RHB Equity 360° 12 August 2009

Top Story :
Power – Highlights from RHBRI’s “Nuclear/Renewable Energy Day” Overweight

Sector Update

- We hosted a “Nuclear/Renewable Energy Day” yesterday. Below are the highlights from the presentations.

- By TNB’s estimates, the earliest Malaysia’s first nuclear power plant (NPP) could be commissioned would be around 2025 and nuclear power generation could make up around 10% of generation capacity by 2030.

- Although the cost of a NPP could range US$3-4m/MW (higher than the usual US$1-2m required for gas- and coal-fired plants), unit generation cost is expected to be US5-6 cents/kwH (vs. generation cost of around US4 cents/kwH and US9.5 sen/kwH for gas and coal respectively).

- As for hydropower, SEB estimates that there are around 50+ sites that could be developed in Sarawak to provide around 20,000MW of hydropower. SEB’s long term target generation mix for hydro/coal/gas/renewable is 70%/20%/5%/5% respectively.

- SEB’s management stressed that its planting programme would be demand-led. The power purchase agreement with Press Metal would only begin from Sep 09 while negotiations with Rio Tinto are ongoing.

- Although nuclear power appears to be some distance away, key initial steps, in our view, would be the will power from the Government to implement nuclear energy and in obtaining the public’s buy-in. As for SEB, we think its key challenges ahead are execution (with respect to its plant-up progamme) as well as securing offtakers for the incoming capacity.

- Overweight stance on the sector maintained.





Corporate Highlights



Malaysia Steel Works : To turn around in 2QFY12/09 Not Rated

Visit Note

- Masteel anticipates both price and demand for long steel products to strengthen further on the back of: 1) Better weather condition, which encourages construction activities and hence steel consumption; and 2) Resumption of activities in Europe after summer holidays.

- Zooming in on Malaysia, Masteel anticipates improved construction activities to spur long steel consumption from 4Q09 onwards.

- Masteel believes key producers are unlikely to dump their products in the international market over the near term, as: 1) The implementation of US$586bn stimulus plan has boosted long steel product consumption in the home market of the Chinese producers; and 2) Rising crude oil prices that mean higher transportation cost erodes their competitiveness in the international market.

- Masteel expects its performance to return to the black in 2QFY12/09, as: 1) Its steel producing activities have returned to profitability since 2QFY12/09; and 2) Demand (both locally and abroad) for long steel products has improved on the back of the absence of destocking activities and implementation of stimulus packages worldwide.

- We value Masteel at RM1.41 based on 7x FY10 EPS of 17.5 sen, at 30% discount to our 1-year forward target PER for the long steel product sector to reflect Masteel's smaller market cap and capacity vs. peers.



AMMB : Boosted by capital market related income Outperform

1QFY10 Results

- 1QFY03/10 results were above our and consensus forecasts. But we are not changing our forecasts as the sharp jump in capital market related income may not be sustainable and LLP could still remain high. Moreover, our forecast is at the top range of management guidance.

- IB was the star with net profit growth of 163.9% yoy, more than sufficient to offset the lower contributions from the business and relationship banking divisions. Retail banking contribution was flat.

- Loan growth momentum accelerated.

- Asset quality mixed but potential lower NPLs guidance. Overall, after the conference call, we are comfortable that its NPLs are well contained as the jump in NPL formation was seasonal.

- Not changing FY10 KPIs but potential positive bias in NPLs and net profit guidance.

- NIM to be stable.

- IB pipeline strong but depend on them getting implemented.

- To formalise a capital management policy soon. Reaffirm our view of potential higher dividend.

- Fair value pegged at RM5.56 based on sector and market benchmark of 16x CY10 EPS.