Healthcare Sector Update : The Wealth Effect - 09/08/2010

8/9/2019 Healthcare Sector Update : The Wealth Effect - 09/08/2010

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Executive Summary

Rising healthcare expenditure Total health expenditure in Malaysia grew at a CAGR of 12.9% to RM35.1bnbetween 2000 and 2008, supported by: 1) higher Government and private sector spending; 2) growing population;

and 3) growing personal wealth in Malaysia. Health spending as a share of GDP for the same period ranged from

2.9-4.8% of GDP, while per capita spending on health rose by RM381 in 1997 to RM1,268 in 2008, representing a

CAGR of 10.5% over the period. Going forward, healthcare expenditure is expected to grow by 8-10% p.a..

Private sector healthcare. The private sector accounts for 30% of healthcare services in Malaysia but receives50% of the total healthcare expenditure. The private sectors share of healthcare expenditure has risen at a CAGRof 13.5% from 1997-2008. In 2008, Malaysia had over 209 hospitals and 12k beds across Malaysia, mainly under

large hospital groups including KPJ Healthcare, Pantai Holdings and Gleneagles.

Key driver - the wealth effect.o Rising income levels. In our view, the wealth effect will be one of the primary drivers for growth in

healthcare expenditure in Malaysia. The Government has already stated its long-term plans under the New

Economic Model to raise per capita income from US$7.6k currently to US$15k in 10 years.

o Insurance coverage. Higher income levels will likely promote the awareness for better levels of healthcare.We believe this will go hand-in-hand with an increase in medical insurance coverage, resulting in: 1) shift in

patients numbers from public to private healthcare; and 2) increase in patients paying for themselves to those

covered by medical insurance. Statistics show that insurance has increased its contribution to total national

healthcare expenditure from 5% (RM410m) in 1997 to 8.5% (RM2.97b) in 2008, or a CAGR of 19.7%.

o More incentives. Going forward, as the Government becomes increasingly conscious of the subsidies(estimated at RM8.5bn in 2006 by the Economic Planning Unit) given to the public for healthcare, we expect

more tax incentives for higher income individuals to seek healthcare services from the private sector.

o Medical tourism. The added boost will likely come from medical tourism, and Pantai, Gleneagles and KPJhave upgraded their facilities in some of their hospitals for this market. Malaysias medical tourism industry

could also indirectly benefit from Thailands political troubles.

Scarcity premium. Khazanah Nasionals takeover of Parkway has brought the healthcare sector into the limelight.Although sceptics may dismiss the high takeover PER of 27.6x based on FY10 EPS, the aggressive takeover

suggests that there is significant growth potential for the sector, and in particular for large well-run hospital groups

with a regional foothold. Moreover, with the takeover and privatisation of Parkway, we believe there will be ascarcity premium attached to the remaining and broadly comparable hospital groups like KPJ (OP, FV = RM4.51).

Non-medical support services, also a growth industry. In our view, there is growing demand for non-medicalsupport services, i.e. with regards to disposal of bio-medical waste, maintenance of hospital equipment, laundry,

etc.. We highlight that Faber (OP, FV = RM3.82) is the largest provider of such services in Malaysia under a

Government concession which is up for renewal in Oct 2011. Nevertheless, the company has already expanded to

India (working with Apollo group hospitals) and the United Arab Emirates.

Long-term positive outlook intact for the glove manufacturers. Although the near-term picture for therubber glove manufacturers is negative, and there could be some earnings disappointment ahead in the upcoming

quarterly results, we believe the long-term outlook for the sector remains positive given the rising awareness for

health safety, as well as in response to disease outbreaks. Our top pick is Kossan (OP , FV = RM5.81).

Medical insurance is a rider for life insurance. Given the high claims ratio for medical insurance (second onlyto motor insurance), insurance companies prefer to sell medical insurance riders with life insurance policies. Our

top pick is Allianz (OP , FV = RM5.32) given it has the broadest focus, with both general and life insurance.

Health care Sector

The Wealth Effect

Malasia

MA

RKET

DATELINE

PP

7767/09/2010(025354)

Yap Huey Chiang(603) 92802179

[email protected]

Please read important disclosures at the end of this report.

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M

6 August 2010

A comprehensive range of market research reports by award-winning economists and analysts are exclusively

available for download from w w w .r h b i n v e s t . c o m


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CONTENTS

EXECUTIVE SUMMARY 1

HEALTHCARE SECTOR AT A GLANCE 3

PRI VATE HEALTHCARE SECTOR IN MALAYSIA 5

NON-MEDICAL HOSPITAL SUPPORT SERVICES 8

WORLDS LARGEST RUBBER GLOVE PRODUCER 9

VALUATIONS AND RECOMMENDATIONS 10

INDIVIDUAL COMPANI ES REPORT

KPJ Healthcare 11 Faber 13 Top Glove 15 Kossan 17 Adventa 19 Hartalega 21 Allianz Malaysia 23

APPENDIX 25

HEALTHCARE 2 SECTOR


available for download from w w w . r h b i n v e s t . c o m


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HEALTHCARE SECTOR AT A GLANCE

Healthcare expenditure on the rise... Total expenditure for health in Malaysia has risen by a CAGR of 12.9% from

RM8.2bn in 2000 to RM35.1bn in 2008 (see Chart 1). This growth was supported by higher government spending as

well as increasing contribution from the private sector. The growing (and ageing) population as well as growing

personal wealth in Malaysia has also contributed to the steady growth in the local healthcare sector. Health spending as

a share of Gross Domestic Products (GDP) for the same period ranged from 2.9%-4.8%. Consequently, per capitaspending on health has also increased from RM381 in 1997 to RM1,268 in 2008, representing a CAGR of 10.5%.

Chart 1: Trend for Total Expend iture on Health (from 1997-2008)

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

R M (bn)

-

1.00

2.00

3.00

4.00

5.00

6.00% of GD P

Healthcare spending % to GDP

Source: Ministry of Health, Malaysia

Chart 2: Per Capita Spending On Health (f rom 1997-2008)

(RM )

0

200

400

600

800

1000

1200

1400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(in RM , Nominal)


Supported by lifestyle changes and ageing population . As Malaysia moves towards becoming a developed nation,

our lifestyles are also rapidly changing to a predominantly urbanised way of life. Fast foods and unhealthy snacks are

gaining popularity over traditional and healthy diets as individuals become busier at work. Every year, an increasing

number of Malaysians are diagnosed with lifestyle-related diseases (such as high blood pressures, diabetes, heart

diseases and many more), which has resulted in the increase in healthcare costs.

However, we note that the life expectancy of Malaysians has risen from 64 years in 1970, to more than 73 years in

2008 (according to the World Health Organisation or WHO). This improvement has been attributed mainly to

advances in medical technology, higher personal wealth and growing awareness of the importance of healthcare and

disease prevention. As the general population lives longer, a consequence would be an increase in the number of

people diagnosed with age-related disorders such as high blood pressure, Alzheimers disease and heart conditionsthat require intensive care and more advanced and long-term treatment. This would mean that healthcare cost will

likely continue to grow in tandem with the ageing population in the country.

HEALTHCARE 3 SECTOR

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The Government contributes 50% of total health costs in Malaysia. On average, government spending on

healthcare accounts for more than 50% of total healthcare expenditure, meeting 70% of the countrys needs while

the private sector accounts for the remainder. In order for healthcare spending in Malaysia to reach the worlds

average of 9.7% of GDP (as at 2007), most of the expenditure would have to come from the private sector since

government spending for healthcare is limited to 7% of its annual budget. There is, therefore, plenty of room for

growth in Malaysias private healthcare sector and this presents opportunities for healthcare players e.g. KPJ and

Pantai (under Parkway) to further expand in Malaysia.

Malaysias healthcare sector vs. the Asean region. The Asean regions expenditure on health stood at 3.8% of

GDP in 2007, with Vietnam recording the highest ratio at 7.1%, making it the fastest growing market in the global

healthcare industry supported by private and government spending. Singapore with the second smallest population of

5m has the highest per capita healthcare spending of US$1,148 and the highest number of hospital beds per 10,000

population of 32 beds (vs. the regional average of 20 beds). Malaysia, with a total population of 26m, had US$307

per capita healthcare spending and 18 hospital beds per 10,000 population, suggesting that there is plenty of room

for its healthcare industry to grow in order to reach the regional average of US$358 per capita expenditure and 20

hospital beds per 10,000 population.

Table 1. Healthcare Sector In The Asean Region (2007)

Malaysia Singapore Vietnam Indonesia Thailand Brunei Philippines Regonal

average

Population (m) 26 5 86 227 67 0.4 90

Total expenditure on

health as % of GDP in

2007

4.4 3.1 7.1 2.2 3.7 2.4 3.9 3.8

Per capital total

expenditure in 2007

(US$)

307 1,148 58 42 136 753 63 358

Hospital beds per 10,000

population

18 32 28 6 22 26 5 20

Source: Worlds Health Statistics 2010, World Bank and World Development Indicators.

Malaysias public healthcare system. The public healthcare system provides 70% of the healthcare needs in

Malaysia, with over 130 hospitals and 33k beds across Malaysia (according to the Ministry of Health or MOH). In the

2010 budget, the government allocated RM14.8bn to the healthcare sector, of which we believe the bulk would go to

the construction of new government hospitals and upgrading of existing ones. Currently, Malaysias public healthcare

system is almost free to all as no proper screening is required. This has resulted in a long waiting list in public

hospitals, thus giving rise to the steady growth in private healthcare spending.

HEALTHCARE 4 SECTOR



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PRIVATE HEALTHCARE SYSTEM GROWTH DRIVERS

13.5% CAGR for private health expenditure. Between 1997 and 2008, the private healthcare system in Malaysia

provided 30% of healthcare in Malaysia and received 50% of the total healthcare expenditure. Private healthcare

expenditure grew at a 13.5% CAGR over the same period. Private healthcare in Malaysia is currently governed under

Private Healthcare Facilities & Services Act 1998. In 2008, Malaysia had over 209 hospitals and 12k beds situated

across Malaysia (according to the MOH factsheet). Currently, there are several private healthcare providers inMalaysia, namely KPJ Healthcare, Pantai Holdings, Gleneagles, Sime Darby, Assunta Hospital and Mahkota Hospital.

Private sector health expenditures were mostly contributed by private household out-of-pocket-expenses (which

exclude personal and family insurance), followed by corporations and private insurance companies.

Chart 3: Total Health Expend iture By Private Spendi ng (from1997-2008)

Chart 4: Breakdown Of Contributions For Private Sector

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

19 97 199 8 1999 2000 2 001 20 02 200 3 2004 2005 2006 2 007 200 8

Pr i v at e

household, 57.1%

Al l co rpora t ions

(other than health

insurance), 25.3%

Pr iva te insu rance

, 17.4%

Non pro f i t , 0 .2%

Source: Malaysia National Health Accounts 2010 Source: Malaysia National Health Accounts 2010

Medical insurance in Malaysia. With continuously rising medical and healthcare costs, demand for medical

insurance will also increase in tandem, in our view. Medical/health insurance in Malaysia is sold as both life and non-life products, offering additional avenues for cross selling for the insurers. For FY09, medical and health policies under

non-life insurance contributed approximately 5% of total gross premiums, or RM581m. It has steadily gained a

foothold in the overall non-life gross premiums, growing at a CAGR of 12.5% from 2002 (vs. 6.6% for total gross

premiums), increasing its contribution from 3.5% to 5%. We believe that the 12.5% CAGR for medical insurance is

understated as it does not include the premium contribution from the medical insurance riders. Moreover, statistics

show that insurance increased its contribution to total overall national healthcare expenditure from 5% (RM410m) in

1997, to 8.5% (RM2.97b) in 2008 or a CAGR of 19.7%. Table 2 shows the top 10 medical insurance (non-life) players

based on FY09 gross premiums.

Chart 5: Health Expenditure For Private Households (1997-2008)

0

2

4

6

8

10

12

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

OOP Insurance


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Table 2. Medical and health insurance market share by gross premium

Company Gross premiums (RMm) % market share

AIA 115.18 19.8

Berjaya Sompo 49.01 8.4

Pacific Insurance 47.15 8.1

Allianz 36.51 6.3

MSIG* 34.25 5.9

ACE Synergy 32.91 5.7

HLA* 32.15 5.5

AXA Affin 29.48 5.1

Tokio Marine 23.90 4.1

Overseas Assurance 19.94 3.4

Total 420.49 72.3

*MSIG bought over HLA's general insurance arm

Source: Insurance Services Malaysia Berhad

Although demand for medical insurance will grow, we highlight that it is not a very lucrative business. Life policies

aside, the non-life medical insurance claims ratio is one of the highest among the different businesses. Across the

board, medical claims ratio in 2007-2009 was at 76.5%, 74.7%, and 73.6% respectively. For 2009, medical claims

ratio was the second highest, behind motor (80%), while combined ratio was 103%. Despite the growth prospects,we believe insurance companies are more (and will continue to be) cautious in writing medical policies, especially

stand-alone policies. On the flipside, insurance companies will likely continue writing medical policies as a rider for

their life insurance policies, giving a more complete protection for policy holders. We believe that going forward,

life/composite (vs. general) insurance companies will be a key player and driver, in private healthcare growth.

Stepping up on medical tourism. Medical tourism, also known as medical travel, health tourism or global

healthcare describes the rapidly growing practice of travelling across international borders to obtain healthcare, which

typically includes elective procedures as well as complex specialised surgery such as joint replacements, cardiac

surgery, dental surgery and cosmetic surgery. Although Malaysia is a relative newcomer to medical tourism as

compared to Singapore and Thailand, the standard of medical facilities in terms of price and services are already on

par with Singapore and Thailand. Five hospitals (1 public and 4 private hospital) in Malaysia have receivedinternational accreditation of Joint Commission International (JCI) (see Appendix 1). With this international

accreditation, tourists are assured that the hospitals they are visiting adhere to the best practices of top hospitals in

the world. The government has also taken steps to promote Malaysia as a hub of medical tourism, involving 35

private hospitals in the country.

According to the Association of Private Hospitals Malaysia, the number of foreigners coming to Malaysia for medical

treatment has more than tripled since 2003. Last reported data for 2008 (Jan-Sep) showed over 282k health tourists

generating revenues of about RM222.3m (+16% yoy). And in 2007, about 72% of the foreign patients were from

Indonesia, 10% from Singapore, 5% from Japan, 3% from Europe and 3% from India. We believe the numbers

should have grown significantly since 2007-2008.

We believe medical tourism will continue to contribute positively to Malaysias private healthcare sector on the back of

continuing efforts by relevant authorities to ensure that healthcare providers in Malaysia are internationally accredited

and that these hospitals subscribe to a high level of clinical and service excellence, besides having superior

technology and patient-oriented facilities. Given the political instability in Thailand, we believe the countrys medical

tourism will likely suffer and Malaysia hospitals could potentially benefit as tourists switch to Malaysia to receive their

medical treatment. This would benefit the private healthcare players like KPJ, in our view.

Incentives by the government. In order to reduce the public dependence on public hospitals and to encourage

Malaysians to spend on private healthcare, the government has offered incentives to further enhance private

healthcare services in the country. The tax incentives offered include tax exemption on any capital expenditure

involving the costs of building new hospitals or acquiring new buildings for hospital premises. Private healthcare

providers are also eligible for tax exemptions on expenditure incurred in the training of medical personnel and are

exempted from service tax for medical advice and the use of medical equipment by their consumers. In line with

government efforts to promote medical tourism, any expenditure incurred in overseas promotions by private hospitalsare entitled to double tax deduction, while the private healthcare providers also receive tax-free benefits for

attendance of international medical conferences held in the country.

HEALTHCARE 6 SECTOR




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M&A activities in the region. The increase in M&A activity in the healthcare sector recently, including Khazanahs

offer to buy all remaining shares in Singapore-listed Parkway Holdings shares and the takeover offer of Healthscope

Ltd by a consortium of US private equity firms Carlyle Group and TPG Capital. Khazanahs offer for Parkway values

the shares at an effective FY10-11 PER of 27.6x and 20.1x vs. the average FY10-11 PERs of 18.5x and 15.9x of

regional peers respectively. We believe Khazanah is willing to pay a big premium to gain overall control of the

company, and strengthen its foothold in the regional healthcare sector. This suggests that there is significant growth

potential for the healthcare sector in the region, which ultimately benefits the private healthcare sector in Malaysia

(e.g. KPJ).

Scarcity premium. Khazanah Nasionals takeover of Parkway has brought the healthcare sector into the limelight.

Although sceptics may dismiss the high takeover PER of 27.6x FY10 EPS, the aggressive takeover suggests that there

is significant growth potential for the sector, and in particular for large well-run hospital groups with a regional

foothold. Moreover, with the takeover and privatisation of Parkway, we believe there will be a scarcity premium

attached to the remaining and broadly comparable hospital groups like KPJ. As it stands, regional peers average FY10

PER has moved up slightly to 18.5x, and this is excluding Parkway, from 17.9x in June (which included Parkway then).

If we include Parkway in the latest calculation, the average PER would be 19.4x.

KPJ from a regional perspective. To put KPJ Healthcare into perspective in terms of relative business position

within the regional healthcare industry as well as its financial position vis--vis regional peers, we have compared thecompany operations with that of Parkway:

Revenue/ bed. Parkways Singapore operations clearly generate higher revenue/bed of US$272k p.a. vs. KPJsrevenue/bed of US$210k p.a.. This compares with Australian hospitals of US$321k p.a., Bangkok hospitals of

US$89k p.a. and India hospitals of US$20k p.a.. However, we note that the lower revenue/bed for Malaysia,

Thailand and India should be viewed against the per capita income of these countries (see Table 3). We also note

that KPJs revenue/bed is only around 34% and 23% lower than that of Healthscope and Parkway respectively,

although Malaysias per capita income is around 85% and 82% lower than that of Australia and Singapore

respectively. This suggests that KPJ is able to successfully target the mid- to high-income groups in Malaysia.

KPJs low EV/ bed is significantly undervalued vs. regional peers average. We estimate an EV/bed forKPJ of US$0.29m, which is significantly undervalued vs. the average for regional peers of US$0.42m (see Table

3). This suggests that KPJ has significant room for upside in its valuation, supported by: 1) its long-termexpansion plans; 2) development of its higher-end healthcare services; and 3) rising profitability.

Table 3. Regional Per B ed Comparisons

Revenue/bed

(US$)

EV/bed

(US$)

Per Capita Income

(US$)

Australia 320,744 (Healthscope) 370,884 (Healthscope) 45,587

Singapore 271,781 (Parkway) 1,037,221 (Parkway) 37,293

Malaysia 210,159 (KPJ) 287,096 (KPJ) 6,897

Thailand 89,383 (Bangkok Chain Hospital) 159,630 (Bangkok Chain Hospital) 3,940

India 21,593 (Fortis Healthcare) 231,981 (Fortis Healthcare) 1,031

Simple average 182,732 417,362

Source: Companies websites, Capital IQ, Bloomberg, International Monetary Fund, World Economic Outlook Database (Apr 2010)

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NON-MEDICAL HOSPITAL SUPPORT SERVICES

A History Lesson

Privatisation of non-medical hospital support services. Although healthcare advanced steadily through the

years, its supporting services however, did not progress and improve in tandem. Healthcare and all of its supporting

services fell under the responsibility of the MOH, which managed the entire scope of hospital operations. Generally,

each hospital ran its management and housekeeping on a limited budget, with the hospital administration shouldering

much of the management, planning and execution processes and activities. This left very little room for the hospital

administration to focus on giving the best care for its patients.

Privatisation to three players. Following the privatisation of certain government agencies (e.g. Tenaga Nasional

Berhad, Pos Malaysia Berhad), in 1996 the government signed a 15-year concession agreement with three private

entities, namely Faber Medi-Serve, Pantai Medivest and Radicare, to undertake a major portion of non-medical

hospital support services, namely the Integrated Facilities Management (IFM) for all the government hospitals in the

country. Each of the concessionaires is responsible for all the five areas (see Appendix 2) of non-medical hospital

support services in their respective regions. The 15-year concession agreement, estimated at a cumulative value of

RM6bn, took effect on 28 Oct 1996.

Positive Outlook

Concessions are up for renewal. We note that the three concessions are up for renewal in Oct 2011. The renewal

applications were submitted to the Government in Oct 2009, and a final decision is expected by Oct 2010. We are

confident that the concessions will be renewed given: 1) the players are already established in their respective

regions; 2) the track record of the players has been good, with no increase in pricing of the mandated services over

the last 13 years; and 3) the Government cannot afford a breakdown in support services for the public sector

hospitals.

Overseas expansions. The three players have already begun to venture outside of their concessions, and secured

similar support services contracts with private hospitals in Malaysia, India and Middle East. The companies are also

now providing similar services such as cleaning, maintenance and waste disposal for non-medical facilities in Malaysia

as well as overseas. For example, Faber is providing cleaning services to Tesco and RapidKL as well as maintenance

services for public housing and toll roads in Abu Dhabi.

Table 4. Government Concessionaires Non-Medical Hospital Support Services

Concessionaire Faber Medi-Serve Pantai Medivest Radicare

Owners Faber Group (listed) owned

by UEM Group

Pantai Holdings (unlisted)

owned by Khazanah Nasional

and Singapores Parkway

Holdings

Realmild (unlisted)

Geographical Coverage Perak, Penang, Perlis, Kedah,

Sabah and Sarawak

Negeri Sembilan and Johor Federal Territory (KL and

Putrajaya), Selangor,

Kelantan, Terengganu and

Pahang

Number of hospitals covered 79 22 44

Services Facilities and biomedical

equipment maintenance

Clinical waste disposal

Cleaning

Linen and laundry

Facilities and biomedical



Cleaning

Linen and laundry

Facilities and biomedical



Cleaning

Linen and laundry

Non-concession IFM customers Private hospitals, airport (in

Hyderabad)

Private hospitals and clinics,

factories, hotels, government

agencies

Private hospitals and medical

centres

Overseas expansion UAE and India Indonesia and Sri Lanka Dubai, Sharjah and Brunei

Source: Companies

HEALTHCARE 8 SECTOR




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10/27

VALUATIONS AND RECOMMENDATIONS

Maintain Overweight on the sector. Malaysias healthcare industry is expected to grow at a resilient 8-10% p.a.

driven by: 1) approximately 2% p.a. steady population growth; 2) ageing population; and 3) greater affluence and

awareness of healthcare standards to fuel strong demand for private healthcare services. In addition, the increase in

M&A activities suggests that there is significant growth potential for the healthcare sector in the region, while the exitof Parkway from the equity market will increase the scarcity premium for other listed well-run hospital groups. We

thus remain positive on KPJ (OP, FV=RM4.51) for its leading position and its expansion plans in Malaysias growing

healthcare market, and narrowing discount to regional peers valuations.

We believe any increase in the Governments spending on healthcare would go to the construction and expansion of

hospitals in the country. This would likely benefit Faber (OP, FV=RM3.82) given that the company provides IFM

services to government hospitals in six states across Malaysia. We also like Faber for its resilient earnings derived

from the business both locally and overseas, coupled with the possibility of further expansion through M&A.

We remain positive on the glove manufacturers in Malaysia as we expect demand for gloves to remain strong given it

is the most basic and affordable form of protection against viruses in the healthcare industry and coupled with rising

awareness of healthcare standards in highly-populated countries like China and India, which should help provide a

boost to demand for medical gloves. While there may be concerns regarding escalating raw material prices and

weakening US$ (against RM), we believe the glove manufacturers would be able to factor these into selling prices,

albeit with a slight time lag. As for the removal of subsidies for natural gas, we do not expect this to impact earnings

too significantly given that natural gas only accounts for 6-7% of total production cost. We maintain our Outperform

call for Kossan (FV = RM5.81), Adventa (FV = RM4.92) and Hartalega (FV = RM9.29) respectively. We have, however,

downgraded our call for Top Glove (FV = 6.90) to Market Perform (from Outperform), given the limited upside to our

fair value.

We also continue to be positive on Allianz (FV = RM5.32) on the back of: 1) its above-industry average premium

growth and below industry average claims ratio for its general insurance; 2) its bancassurance tie-up with CIMB; 3)

the positive growth outlook of the Malaysian life insurance industry; and 4) strong backing for its parent, Allianz SE.

Overall, we maintain our Overweight stance on the sector.

Table 5. Healthcare-Related Stocks

FY E

Price

(RM/s)

FV

(RM/s)

EP S

(sen) EPS Growth (% )

PER

(x )

PBV

(x )

PCF

(x )

GDY

(%) Rec

4 Aug FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10

KPJ Dec 3.57 4.51 24.0 26.6 14.6 10.7 14.8 13.4 2.5 14.2 3.9 OP

Faber Dec 2.84 3.82 26.3 26.4 15.3 0.5 10.6 10.6 2.2 6.6 2.5 OP

Kossan Dec 3.86 5.81 37.2 44.7 -0.8 20.3 10.5 8.7 2.7 8.4 1.3 OP

Hartalega^ Mar 8.18 9.29 71.5 83.6 21.0 16.9 11.4 9.8 4.0 10.5 2.9 OP

Adventa Oct 2.95 4.92 27.4 37.8 24.4 38.1 10.8 7.9 2.0 7.5 4.0 OP

Top Glove Aug 6.62 6.90 40.9 46.0 >100 12.4 15.9 14.1 3.8 12.8 3.5 MP

Allianz Dec 4.13 5.32 71.9 86.2 -7.0 19.9 5.7 4.8 1.0 6.2 0.5 OP

^ FY10-11 valuations refer to those of FY11-FY12

* Based on consensus estimates

Source: RHBRI, Bloomberg

HEALTHCARE 10 SECTOR




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KPJ Healthcare________________________________________________________________________________________

Malaysias Leading Private Healthcare ProviderShare Price : RM3.57Fair Value : RM4.51Recom : Outperform

(Maintained)

Highlights

Market share of approximately 20%. KPJ is Malaysias largest private healthcare provider with 21 hospitalsand over 2k beds across Malaysia, currently holding approximately 20% market share. Over the past few years

KPJ has been growing steadily with an impressive 5-year revenue and net profit CAGR of 17.2% and 26.0%

respectively thanks to its well-executed and aggressive expansion strategy.

Earnings drivers moving forward. Moving forward, we believe KPJs revenue growth drivers include:1) The opening of at least two new hospital p.a.. KPJ targets to operate at least two new hospitals

p.a. through greenfield projects or acquisition of established hospitals. KPJs expansion plans ahead

would likely be in East Malaysia, East Coast or Iskandar region, where the demand for private

hospitals is still strong;

2) Expansion of existing hospitals. KPJ is looking to expand the capacity of its top performinghospitals i.e. Ampang Puteri and Damansara Specialist by 100 beds (or +46% to be completed by

2012) and 60 beds (or +44% to be completed by end 2011) respectively; and

3) Higher utilisation rate per patient. The higher uptake of medical insurance policies in Malaysia aswell as greater health awareness has led to stronger revenue/patient and this is expected to remain

strong moving forward. We note that the company is beginning to invest in new state-of-the-art

equipment in its Klang Valley hospitals where there is demand for higher-end services. We believe as

Malaysia moves to a higher income level, supported by growth in the credit business (i.e. patient

with their own or corporate employers health insurance plans), demand for higher-end healthcare

services should rise accordingly, which will bolster KPJs profit margins.

Risks to our view. The risks to KPJs earnings include lower-than-expected patient numbers, which could bedue to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or Influenza A

H1N1) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.

Forecasts is maintained. No change to our FY10-12 earnings forecast for now. Valuation and recommendation. We have raised our indicative fair value for KPJ to RM4.51 (from RM4.25),

which is based on revised target FY11 PER of 17x, after imputing a 10% discount to the higher regional peers

average of 18.5x vs. 17.9x in Jun. Given the scarcity premium after the takeover and privatisation of Parkway,

and KPJs leading position and expansion plans in Malaysias growing healthcare market, we believe the stocks

valuation discount to regional peers should narrow. Furthermore, we note that KPJs long-term growth potential

is significant when compared to some regional peers operational and financial ratios e.g. revenue/bed and

EV/bed.

Table 1: Investment Statistics ( KPJ; 5878 ) Bloomberg Ticker: KPJ MK

FYE Dec Revenue Net Profit EPS Growth PER C.EPS* P/ NTA Net gearing ROE GDY

(RMm) (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)

2009a 1,456.4 110.9 21.0 29.5 17.0 - 3.6 0.4 17.5 3.4

2010f 1,675.5 126.9 24.0 14.1 14.9 22.0 2.9 0.3 16.7 3.9

2011f 1,861.3 140.5 26.6 10.7 13.4 24.0 2.4 0.3 15.6 4.5

2012f 2,065.4 157.6 29.8 12.2 12.0 27.0 2.0 0.2 14.9 5.0

Issued Capital (m units) 535.6 Major Shareholders (% )

Market Capitalisation (RM m) 1,912.0 Johor Corporation 50.2

Daily Trading Volume (m units) 1.1 Kumpulan Waqaf An-Nur 8.8

52-week Price Range (RM / unit) 1.21-3.79 Lembaga Tabung Haji 5.1

Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus based on IBES Estimates





12/27

Table 2. Earnings Forecasts Table 3. Forecast Assump tions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 1,456.4 1,675.5 1,861.3 2,065.4 No. of hospitals 21 23 25

Turnover growth (%) 14.9 15.0 11.1 11.0 No. of beds 2,363 2,646 2,911

No of in-patients 237,943 259,358 282,700

Gross Profit 419.1 485.9 539.8 599.0 No. of out-patients 2,275,469 2,411,998 2,556,717

EV/bed (in RM) 97,326 86,898 78,998

EBITDA 188.3 217.0 241.7 264.5 EBITDA/bed (in RM) 91,846 91,330 90,891

EBITDA margin (%) 12.9 13.0 13.0 12.8 Source: Company data, RHBRI estimates

Depreciation (46.5) (48.6) (55.1) (52.9)

Net Interest (16.7) (14.1) (13.6) (13.8)

Associates 18.9 28.8 30.7 30.7

Pretax Profit 143.9 183.1 203.7 228.5

Tax (29.2) (45.8) (50.9) (57.1)

Minorities (3.9) (10.5) (12.3) (13.8)

Net Profit 110.9 126.9 140.5 157.6

Source: Company data, RHBRI estimates

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

abc

FBM KLCI

PER = 13xPER = 10xPER = 7x

KPJ




13/27

Faber________________________________________________________________________________________

Expansion In Non-Concession IFM Segment ContinuesShare Price : RM2.84Fair Value : RM3.82Recom : Outperform

(Maintained)

Highlights

IFM concession contributes 64% of FY09s earnings... Approximately 64% of Fabers FY09 revenue of53% of PBT was derived from IFM concession business. While Fabers concession for 79 hospitals in Malaysia is

due to expire in Oct 2011, the company expects to receive notification on the renewal by Oct 2010. We

believed the concession will most likely be renewed given its political links, as well as its size and geographical

reach.

while its non-concession IFM business is expanding in tandem. By leveraging on the strong presencein the IFM concession, Faber has also been expanding its non-concession IFM business both locally and

overseas. Faber recently secured a contract with Abu Dhabi Health Services Company to maintain allmechanical and equipment and various electrical installations and fittings at Sheikh Khalifa Medical City (Main

Campus) and affiliated buildings in the region of Abu Dhabi. The project is worth approximately RM20.4m for a

three-year period starting from 16 Aug 2010. We also note that an IFM contract in Madinat Zayed, Abu Dhabi

was renewed in May for another year with an annual value of RM57.8m, while a second contract (likely to

be#>RM100m) also in Madinat Zayed is expected to be renewed by year-end. Fabers local non-concession IFM

business is also expanding the company recently secured contracts worth approximately RM7m p.a. from

various vendors that include Tesco, Rapid KL and other private healthcare companies.

Stronger property earnings in 2HFY10. As for the property segment, we expect stronger property earningsto come on stream in 2HFY10 following the recognition of earnings from the launch of Taman Desa Phase 1A

DBKL in May 10. The company has received good response from the public, and over 60% of the development

has been sold. The company plans to launch Phase 1A (Fleet) at Taman Desa as well as Phase 4 for the Laman

Rimbunan development in Cheras by 3Q2010.

Risks to our view . 1) Failure to secure an extension to the concession agreement with the Government; and2) Further delays in property launches and approvals, which could affect revenues from the property segment.

Forecasts maintained.Following the 2QFY10 results (reported on 5 Aug) which were broadly in line with ourfull-year expectations, we tweaked our EPS forecasts slightly by -1% for FY10, +9% for FY11 and +5.4% for

FY12.

Valuations and recommendation. We continue to like Faber for its resilient earnings derived from theconcession business, together with its ongoing expansion plans for its non-concession business both locally and

overseas. Based on our revised forecasts after the 2QFY10 results, we raised our SOP based fair value to

RM3.82, (see table 2). We thus reiterate our Outperform call on the stock.

Table 1 : Investm ent Statistics (FAB; Code: 9008) Bloomberg: FAB MK

Net EPS Net

FYE Turnover Profit EPS Growth PER C.EPS P/ NTA Gearing ROE GDY

Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)

2009 805.3 82.7 22.8 35.3 12.5 - 2.9 net cash 23.4 2.12010(f) 928.0 95.3 26.3 15.3 10.8 27.0 2.4 net cash 22.3 2.52011(f) 911.3 95.7 26.4 0.5 10.8 24.0 2.0 net cash 19.1 2.82012(f) 1422.3 166.1 45.7 73.5 6.2 43.0 1.6 net cash 27.2 3.0


Market Capitalisation (R Mm) 1,030.9 UEM Group 34.0

Daily Trading Volume (m units) 1.2 Universal Trustee 23.4

52-week Price Range (RM / unit) 1.00-3.00

Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates





14/27

Table 2. Sum Of Parts Calculation

Valuation basis FV (RMm) Per share (RM)

Concession IFM DCF 658.9 1.82

Non-Concession IFM 14x FY11 earnings 476.5 1.31

Property DCF 76.9 0.21

Add : Net cash (End-1QFY10) 172.8 0.48

SOP 1,385.2 3.82

Shares (m) 363.0


Table 3. Earnings Forecasts Table 4. Forecasts Assump tions

FYE Dec (RMm) FY09 FY10f FY11f FY12f FYE Dec (RM) FY10f FY11f FY12f

Turnover 805.3 928.0 911.3 1,422.3 Revenue:

Turnover growth (%) 20.2 15.2 (1.8) 56.1 Concession 544.1 562.2 543.5

EBITDA 169.0 193.6 188.7 309.7 Non-concession 304.2 349.1 383.8

EBITDA margin (%) 21.0 20.9 20.7 21.8 Property 79.6 0.0 495.0

Dep & Amort (21.0) (23.0) (24.7) (26.4)

EBIT 148.0 170.6 164.0 283.2

EBIT margin (%) 18.4 18.4 18.0 19.9 EBIT:

Net interest expense (6.7) (6.7) (6.7) (6.7) Concession 97.9 101.2 97.8

Associates (0.3) 0.0 0.0 0.0 Non-concession 54.8 62.8 69.1

Preta x Pro fit 140.9 164.0 157.4 276.6 Property 17.9 0.0 116.3

Tax (34.8) (41.0) (33.0) (58.1)

Minorities (23.4) (27.7) (28.6) (52.4)

Net Pro fit 82.7 95.3 95.7 166.1

Growth (%) 69.7 15.3 0.5 73.5

Source: Company Data, RHBRI estimates Source: Company data, RHBRI estimates



FBM KLCI


Faber





15/27

Top Glove________________________________________________________________________________________

Worlds Largest Rubber Glove ManufacturerShare Price : RM6.62Fair Value : RM6.90Recom : Market Perform

(Downgraded)

Highlights

Worlds largest rubber glove manufacturer. With a capacity of over 33bn pieces, Top Glove remains theworlds largest rubber glove manufacturer supplying approximately 22% of global consumption for rubber

gloves. Top Glove will continue to benefit from the growth in demand for rubber gloves as gloves remain a

necessity in the healthcare industry as a form of protection. Coupled with organic growth, rising healthcare

awareness, especially from developing countries, and restocking activities, these should help support demand

for rubber gloves moving forward.

Capacity expansion. The commercial production for the additional eight new lines in F18 (+0.75 bn piecesp.a.) has started in Jul 2010 and the construction for F21 has finished and is expected to commence

commercial production in Aug 2010 (+1.5 bn pieces p.a.). Top Glove is also adding 16 new lines (+1.5 bn

pieces p.a.) at its existing F7 factory in Thailand. All in, these will boost Top Gloves annual production capacity

to 36.8bn pieces by end-FY10, from 33 bn pieces p.a. currently. As for 2012, the company is constructing a

new factory (F22) in Klang, which will house 16 new lines (+1.5 bn pieces p.a) and is expected to start

commercial production in Mar 2011. Top Glove is also putting in 32 new lines (+3.0 bn pieces p.a.) in its

recently acquired land and building in Ipoh (land and building acquired for RM4.2m). Commercial production is

expected to start by May 2011. In total, the expansion plans would increase Top Gloves annual production

capacity to 41.3 bn pieces by end-FY11.

Risks to our view.1) Sharp surge in raw material (latex) and/or energy (natural gas) prices, which may resultin margin squeeze; 2) Appreciating RM against the US$; 3) Execution risk from capacity expansion; and 4)Weaker-than-expected results from overseas operations.

Forecast lowered by 8.1-9.3% . We have cut our FY10-12 earnings by 0.2-8.1% largely to reflect the lowerFY10-12 EBITDA margin assumptions of 17.7-18.2% (vs. 17.8-19.9%) on the back of the time lag in passing on

higher latex costs as well as weaken US$ against RM.

Valuations and recommendation. Following the earnings revision, we have lowered our fair value to RM6.90(from RM8.20) based on a revised target PER of 15x, bringing it back in line with our target market PER (vs. 17x

previously). Given the limited upside to our fair value, we downgraded the stock to Market Perform from

Outperform.

Table 1 : Investm ent Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Net Core Net

FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/ NTA Gearing ROE GDY

Aug (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (% ) (%)

2009 1,529.1 169.1 28.7 28.7 53.7 23.1 - 2.5 net cash 22.6 4.4

2010f 2,062.3 241.5 40.9 40.9 42.8 16.2 44.0 4.1 net cash 26.4 3.4

2011f 2,342.1 271.5 46.0 46.0 12.4 14.4 48.0 3.4 net cash 24.4 4.5

2012f 2,648.1 299.9 50.8 50.8 10.5 13.0 510 2.8 net cash 22.5 4.9


Market Capitalisation (R Mm) 4,087.9 Tan Sri Dr Lim & family 38.6

Daily Trading Volume (m units) 1.7 Overlook Partners Fund 5.0

52-week Price Range (RM / unit) 3.33-7.24 Matthews International 5.2Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excludes EI * Consensus Based On IBES Estimates




16/27

Table 2: Earnings Forecasts Table 3: Forecast Assump tions

FYE Aug (RMm) FY09a FY10F FY11F FY12F FYE Aug FY10F FY11F FY12F

Turnover 1,529.1 2,062.3 2,342.1 2,648.1 Capacity (bn pcs p.a.) 34.4 39.9 41.8

Turnover growth (%) 54.0 34.9 13.6 13.1 Capacity utilisation (%) 85.0 85.0 90.0

Change in ASP (%) 0.1 1.0 1.0

EBITDA 288.5 382.7 411.4 434.0

EBITDA margin (%) 18.9 18.6 17.6 16.4 Source: RHBRI estimates

Depreciation (57.0) (61.1) (66.3) (72.8)

EBIT 231.5 321.6 345.1 361.2

EBIT margin (%) 15.1 15.6 14.7 13.6

Net Interest (8.5) (1.6) (1.8) (1.8)

Associates (1.0) 0.0 1.0 2.0

Pretax Prof it 222.0 320.0 344.4 361.4

Tax (53.9) (73.6) (79.2) (83.1)Minorities 1.1 (4.9) (5.3) (5.6)

Net Pro fit 169.1 241.5 259.9 272.7




FBM KLCI


Top Glove


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17/27

Kossan Rubber Industries________________________________________________________________________________________

Demand For Gloves Remains FirmShare Price : RM3.86Fair Value : RM5.81

Recom : Outperform(Maintained)

Highlights

Demand for gloves remains firm. Management expects demand for gloves to remain firm moving forward.As at 1Q10, Kossans product mix consisted of 40% powder-free, 40% nitrile and 20% powdered gloves, as

compared to 1Q09, where nitrile gloves only accounted for 25% of sales mix. The increase in nitrile gloves

sales mix is largely due to the introduction of a new range of nitrile gloves and the narrowing price gap

between nitrile and powder-free gloves due to the sharp increase in latex prices. As a result, Kossan saw their

customers switching to nitrile gloves from powder-free and powdered gloves. Management is also not too

concerned on the issue of oversupply of gloves moving forward as they believe that most of the expansionplans for other glove manufacturers are focusing on producing lower-end gloves while Kossan is primarily

focused on producing higher-value gloves (e.g. nitrile and powder-free). Currently, Kossans average utilisation

rate stands at approximately 90% and this has been consistent over the past few years despite the increase in

production capacity.

Capacity expansion plans. The capacity expansion at its new factory in Jalan Meru is ongoing, and uponcompletion, this new factory will house a total of 32 double-former lines. This factory currently houses 8 double-

former lines, which will start commercial production in Oct. Following that, another 8 double-former lines will be

installed and will start commercial production by 4Q10. The remaining 16 double former lines will be broken

down into two phases, where the first phase will start commercial production by 2Q11 while the 2nd phase is

expected to start commercial production by 4Q11. All-in, Kossans annual production capacity would increase by

20.8% from 12bn pieces currently to 14.5bn pieces by end-2010 and further by 3.5% in 2011 to 15bn pieces.

Risks to our view . 1) Sharp surge in raw material (latex) and/or energy (natural gas) prices, which may resultin margin squeeze; 2) Appreciating RM against the US$; and 3) Execution risk from capacity expansion.

Forecast cut by 10.1-12.8%. We have cut our FY10-12 revenue projections by 1.5-4.3% to reflect thecontribution of 16 double-former lines at the new production capacity in its new factory to 4Q10 as we have

previously assumed that the 16 double-former lines will start contributing in 3Q10. At the same time, we have

also lowered our FY10-12 EBITDA margins to 16.0-18.4% from 17.7-19.2% largely to reflect the time lag in

passing on the higher latex cost as well as weakening US$. Consequently, our FY10-12 earnings forecast have

been lowered by 10.1-12.8% respectively.

Valuation and recommendation.Following the earnings revision, our indicative fair value has been lowered toRM5.81 (from RM6.70) based on unchanged target FY11 PER of 13x. We continue to like Kossan for its well-

regarded management team as well as for its ability to maintain its average capacity utilisation rate of

approximately 90%. No change to our Outperform call on the stock.

Table 1 : Inve stment Statistics (KOSSAN; Code: 7153) Bloomberg: KRI MK

Net Core Core EPS Net

FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/ NTA Gearing ROE GDY

Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (% ) (%)

2009 837.0 66.8 20.9 37.5 51.1 10.3 - 3.5 0.45 36.5 3.1

2010f 1035.9 118.8 37.2 37.2 -0.8 10.4 37.0 2.7 0.18 29.0 1.4

2011f 1353.4 142.9 44.7 44.7 20.3 8.6 44.0 2.1 0.04 27.0 1.6

2012f 1485.1 150.9 47.2 47.2 5.6 8.2 49.0 1.7 0.00 22.5 1.9

Issued Capital (m units) 319.7 Major Shareholders (%)

Market Capitalisation (RMm ) 1,234.2 Kossan Holdings 51.1

Daily Trading Volume (m units) 0.9 Asian Small Companies 5.2


Main Market Listing/ Non-Trustee Stock/ Syariah-Approved Stock By The SC #Excludes EI * Consensus Based On IBES Estimates




18/27

Table 2 : Earnings Forecasts Table 3 : Forecast Assump tions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 837.0 1,035.9 1,353.4 1,485.1 Avg capacity (bn pcs) 13.8 14.7 17.7

Turnover growth (%) 19.1 23.8 30.6 9.7 Utilisation rate (%) 85.0 90.0 90.0

EBITDA 183.6 190.4 226.2 238.2


Dep & amort (34.0) (29.6) (33.3) (34.4)

EBIT 149.5 160.9 192.9 203.9

EBIT margin (%) 17.9 15.5 14.3 13.7

Net Interest (9.1) (6.8) (7.5) (8.1)

Exceptionals (53.0) 0.0 0.0 0.0

Pretax Profit 87.4 154.1 185.4 195.8

Tax (20.1) (35.3) (42.5) (44.8)

Minorities (0.5) 0.0 0.0 0.0

Net Profit 66.8 118.8 142.9 150.9

Core Net Pro fit 119.8 118.8 142.9 150.9




FBM KLCI


Kossan





19/27

Adventa________________________________________________________________________________________

Leading Surgical Gloves Manufacturer In MalaysiaShare Price : RM2.95Fair Value : RM4.92Recom : Outperform

(Maintained)

Highlights

Leading surgical gloves manufacturer in Malaysia. Adventas current product mix for gloves stands at 60%surgical gloves and 40% dental and examination gloves, which makes the company the leading surgical gloves

manufacturer in Malaysia. The company sells 60% of its surgical gloves under its own brand and the remainder

to OEM manufacturers with Adventa holding 15% market share of the global surgical glove market. Currently

Adventa exports 35% of its gloves to Europe and 30% to US and Latin America countries, while the remainder is

shared between Middle East and Asia.

Expanding its hospital products range from 70 types to 350 types in 2011. Approximately 10% ofAdventas revenue is derived from the distribution of hospital products to its customers worldwide. With recently-

acquired Cytotec, Adventa will venture into the distribution of home-based dialysis units to patients who prefer to

have their dialysis treatment in the comfort of their own homes. At present, Adventas current product mix of

hospital products stands at 70 types and management has guided that by 2011, the number could rise to 350

types. Management expects the revenue contribution from the distribution of hospital products to grow

approximately 30% by 2011, which we have already factored in our FY11 forecasts.

Capacity expansion plans. Management guided that the commercial production for its new factory in Kluang,Johor has been delayed due to the delay in shipment of some parts by the supplier. The new factory, which will

house seven new lines is now expected to be installed progressively starting from June. Following that, in 2011,

the management plans to add another five double former lines, which will increase Adventas annual production

capacity for dental and examination gloves to 5.5bn pieces by end-2011 from 4.5bn pieces at end-2010. Capex

guided by management is RM30m per year, which will be funded internally and via borrowings. The aggressive

capacity expansion plans are part of companys move to take advantage of the rising awareness in hygienestandards following the H1N1 pandemic as well as to further expand its foothold in Latin America now that the

company has obtained approval to export its gloves to Brazil.

Risks to our view. 1) Sharp surge in raw material (latex) and/or energy (natural gas) prices, which may resultin margin squeeze; 2) Appreciating RM against the US$; and 3) Execution risk from capacity expansion.

Forecasts is maintained. No change to our FY10-12 earnings forecast for now. Valuation and recommendation. Our fair value is maintained at RM4.92 based on unchanged target FY11 PER

of 13x. We like Adventa for its niche position as the largest surgical glove producer in Malaysia, where the

company is looking to aggressively expand its surgical production capacity from 350m currently to 450m pairs by

end-2011. No change to our Outperform call on the stock.

Table 1 : Inve stment Statistics (ADV; Code: 7191) Bloomberg: ADV MK

Net Core Core EPS Core Net

FYE Turnover Profit EPS EPS Growth PER C.EPS P/ NTA Gearing ROE GDY

Oct (RMm) (RMm) (sen) (sen) (% ) (x) (sen) (x) (%) (%) (%)

2009 282.9 17.0 11.7 22.0 86.9 13.4 - 2.4 0.4 18.1 2.8

2010f 406.3 39.7 27.4 27.4 24.4 10.8 26.0 2.1 0.5 20.1 3.6

2011f 525.6 54.9 37.8 37.8 38.1 7.8 35.0 1.7 0.5 23.8 4.3

2012f 651.7 71.8 49.5 49.5 30.8 6.0 46.0 1.4 0.4 26.0 5.1


Market Capitalisation (RMm ) 445.4 Low Chin Guan & family 56.7

Daily Trading Volume (m units) 1.5 Lembaga Tabung Haji 5.2

52-week Price Range (RM / unit) 1.48-4.16 Populus Mutual Fund 6.2

Main Market Listing /Non-Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES Estimates





20/27

Table 2 : Earnings Forecasts Table 3 : Forecast Assump tions

FYE Oct (RMm) FY09a FY10F FY11F FY12F FYE Oct FY10F FY11F FY12F

Turnover 282.9 406.3 525.6 651.7 Production

Turnover growth (%) 63.0 43.6 29.4 24.0 - surgical (m pairs) 331 430 480

- exam/dental (m pcs) 5,040 5,640 6,240

EBITDA 49.9 61.5 80.1 100.3


Depreciation (11.0) (12.2) (13.5) (14.8)

EBIT 38.9 49.3 66.6 85.5

EBIT margin (%) 13.8 12.1 12.7 13.1

Net Interest (5.6) (5.0) (5.4) (5.6)

Associates 0.0 0.0 0.0 0.0

Exceptionals (14.9) 0.0 0.0 0.0

Pretax Pro fit 18.4 44.3 61.1 79.9

Tax (1.5) (4.4) (6.1) (8.0)

Minorities 0.1 (0.1) (0.1) (0.1)

Net Prof it 17.0 39.7 54.9 71.8

Core net profit 31.9 39.7 54.9 71.8




FBM KLCI

PER = 20xPER = 15xPER = 10xPER = 5x

Adventa





21/27

Hartalega________________________________________________________________________________________

Largest Nitrile Gloves Producer In MalaysiaShare Price : RM8.18Fair Value : RM9.29Recom : Outperform

(Maintained)

Highlights

Largest nitrile gloves producer in malaysia. Hartalega is currently the largest nitrile gloves producer inMalaysia with total capacity of approximately 7bn pieces of gloves. The company predominantly manufactures

nitrile gloves, which constitutes almost 80% of its product mix.

To focus on human capital and improving its processes. Moving forward, Hartalegas growth strategy wouldinclude: 1) growing organically by building new production capacity; 2) leveraging on its technical know-how; 3)

expanding its nitrile glove exports to more developed nations; and 4) developing human capital as well as

improving its processes to enhance its competitiveness against its peers.

Capacity expansion plans. Commercial production in its new Plant 5 has begun with two new lines coming onstream in Mar. The company expects the remaining eight lines to be completed by Nov. Hartalega also plans to

decommission all ten of its lines in Plant 1 and replace them with six new high-capacity lines. This upgrade will

effectively add another 1bn pieces to annual capacity, which will focus on producing powdered gloves in order to

take advantage of the potential surge in demand from the emerging markets like China and India. In total, both

Plant 5 and the upgrade works will raise Hartalegas annual capacity to 10bn pieces from 7bn currently. Capex

guided by management is approximately RM120m over the next two years, which will be funded internally and

via borrowings.

Risks to our view. 1) Sharp surge in raw material (latex) and/or energy (natural gas) prices, which may resultin margin squeeze; 2) Appreciating RM against the US$; and 3) Execution risk from capacity expansion.

Forecasts maintained. We have kept our FY11-13 earnings forecasts unchanged for now. Valuation and recommendation. We maintain our fair value of RM9.29, which is based on unchanged target

FY11 PER of 13x. We like Hartalega for its niche position as the largest nitrile glove producer in Malaysia and

technological capabilities that are well ahead of its competitors. No change to our Outperform call on the stock.

Table 1 : Investm ent Statistics (HAR TA; Code: 5168) Bloomb erg: HART MK

Net Core EPS Net

FYE Turnover Profit EPS EPS# Growth# PER# C.EPS* P/ NTA Gearing ROE NDY

Mar (RMm) (RMm) (sen) (sen) (% ) (x) (sen) (x) (x) (%) (%)

2010 571.9 143.1 59.1 59.1 286.6 13.9 - 5.6 0.0 47.0 1.8

2011f 700.3 173.1 71.5 71.5 21.0 11.4 72.0 4.0 0.0 41.0 2.2

2012f 897.4 202.5 83.6 83.6 16.9 9.8 84.0 3.1 0.0 35.7 2.5

2013f 1011.1 214.7 88.6 88.6 6.0 9.2 97.0 2.5 0.0 29.7 2.8


Market Capitalisation (R Mm) 1,982.1 Hartalega Industries 50.4

Daily Trading Volume (m units) 0.3 Budi Tenggara 9.0


Main Market Listing /Non- Trustee Stock / Syariah-Approved Stock By The SC # Ex-EI * Consensus Based On IBES Estimates




22/27

Table 2: Earnings Forecasts Table 3: Forecast Assumptions

FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F

Turnover 571.9 700.3 897.4 1,011.1 Average capacity (m pcs) 7,668.6 10,000.0 10,000.0

Turnover growth (%) 256.8 22.4 28.2 12.7 Utilisation rate (%) 86.6 81.5 83.9

Average selling price (per000 pcs) 111.88 110.13 120.48

EBITDA 192.9 231.9 269.1 284.5 Source: RHBRI estimates

EBITDA margin (%) 33.7 33.1 30.0 28.1

Dep. & amort. (11.5) (12.7) (13.3) (13.9)

EBIT 181.3 219.1 255.8 270.6

EBIT margin (%) 31.7 31.3 28.5 26.8

Net interest expense (3.4) (2.5) (2.5) (2.0)

Associates 0.0 0.0 0.0 0.0

Exceptionals 0.0 0.0 0.0 0.0

Pretax Prof it 177.9 216.6 253.3 268.6

Tax (34.7) (43.3) (50.7) (53.7)

Minorities (0.2) (0.1) (0.1) (0.1)

Net Pro fit 143.1 173.1 202.5 214.7

Core Net Pro fit 143.1 173.1 202.5 214.7




FBM KLCI

PER = 11xPER = 9xPER = 7xPER = 5x

Hartalega




23/27

Allianz Malaysia________________________________________________________________________________________

A Small But Intergral Part Of Its PortfolioShare Price : RM4.13Fair Value : RM5.32Recom : Outperform

(Maintained)

Highlights

A small but integral part of its portfolio. Allianz is a composite insurer which means it has both life andgeneral (non-life) insurance business. As highlighted, medical or health insurance is sold under both life and non-

life policies, thus giving Allianz a full exposure towards the growth in healthcare. It is also the largest general

insurer in Malaysia by gross premiums as at FY09, with a total market share of 10%. However, in terms of medical

insurance, it is ranked 4th with a total market share of 6.3%, behind AIA (19.8%), Berjaya Sompo (8.4%) and

Pacific Insurance (8.1%). For its overall non-life portfolio, Allianz medical/health insurance contributed only 3.2%

of total gross premiums. We believe Allianz will ride the growth in healthcare through its life insurance division,

with medical insurance as a rider to market its life products.

Allianz ICPS gives choice to investors. Allianz recently-concluded Irredeemable Convertible Preference Shares(ICPS) issuance strengthens our positive view on the company based on three reasons: 1) the proceeds of

RM611m is partially used to fully settle its RM490m loan from parent Allianz SE; 2) the rest of proceeds will be

used to strengthen its ICAR (internal capital adequacy ratio) for both its life and general insurance divisions, giving

it more flexibility in underwriting riskier business; and 3) the ICPS increases the number of securities Allianz has

listed by 125%, thus increasing the liquidity of its shares. Moreover, the ICPS pays 20% more dividends and could

be converted to ordinary shares after 12 months. The ICPS will be listed on Bursa on 6 Aug.

Risks. The risks to our forecasts include: 1) lower-than-expected premium growth; 2) jump in claims ratio; 3)change in BNM policy that would require Allianz to further strengthen its Internal Capital Adequacy Ratio (ICAR);

and 4) the changing competitive landscape in the insurance industry due to liberalisation.

Forecasts is maintained. No change to our FY10-12 earnings forecast for now. We continue to be positive on the company. Despite the change in capital structure and earnings dilution

which is already factored into our forecasts, we are maintaining our positive stance on the stock. We like the

Allianz due to : 1) its above industry average premium growth and below industry average claims ratio for its

general insurance; 2) its bancassurance tie-up with CIMB; 3) the positive growth outlook of the Malaysian life

insurance industry; and 4) strong backing from its parent, Allianz SE. Maintain Outperform with a fair value of

RM5.32.

Table 1 : Investm ent Statistics (Allian z; Code: 1163) Bloomberg: ALLZ MK

Net FD FD EPS Net

FYE Turnover profit EPS EPS Growth PER C.EPS* P/ NTA ROE Gearing GDY

Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (% ) (%) (%)

2009

2222.7

118.8 77.2 Na Na 8.3 - 1.5 20.0 1.3 0.4

2010f 2460.8 110.6 71.9 32.0 Na 12.9 59.0 1.2 16.8 Net Cash 0.4

2011f 2720.0 132.6 86.2 38.3 20.0 10.8 68.0 0.9 15.2 Net Cash 2.9

2012f 2933.5 153.5 99.7 44.3 15.8 9.3 - 0.8 14.5 Net Cash 3.4

Issued Capital (m units) 153.9 Major Shareholders (%)

Market Capitalisation (R Mm) 635.5 Allianz SE 75.0

Daily Trading Volume (m units) 0.05


Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates




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APPENDIX

Appendix 1. JCI Accredited Hospitals In Malaysia

Hospitals Date of accreditation

Penang Adventist Hospital 16 Nov 2007

Prince Court Medical Centre 6 Dec 2008

International Specialist Eye Centre 14 Feb 2009

Sime Darby Medical Centre Subang Jaya 17 Oct 2009

Pantai Hospital Kuala Lumpur 14 Nov 2009

National Heart Institute 20 Nov 2009

Source: JCIs Website

Appendix 2: Areas of IFM Segment

Source: Faber, RHBRI

Linen and Laundr y Servi ces

Cleansing and Janitor ial

ServicesClinical Waste Management

Bio-medical Engineeri ng

Maintenance

Facili ti es Engineeri ng

Maintenance

IFM





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IMP ORTANT DISCLOSURES

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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

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

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

Industry/Sector Ratings

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

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

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

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RHB Investment Bank Bhd

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Dealing Office

Tel (Dealing) : (603) 9285 2288Fax (Dealing) : (603) 9284 7467

RHB Research Institute Sdn BhdLevel 10, Tower One, RHB Centre,Jalan Tun Razak50400 Kuala LumpurP.O. Box 1269950786 Kuala Lumpur, MalaysiaTel (Research) : (603) 9280 2160Fax (Research) : (603) 9284 8693

Lim Chee SingDirector

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation.Additional information on recommended securities, subject to the duties of confidentiality, will be made available uponrequest.

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Healthcare Sector Update : The Wealth Effect - 09/08/2010

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