime dotComTime dotComTime dotCom and

MISCMISCMISCMISC.

Please refer to page 14 to 16 for detailed key investment merits

of our top stock picks.

Market Focus

Results Roundup

Page 8

Sector Outlook

SectorSectorSectorSector OutlookOutlookOutlookOutlook Top Stock PicksTop Stock PicksTop Stock PicksTop Stock Picks

AutomotiveAutomotiveAutomotiveAutomotive

Neutral

• The uncertainty over direction of car prices with the implementation of GST will likely

result in muted volume sales in the coming months. Tighter financing conditions

could further dampen consumer sentiment. For manufacturers, the appreciating US$

would increase the cost of imported materials and pressure margins.

• Hence, we expect 2015 to be a challenging year for auto players. We maintain Hold

recommendations for the auto stocks under our coverage.

-

AviationAviationAviationAviation

Neutral

• MAS has been delisted, and is currently undergoing restructuring. We expect MAS to

rationalise its capacity, but the near-term focus will likely be onshort-haul routes.

Channel checks indicate that long-haul routes will only be reviewed at a later stage of

the restructuring (beyond 2Q15). If so, AirAsia, which focuses on short-haul routes,

would see its competitive environment turn positive, ahead of AAX which focuses on

long-haul routes.

• The cheaper fuel cost is a boon for the airlines, but we expect the airlines to pass on

a significant portion of the fuel cost savings to consumers. AirAsia and AAX’s

decision to remove fuel surcharge suggests that the group could pass on c.70% of

cost savings to consumers. Meanwhile, the stronger USD will offset some of the fuel

cost savings, as USD-denominated OPEX (maintenance, lease, fuel) and finance cost

(from USD-borrowings) will be more expensive.

• MAS’ renewed focus on yield management is negative for MAHB. With airline toning

down capacity growth and higher airfares going forward, passenger traffic will likely

normalise and be slower than 2013. The implementation of GST could also reduce

consumers’ discretionary spending, which is another dampener for travel demand.

The airport operator is only targeting a 3%growth in passenger traffic in 2015.

-

BanksBanksBanksBanks

Neutral

• Revenue growth will be capped by a flat loan growth (our sector loan growth

assumption is 9%) and will be largely business driven amid weaker consumer

sentiment from fiscal tightening measures and stricter consumer lending rules.

• NIM compression will persist in 2015, pressured mainly by deposit competition as

banks prepare to meet the Liquidity Coverage Ratio requirements under Basel III. The

outlook for capital markets is sluggish. Provisions are likely to normalise with fewer

recoveries, and with the softer macro environment, we would not discount credit

costs inching up.

• We would stay defensive and stick to PBK and HLB. Both banks have the advantage

of strong credit culture and liquidity. However, HLB may consider a capital raising

exercise to beef up its capital position.

Public Bank, Hong Leong

Bank

Building materialsBuilding materialsBuilding materialsBuilding materials

Neutral

• Competition in Peninsular Malaysia cement industry could get worse as YTL Cement

will add another 8% to industry capacity when its expansion is completed in early

2015. Meanwhile, domestic cement demand growth is only expected to grow by 3-

5% in 2015, according to Lafarge.

• CMS is in a better position given its natural monopoly in the Sarawak market. The

company is also not impacted by the electricity tariff hike suffered by Peninsular

players.

-

Market Focus

Results Roundup

Page 9

Sector Outlook (cont’d)


ConstructionConstructionConstructionConstruction

Overweight

• The Prime Minister reiterated his commitment towards several high multiplier

construction contracts inspite of the still low oil price environment. This includes

among others MRT Line 2, High Speed Rail, LRT 3, RAPID and other highway projects.

• We expect an official announcement on MMC-Gamuda's PDP contract for MRT Line

2 by 2Q15 where it should not be worse off as compared to its role for Line 1.

Tenders will open in 3Q15 and some works should start by 1Q16.

• Our top picks for the sector remain the large caps - IJM and Gamuda. IJM's

orderbook is now at its peak at c.RM7bn and comprises of higher margin local jobs.

Gamuda also remains the best proxy to the MRT story in Malaysia. In the mid cap

space, we still like Muhibbah Engineering where we think its infrastructure division

should show stronger growth this year.

Gamuda, IJM Corp,

Muhibbah Engineering

ConsumerConsumerConsumerConsumer

Underweight

• 4Q2014 consumer sentiment index fell 15 points q-o-q to settle below the threshold

of 100 at 83 points (3Q2014: 98 points), indicating consumers are concerned about

the future and becoming more cautious due to the rising cost of living.

• 4QCY14 results were unexciting. We observe that the sector has been generally

plagued by rising cost pressures and the inability to pass on the higher costs due to

(1) a slowdown in consumer spending, and (2) increasingly competitive operating

environment. As such, margins may continue to be suppressed.

• We keep the sector as Underweight, as earnings remain unexciting and sentiment is

not likely to see a swift turnaround. Sasbadi is our top pick due to its exposure to the

resilient pre-university education industry, and will be a key beneficiary to potential

new policies in the Malaysia Education Blueprint 2013-2025.

Sasbadi

GamingGamingGamingGaming

Neutral

• We do not foresee any significant catalysts to re-rate the sector in the near term.

Falling domestic consumer sentiment could slow down discretionary spending, which

may in turn drag the leisure & hospitality business of Genting Malaysia’s domestic

operations and ticket sales of NFOs.

• On the other hand, even though the sector was spared of sin tax hikes in the Budget

2015, GST implementation in April 2015 will impact margins.

-

GlovesGlovesGlovesGloves

Neutral

• Malaysian glovemakers are set to grow production capacity by 16%/13% in 2015/16.

While this surpasses the expectations of global glove consumption growth of 6-8%

p.a., the additional capacity will be absorbed due to: (1) the progressive

commissioning of production lines, (2) potential delays in some expansion plans, and

(3) closure of Halyard Health’s Thai glove facility which will remove 3bn capacity in

CY15. In short, we expect Malaysian glovemakers to gain global market share.

• Despite this, competition could still heat-up among the glovemakers. Hartalega with

its best-in-class operating structure (i.e. lowest breakeven utilisation) could choose to

be more aggressive in its pricing to: (1) grab market share, (2) maximise utilisation

and profits, and (3) derail competitors expansion plans by depressing IRRs for future

projects.

• Our top pick for the sector is Hartalega, as it is best-positioned to weather an

industry-wide price war. We expect the stock to offer decent 16% earnings CAGR in

FY15-17F, even after assuming severe margin compression.

Hartalega

Market Focus

Results Roundup

Page 10



HealthcareHealthcareHealthcareHealthcare

Neutral

• We remain optimistic of the growth prospects for private hospitals operators due to

increasing demand for quality healthcare amid rising disposable income. Capacity

constraints at government healthcare facilities are also expected to drive affluent

patients to private hospitals. The constraint is expected to worsen with public

healthcare development expenditure cut from RM3.7bn in 2010 to RM1.6bn in 2015.

• Generic pharmaceutical players are expected to enter a new growth phase with the

approach of the patent cliff. This provides an opportunity for them to launch new

products and improve sales. Valuations are also more palatable vis-à-vis the hospital

operators.

• There is increasing competition within the retail pharmacy segment with the

emergence of several independent retail pharmacies. The exceptionally high ROEs of

30-40% will be a thing of the past. We expect an industry-wide price war to drive

margins down going forward.

-

MediaMediaMediaMedia

Neutral

• We expect adex to be softer for the rest of this year as further subsidy rationalisation

measures and the introduction of GST in 2015 would dampen consumer sentiment.

• Nonetheless, downside risks are limited given decent dividend yields of 4-6% for the

sector.

-

Oil & GasOil & GasOil & GasOil & Gas

Neutral

• PETRONAS recently re-affirmed its stance on cutting capex and opex after reporting

losses in 4Q14 and overall FY14 earnings that was 27% lower y-o-y. There has

already been noise in the market of asset charter rates and work order rates, and

volumes being negotiated downward and we expect these cost cutting measures to

continue.

• With a change in guard in PETRONAS starting April, we believe that it will further

slow contract flow over 2015 as the new management settles in, implying that 2015

will be a very quiet year for the sector.

• Downstream will be the only active area as investments to develop RAPID continue.

We like Pantech as it is poised to benefit from demand for pipes, valves and fittings.

• On a positive note, crude oil prices have stabilised and Brent prices are starting to

creep up. Further recovery in crude oil prices would brighten 2016 outlook as PSC’s

may decide to revive capex growth.

• We have 2 BUY recommendations within our coverage - SapuraKencana and Pantech

(as explained above). SAKP’s results should progressively improve after a dip in 4Q14

and 1Q15 as crude oil prices recover. Furthermore, its orderbook of RM27bn is

largely intact.

SapuraKencana

Petroleum, Pantech

Market Focus

Results Roundup

Page 11



PlantationPlantationPlantationPlantation

Neutral

• We expect palm oil prices to remain under pressure in the near term, given the (1)

record US soybean crop, (2) prospective demand shifts to soybean oil from India due

to a hike in import taxes, and (3) soft biodiesel demand. Further downside risks are

extra soybean supplies from Argentina flooding the export market in the event of a

Peso-devaluation. This may occur before/during South American harvest season

(1Q15).

• Refiners are also expected to see continued low margins due to the waiver of export

taxes and underlying overcapacity issues.

• However, slower supply in 2H15 from the dryness in 1Q & 3Q14 (which will affect FFB

yields) is anticipated to help lower the stock/usage ratio by year-end, which can

support CPO prices.

• We recommend younger planters such Genting Plantations and TSH Resources which

can offset lower ASPs with higher volume.

Genting Plantations TSH Resources

PropertyPropertyPropertyProperty

Neutral

• We expect slower property sales volumes in 2015 although prices should continue to

hold up due to cost push factors. While sentiment should remain subdued given

recent tightening measures and inflationary pressures, mass-market products at

strategic locations continue to enjoy robust sales as affordability remains a key issue

among property purchasers.

• Rising building material prices as well as tight foreign labour supply could heighten

execution risk and dampen developers' margins. There is no property bubble for now

but we fear an oversupply of KL office space, hybrid high-rise units and Iskandar

Malaysia high-end condos.

• MKH is our top pick for the sector given its large exposure to affordable housing and

landed properties in the Kajang-Semenyih growth corridor. We also like Sunway

given its clear earnings visibility and superior ‘build-own-manage’ integrated model

which is unrivalled by most of its peers.

MKH, Sunway

REITsREITsREITsREITs

Neutral

• Retail REITs saw its peak rental reversion cycle in 2014, but may see reversions

moderated by weaker retail sales going forward, due to the softer consumer

sentiment. Office spaces are still in oversupply, restricting rental growth and

presenting some risk towards occupancy levels. Overall we expect earnings and DPU

growth to be lukewarm.

• Our house economist is not expecting an interest rate hike in 2015, which is positive

for yield-sensitive securities like REITs. However the spread of larger cap REIT yields

over the 10-year Malaysian Government Securities are relatively narrow at <2%.

• Given the largely unexciting environment, REITs which can achieve inorganic growth

through yield-accretive asset growth should generate interest. We like Sunway REIT

due to the impending completion of refurbishment works at Sunway Putra, and its

large asset injection pipeline from sponsor Sunway Bhd.

Sunway REIT

Market Focus

Results Roundup

Page 12



ShippingShippingShippingShipping

Overweight

• Petroleum rates remain firmly on an uptrend with average time-charter rates up by

44-77% y-o-y in 4Q14. Supply and demand dynamics for the segment is expected to

remain favourable through 2015, as increasing longer haul trade is expected to

continue driving tonnage demand (+2.2% y-o-y) while tonnage supply is expected to

grow by only 1.2% y-o-y.

• LNG rates are expected to remain under pressure due to lower cargo availability

following delays in several major LNG projects, as well as the burgeoning LNG

orderbook which was largely driven by financial investors and private equity funds.

However, Petronas’ recent decision to novate five incoming LNG carriers to MISC and

the extension of the five Puteri class LNG vessels to MISC, have restored investors’

confidence on MISC’s role as the shipping arm of Petronas.

• Crude tanker rates will continue to trend up. Increasing long-haul trade (i.e. West

Africa to China and India) is expected to generate higher tonne-miles, which will lead

to higher deadweight demand (+2.2% in 2015). Crude tanker supply is expected to

grow at a slower pace of 1.6% in 2015. Product tanker rates are expected to remain

lacklustre, with tonnage supply expected to grow at a faster 5.8% vs tonnage

demand growth of 4.0% in 2015.

• Chemical tanker rates are expected to remain lacklustre on slower eastbound trade,

due to weak Chinese chemical imports. Rates for the transatlantic eastbound routes

are most affected by this.

• Dry bulk recovery is expected to be punctuated with volatile rates, as the reversal of

slow-steaming could unwind the trapped capacity and pressure rates. The risk of this

happening is higher if oil prices remain at current depressed levels. Meanwhile,

China’s determination to tackle air pollution and excess steel capacity may put a

brake on Chinese iron ore and coal imports. This will reduce demand for capesize and

panamax bulkers.

• Our top pick for the sector is MISC, as it is set to benefit from the recovery in crude

tanker rates. Petronas’ decision to novate the five incoming LNG vessels and to

extend the charters of the five Puteri Class LNG vessels by another ten years, will

provide support to MISC’s LNG earnings. This has also restore investors’ confidence

on MISC’s role as the shipping arm of Petronas.

MISC

TechnologyTechnologyTechnologyTechnology

Overweight

• The OSAT (outsourced assembly & test) industry is benefiting from increasing

outsourcing by semiconductor companies. There are also tailwinds from industry

consolidation, with the most recent being the acquisition of STATS ChipPAC by

China-based JCET. MPI and Unisem are clear beneficiaries.

• We prefer Unisem (over MPI) given its exposure in the WLCSP and wafer bumping

segment that is seeing robust demand from customers.

Unisem

Market Focus

Results Roundup

Page 13



TelecommunicationTelecommunicationTelecommunicationTelecommunication

Neutral

• The sector should see some benefits from the 6% service tax pass-through upon GST

implementation (especially for mobile operators) in April 2015, though overall

earnings growth for the sector remains tepid. Despite that, the premium valuation is

likely to stay given the defensive quality of the sector in a volatile market.

• We expect the RM3.4bn High-Speed Broadband Phase 2 (HSBB2) and Sub Urban

Broadband (SUBB) projects to drive further growth for TM as its high-speed network

coverage is rolled out to more areas. Acquisition of P1 (which owns LTE spectrum)

will also open up new addressable market for TM in the mobile segment, especially in

data where TM can leverage on its superior fixed line network

• TIME is a prime beneficiary of the secular growth trend in data (>80% of revenue)

amid the rapid expansion of its global bandwidth and data centre business.

Investment into 3 new submarine cable systems (i.e. APG, FASTER, and AAE-1) will

underpin near-term earnings growth once they start to come online in 2016-2017.

Key catalyst for the stock includes the potential distribution of 137m DiGi shares that

TIME owned

TM, TIME

UtilitiesUtilitiesUtilitiesUtilities

Overweight

• Expect promising energy demand growth with implementation of infrastructure

projects, export recovery and urbanisation. The resilient yet growing recurring income

for utilities players could further re-rate the sector.

• Tenaga Nasional and Petronas Gas are the biggest beneficiaries of sector reform for

fuel subsidy rationalisation and fuel diversification

• Our top pick is TNB for its more attractive valuations and improving earnings visibility

from incentive based regulated return (IBR) implementation. We also like Petronas

Gas for its solid fundamentals with no fuel and pricing risks as well as potential upside

from gas subsidy rationalisation plan.

TNB, Petronas Gas

Market Focus

Results Roundup

Page 14

Top Stock Picks

StocksStocksStocksStocks Key Buy Reasons Key Buy Reasons Key Buy Reasons Key Buy Reasons

Tenaga Tenaga Tenaga Tenaga

NasionalNasionalNasionalNasional

• Strong earnings visibility. Strong earnings visibility. Strong earnings visibility. Strong earnings visibility. The full implementation of fuel cost pass through mechanism will be a strong re-rating catalyst

for TNB as the national utility will no longer bear the burden of volatile fuel cost

• Capacity expansion. Capacity expansion. Capacity expansion. Capacity expansion. TNB’s coal-fired Janamanjung 4 (1010 MW) plant will be commissioned by Mar15. All in, we

estimate TNB’s net generation capacity would increase by 15% by 2017. Ultimately, the new power plants will reduce

generation cost because of more efficient technology.

• Top pick. Top pick. Top pick. Top pick. We reiterate a BUY rating for TNB for its strong earnings visibility with the full implementation of the cost pass-

through mechanism. Valuation remains undemanding at 13x FY15 PE. .

Petronas GasPetronas GasPetronas GasPetronas Gas • Unrivalled asset. Unrivalled asset. Unrivalled asset. Unrivalled asset. The ownership of PGU pipeline will make it the prime beneficiary of growing gas demand, as additional

volume will have to be transported via its pipeline. It has high operating leverage with the PGU system which we

understand can transport up to 3,000 mmscfd, compared to only 2,300 mmscfd of gas sales transported in FY13

• Proxy to strong gas demand. Proxy to strong gas demand. Proxy to strong gas demand. Proxy to strong gas demand. PTG’s RM2.7bn Pengerang regasification terminal (65% stake) with 3.5m MT annual

capacity is expected to be operational by 4Q17. It will mainly supply to PETRONAS’ Pengerang Integrated Complex,

though 10% of the gas will be supplied to the PGU. We have pencilled in 7% earnings boost in FY18.

• Maintain BUY. Maintain BUY. Maintain BUY. Maintain BUY. We continue to like PTG for its promising outlook, resilient earnings, solid balance sheet and strong

parentage. Also, PTG is not affected by the recent plunge in crude oil prices as it merely provides throughput services

MISCMISCMISCMISC • Turnaround in the petroleum segment.Turnaround in the petroleum segment.Turnaround in the petroleum segment.Turnaround in the petroleum segment. Petroleum rates remain firmly on an uptrend, with average time charter rates up

by 44-77% y-o-y in 4Q14, driven by rising tonnage demand from long-haul trades, restocking activities, and contango

trade. We expect rates to continue rising in 2015, as tonnage demand is forecasted to continue outgrowing tonnage

supply (2.2% vs 1.2%).

• Renewing relationship with Petronas.Renewing relationship with Petronas.Renewing relationship with Petronas.Renewing relationship with Petronas. Petronas had novated its five incoming LNG carriers from Hyundai Heavy Industries

to MISC, and will lease these back from MISC on a long-term time charter (15 +5 years). In addition, Petronas has

extended the charter of MISC’s five Puteri class LNG vessels (originally due to expired in 2014-17) by another 10 years.

Together, these deals will provide support to MISC’s LNG earnings going forward. It also marks the return to its previous

relationship with Petronas, where MISC acts as the shipping arm for Petronas by acquiring LNG vessels and chartering

these to the latter

• Maintain BUY with RM9.30 TPMaintain BUY with RM9.30 TPMaintain BUY with RM9.30 TPMaintain BUY with RM9.30 TP based on SOP-valuation. Our TP implies 1.4x FY15F P/BV, which is slightly below its 10-

year mean P/BV. Its renewed relationship with Petronas could provide further upside to the group’s LNG earnings, if

Petronas exercises its option to purchase more LNG vessels from Hyundai Heavy Industries and novate them to MISC.

GamudaGamudaGamudaGamuda • Best proxy to MRT. Best proxy to MRT. Best proxy to MRT. Best proxy to MRT. After clinching the PDP role for MRT line 2, we think Gamuda will be a frontrunner for tunnelling

works for MRT line 2. The probability of the MRT project being delayed or shelved is low because it is deemed a high-

multiplier and top priority ETP project. We expect Gamuda to formalise the PDP agreement by 2Q15 with a similar fee

structure as Line 1, and for it to return as tunneling contractor (and add RM5bn of high-margin jobs to its orderbook).

• Penang Integrated Transport System Penang Integrated Transport System Penang Integrated Transport System Penang Integrated Transport System –––– swapping yield for growth. swapping yield for growth. swapping yield for growth. swapping yield for growth. Gamuda is actively pursuing the RM27bn project

through the PDP approach. The RFP will close in February while the PDP job would be awarded by 3QCY15. As payment

is via land reclamation rights, there will be a cash constraint but this will be partly mitigated by Gamuda’s ability to sell

the land rights to other developers when they are progressively paid.

• BUY, TP RM6.00. BUY, TP RM6.00. BUY, TP RM6.00. BUY, TP RM6.00. Gamuda’s earnings will peak in FY15. There could be a one year earnings gap in FY16F as MRT Line 1

will be largely completed and MRT Line 2 will only start to contribute meaningfully in FY17F. The longer term growth

story for Gamuda is intact with the MRT Circle Line coming in after Line 2.

Market Focus

Results Roundup

Page 15

Top Stock Picks (cont’d)


IJM CorpIJM CorpIJM CorpIJM Corp • Construction division has never been stronger. Construction division has never been stronger. Construction division has never been stronger. Construction division has never been stronger. The current c.RM7bn orderbook has surpassed its peak of RM6.7bn in

2007, following the recent Kuantan Port Phase 1 award worth RM1.2bn. More importantly, the quality of its orderbook

is solid now with all local jobs, and anchored by the RM2.8bn West Coast Expressway project.

• Maintain BUY, RM7.75. Maintain BUY, RM7.75. Maintain BUY, RM7.75. Maintain BUY, RM7.75. IJM remains a strong defensive bet for the construction sector with its solid orderbook and

diversified nature. In the current prevailing environment where there are concerns on the government’s ability to finance

infrastructure projects, we think contractors with strong balance sheets such as IJM will do well. We maintain our BUY

rating and SOP-derived TP of RM7.75.

TIME dotComTIME dotComTIME dotComTIME dotCom • Leveraging on secular growth in dataLeveraging on secular growth in dataLeveraging on secular growth in dataLeveraging on secular growth in data. TIME is a prime beneficiary of the secular growth trend in data (>80% of revenue)

amid the rapid expansion of its global bandwidth and data centre business. Investment into 3 new submarine cable

systems (i.e. APG, FASTER, and AAE-1) will underpin near-term earnings growth once these start to come online in 2016-

2017.

• Domestic business still growing healthily. Domestic business still growing healthily. Domestic business still growing healthily. Domestic business still growing healthily. Demand for higher speed bandwidth services and fibre connectivity

requirements by Malaysia mobile operators for their LTE network rollout will drive further growth for TIME domestic

wholesale bandwidth business in 2015.

• Potential distribution of DiGi shares is a key catalyst. Potential distribution of DiGi shares is a key catalyst. Potential distribution of DiGi shares is a key catalyst. Potential distribution of DiGi shares is a key catalyst. TIME owns 137.5m DiGi shares, worth about RM880m or 28% of

its market capitalisation.

• Undemanding valuation. Undemanding valuation. Undemanding valuation. Undemanding valuation. Our SOP-based RM6.00 TP implies a FY15 valuation of 17.2x PE for TIME’s core business

(excluding dividend income and the value of DiGi stake), cheapest among the Malaysian telcos.

UnisemUnisemUnisemUnisem • Turning Turning Turning Turning around nicelyaround nicelyaround nicelyaround nicely. Unisem is now on better footing after its restructuring exercise to rationalise costs, i.e. the closure

of Europe operations and staff retrenchment at Batam plant. Overall plant utilisation rate has also improved to 70-75%

(vs. 60% previously), which helped to lift margins.

• WLCSP and wafer bumping a sweet spotWLCSP and wafer bumping a sweet spotWLCSP and wafer bumping a sweet spotWLCSP and wafer bumping a sweet spot. Strong demand from customers kept utilisation rate high at >80% even after

the 20% increase in capacity for wafer level chip-scale packaging (WLCSP) in 3Q14.Unisem plans to expand capacity of

its wafer bumping and WLCSP lines by another 25-35% in 1H15, which could raise contribution from this segment and

improve margins.

• Compelling valuationCompelling valuationCompelling valuationCompelling valuation. Our RM2.40 TP is pegged to 1.5x FY15 BV (with 11% ROE), consistent with global peers’

valuation in the OSAT industry.

Muhibbah Muhibbah Muhibbah Muhibbah

EngineeringEngineeringEngineeringEngineering

• Excessive selldown. Excessive selldown. Excessive selldown. Excessive selldown. Muhibbah's share price has been aggressively sold down along with other oil and gas stocks. We

think this is not justified given its exposure to various segments of infrastructure - marine-based, rail and expressways

and downstream oil and gas where it is able to capitalise on the strongest job flows. This is evident by its recent win of

the maiden RAPID contract from Tecnicas Reunidas, S.A. Group (TR) to design and build temporary construction facilities

and accommodation camp for Package III in RAPID for USD32m (RM116m).

• More More More More RAPID wins likely. RAPID wins likely. RAPID wins likely. RAPID wins likely. We expect Muhibbah to clinch up to RM1bn worth of RAPID contracts over time, including

projects other than Package 3. However, Muhibbah is now unlikely to clinch the sizeable >RM1bn Pengerang jetty works

– for which it is one of two contenders – because of pricing.

• BUY, BUY, BUY, BUY, bargain valuationbargain valuationbargain valuationbargain valuation. . . . Valuation remains a bargain at only 8x FY15 PE and 1.1x P/NTA. At this level, the market appears

to assign negligible value for the infrastructure and shipyard operations, and the Petronas fabrication license. We

reiterate our BUY rating and TP of RM3.50 based on 15x FY15F PE.

Market Focus

Results Roundup

Page 16

Top Stock Picks (cont’d)


PantechPantechPantechPantech • Strong 3Strong 3Strong 3Strong 3----year earnings CAGR year earnings CAGR year earnings CAGR year earnings CAGR of 17% over FY15of 17% over FY15of 17% over FY15of 17% over FY15----FY17FY17FY17FY17, driven by demand at Pengerang Integrated Petrochemical

Complex (PIPC) starting FY16. Pantech is a market leader of pipes, valves and fittings in Malaysia with 40% market share,

and is positioned to secure up to RM1.7bn in new orders from the landmark downstream development.

• ReReReRe----rating once demand starts to emerge from PIPC.rating once demand starts to emerge from PIPC.rating once demand starts to emerge from PIPC.rating once demand starts to emerge from PIPC. The stock is currently trading at only 6x PE FY16F EPS, which is

unusually low for small cap oil & gas companies in Malaysia with solid growth prospects.

• Clean balaClean balaClean balaClean balance sheet with only 0.3x net gearing.nce sheet with only 0.3x net gearing.nce sheet with only 0.3x net gearing.nce sheet with only 0.3x net gearing. The group does not have a formal dividend policy, but should continue

with its >40% payout going forward. This translates into an attractive yield of >6% for FY16F. BUY with a TP of RM0.90

(10x PE FY16F).

SasbadiSasbadiSasbadiSasbadi

• Best proxy to the resilient preBest proxy to the resilient preBest proxy to the resilient preBest proxy to the resilient pre----university education industry. university education industry. university education industry. university education industry. Sasbadi is the largest domestic educational books publisher

in Malaysia with approximately 9% market share. As such, the group is the best proxy to the resilient pre-university

education industry.

• Major beneficiary of potential new policies suggested in Malaysia Education Blueprint 2013Major beneficiary of potential new policies suggested in Malaysia Education Blueprint 2013Major beneficiary of potential new policies suggested in Malaysia Education Blueprint 2013Major beneficiary of potential new policies suggested in Malaysia Education Blueprint 2013----2025. 2025. 2025. 2025. Sasbadi will be a

major beneficiary of Malaysia’s new education blueprint, which aims to increase compulsory schooling from 6 to 11 years

by 2020. Given its strong presence in national schools, Sasbadi is a good proxy to ride on the rising enrolment rates in

national schools over the next six years, especially secondary education which generated 50% of its publishing revenue in

FY13.

• AtAtAtAttractive valuation with compelling growth prospects. tractive valuation with compelling growth prospects. tractive valuation with compelling growth prospects. tractive valuation with compelling growth prospects. We forecast Sasbadi’s FY15-FY17 core PAT will expand at 3-year

CAGR of 22%, underpinned by earnings accretive M&As. Valuation is undemanding at 11x/9x/7x FY15-FY17 EPS, while

yields are attractive at 5-7%. We reiterate our BUY rating on Sasbadi, based on DCF-derived TP of RM2.25.

Market Focus

Results Roundup

Page 17

Appendix: 4Q14 Earnings Summary

FinancialFinancialFinancialFinancial EPSEPSEPSEPS vs Avs Avs Avs AlliancelliancelliancellianceDBSDBSDBSDBS vs consensusvs consensusvs consensusvs consensus

CompanyCompanyCompanyCompany SectorSectorSectorSector quartersquartersquartersquarters ChangeChangeChangeChange estimatesestimatesestimatesestimates estimatesestimatesestimatesestimates

UMW Holdings Automotive 4QFY14 ▼ Below Below

MBM Resources Automotive 4QFY14 ◄► Inline Inline

AirAsia Aviation 4QFY14 ▼ Inline Below

AirAsia X Aviation 4QFY14 ▼ Below Below

MAHB Aviation 4QFY14 ◄► Above Above

Affin Holdings Banking 4QFY14 ▼ Above Above

AMMB Banking 3QFY15 ◄► Inline Inline

CIMB Group Banking 4QFY14 ▼ Below Below

Hong Leong Bank Banking 2QFY15 ◄► Inline Inline

Hong Leong Financial Group Banking 2QFY15 ◄► Inline Inline

Maybank Banking 4QFY14 ▼ Inline Inline

Public Bank Banking 4QFY14 ◄► Inline Inline

RHB Capital Bhd Banking 4QFY14 ◄► Inline Inline

Cahya Mata Sarawak Building Materials 4QFY14 ◄► Inline Inline

Lafarge Building Materials 4QFY14 ◄► Below Below

Petronas Chemical Chemicals 4QFY14 ◄► Inline Below

MMC Conglomerate 4QFY14 ◄► Inline Above

Gamuda Construction 1QFY15 ◄► Inline Inline

IJM Corp Construction 3QFY15 ◄► Inline Inline

Muhibbah Engineering Construction 4QFY14 ◄► Inline Below

Kimlun Corporation Construction 4QFY14 ◄► Inline Inline

WCT Holdings Construction 4QFY14 ▼ Below Below

BAT Consumer 4QFY14 ◄► Inline Inline

Brahim's Holdings Consumer 4QFY14 ◄► Below Below

MSM Malaysia Consumer 4QFY14 ▲ Above Above

Oldtown Consumer 3QFY15 ◄► Inline Inline

Padini Consumer 2QFY15 ▼ Below Below

Petronas Dagangan Consumer 4QFY14 ▼ Below Below

QL Resources Consumer 3QFY15 ◄► Inline Inline

Sasbadi Holdings Consumer 1QFY15 ◄► Inline Below

AEON Credit Finance non-bank 3QFY15 ◄► Inline Inline

Bursa Malaysia Finance non-bank 4QFY14 ◄► Inline Inline

TA Enterprise Finance non-bank 3QFY15 ◄► Inline Inline

Berjaya Sports Toto Gaming 2QFY15 ◄► Inline Inline

Genting Gaming 4QFY14 ▼ Inline Inline

Genting Malaysia Gaming 4QFY14 ◄► Inline Inline

Magnum Gaming 4QFY14 ◄► Inline Below

Hartalega Glove 3QFY15 ◄► Inline Inline

Kossan Glove 4QFY14 ▼ Below Below

Supermax Glove 4QFY14 ▲ Inline Inline

Top Glove Glove 1QFY15 ▲ Inline Inline

IHH Healthcare Healthcare 4QFY14 ◄► Inline Inline

KPJ Healthcare Healthcare 4QFY14 ▲ Inline Inline

Astro Media 3QFY15 ▼ Below Below

Media Chinese Media 3QFY15 ◄► Inline Inline

Media Prima Media 4QFY14 ◄► Inline Inline

Star Media 4QFY14 ◄► Inline Inline

Bumi Armada Oil & Gas 4QFY14 ▼ Below Below

Coastal Contracts Oil & Gas 4QFY14 ◄► Inline Inline

Dayang Enterprises Oil & Gas 4QFY14 ◄► Inline Below

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FinancialFinancialFinancialFinancial EPSEPSEPSEPS vs Avs Avs Avs AlliancelliancelliancellianceDBSDBSDBSDBS vs consensusvs consensusvs consensusvs consensus

CompanyCompanyCompanyCompany SectorSectorSectorSector quartersquartersquartersquarters ChangeChangeChangeChange estimatesestimatesestimatesestimates estimatesestimatesestimatesestimates

Deleum Oil & Gas 4QFY14 ◄► Inline Inline

Dialog Group Bhd Oil & Gas 2QFY15 ◄► Inline Inline

MMHE Oil & Gas 4QFY14 ◄► Below Below

Pantech Group Oil & Gas 3QFY15 ▼ Below Below

SapuraKencana Oil & Gas 3QFY15 ◄► Inline Inline

UMW Oil & Gas Oil & Gas 4QFY14 ◄► Inline Inline

CB Industrial Product Plantation 4QFY14 ◄► Inline Inline

Genting Plantation Plantation 4QFY14 ▼ Above Above

IJM Plantations Plantation 3QFY15 ◄► Inline Inline

IOI Corporation Plantation 2QFY15 ▲ Above Above

KL Kepong Plantation 1QFY15 ▲ Above Above

Sime Darby Plantation 2QFY15 ▼ Below Below

Felda Global Ventures Plantation 4QFY14 ▼ Below Below

TSH Resources Plantation 4QFY14 ▼ Inline Inline

Suria Port 4QFY14 ◄► Below Below

Eastern & Oriental Property 3QFY15 ◄► Inline Below

MKH Property 1QFY15 ◄► Inline Inline

SP Setia Property 4QFY14 ◄► Above Above

UEM Sunrise Property 4QFY14 ◄► Inline Below

Eco World Development Property 1QFY15 ◄► Inline Inline

Sunway Property 4QFY14 ◄► Above Above

Wing Tai Property 2QFY15 ◄► Inline Below

Axis REIT REIT 4QFY14 ◄► Inline Inline

CapitaMall Malaysia Trust REIT 4QFY14 ◄► Inline Below

KLCC Stapled REIT 4QFY14 ◄► Inline Inline

IGB REIT REIT 4QFY14 ◄► Inline Inline

Pavilion REIT REIT 4QFY14 ◄► Inline Inline

Quill Capita REIT 4QFY14 ◄► Inline Inline

Sunway REIT REIT 2QFY15 ◄► Inline Inline

MISC Shipping 4QFY14 ▲ Above Inline

Malaysian Pacific Industries Technology 2QFY15 ▲ Above Above

Globetronics Technology 4QFY14 ◄► Inline Inline

Unisem Technology 4QFY14 ◄► Inline Above

Axiata Telecommunication 4QFY14 ▼ Below Below

Digi Telecommunication 4QFY14 ◄► Inline Inline

Maxis Telecommunication 4QFY14 ▼ Below Inline

TIME dotCom Telecommunication 4QFY14 ▲ Above Above

TM Telecommunication 4QFY14 ▲ Above Above

Gas Malaysia Utilities 4QFY14 ▼ Below Below

Petronas Gas Utilities 4QFY14 ◄► Inline Inline

Tenaga Utilities 1QFY15 ▲ Above Above

Source: AllianceDBS

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AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUYSTRONG BUYSTRONG BUYSTRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY BUY BUY BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLDHOLDHOLDHOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FFFFULLY VALUEDULLY VALUEDULLY VALUEDULLY VALUED (negative total return i.e.> -10% over the next 12 months)

SELL SELL SELL SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd (“ADBSR”) (formerly known as HwangDBS Vickers Research Sdn Bhd), a subsidiary of Alliance Investment Bank Berhad (“AIBB”) and an associate of DBS Vickers Securities Holdings Pte Ltd (“DBSVH”). This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of ADBSR. The research set out in this report is based on information obtained from sources believed to be reliable and ADBSR, its holding company AIBB, their respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “Alliance Bank Group”) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The Alliance Bank Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The Alliance Bank Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The Alliance Bank Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other banking services for these companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the Alliance Bank Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein.They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATIONANALYST CERTIFICATIONANALYST CERTIFICATIONANALYST CERTIFICATION

The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 31 July 2014, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANYCOMPANYCOMPANYCOMPANY----SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES

1.1.1.1. DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 27 Feb 2015.

2.2.2.2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 3 Mar 2015.

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3.3.3.3.

Compensation for investment banking services:Compensation for investment banking services:Compensation for investment banking services:Compensation for investment banking services:

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the company mentioned.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTION

GeneralGeneralGeneralGeneral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

AustraliaAustraliaAustraliaAustralia This report is not for distribution into Australia.

Hong KongHong KongHong KongHong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

IndonesiaIndonesiaIndonesiaIndonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

MalaysiaMalaysiaMalaysiaMalaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimerfound at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investmentbanking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

SingaporeSingaporeSingaporeSingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law.Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

ThailandThailandThailandThailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United United United United KingdomKingdomKingdomKingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

DubaiDubaiDubaiDubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United StatesUnited StatesUnited StatesUnited States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other Other Other Other jurisdicjurisdicjurisdicjurisdictionstionstionstions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

AlliAlliAlliAllianceDBS Research Sdn BhdanceDBS Research Sdn BhdanceDBS Research Sdn BhdanceDBS Research Sdn Bhd (128540 U)

(formerly known as HwangDBS Vickers Research Sdn Bhd)

19th Floor, Menara Multi-Purpose, Capital Square,

8 Jalan Munshi Abdullah 50100

Kuala Lumpur, Malaysia.

Tel.: +603 2604 3333 Fax:+603 2604 3921 email : [email protected]

Documents

Market Focus - 150303 - 4Q14 Results Roundup - DBS(edited)