Property RHB.pdf

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Table 2. Fair values (RM/share) Company FV Discount/

Premium UEM Land 3.35 0 SP Setia 4.67 +10 IJM Land 3.28 0 Suncity 5.10 Offer price Mah Sing 2.90 0 YNH 2.14 -35 KSL 2.40 -40 Paramount 2.23 -35 Glomac 2.05 -25

Loong Kok Wen, CFA (603) 92802237

[email protected]

Table 1 : Property Sector Valuations

FYE Price EPS # (sen)

EPS growth (%)

PER (x)

P/NTA (x)

P/CF (x)

GDY (%) Rec

(RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11

UEM Land Dec 2.79 7.1 8.5 32.2 19.7 39.5 33.0 3.28 -43.8 0.5 TB

SP Setia Oct 4.19 16.1 18.4 -35.0 14.6 26.0 22.7 2.91 33.8 2.8 MP (↓)

IJM Land Mar 2.83 16.2 19.1 13.1 18.0 17.5 14.8 1.91 13.8 1.1 OP

Suncity Dec 5.49 41.3 48.2 18.6 16.8 13.3 11.4 1.04 11.2 1.5 MP

Mah Sing Dec 2.60 18.8 24.2 32.7 28.4 13.8 10.7 1.93 56.2 3.8 MP (↓)

YNH Dec 1.95 17.2 20.3 22.9 17.8 11.3 9.6 0.95 21.9 3.6 MP

KSL Dec 1.93 22.2 25.6 35.2 15.1 8.7 7.5 0.81 17.4 3.1 OP

Paramount Dec 2.00 27.1 33.7 8.4 24.3 7.4 5.9 1.20 6.3 7.1 MP

Glomac Apr 1.83 27.6 35.3 30.4 27.6 6.6 5.2 0.76 13.9 7.1 MP

Sector simple Avg 17.6 20.2 16.0 13.4 1.64 14.5 3.4

* price at 1 Jul 11 # Normalised

♦ Cautious mood ahead. We turn cautious on the sector in 3Q2011. Based on historical pattern whereby a property upcycle normally lasts for two years, we believe the timing now is appropriate to be watchful on property stocks as well as the sector outlook as we are now almost two years into the upcycle, and property stock prices normally priced in 6-9 months ahead. While the physical market is likely to remain strong until end 2011, we believe sentiment will turn slightly negative and expect demand starts to soften possibly next year due to four key concerns: (i) higher risk profile due to massive credit growth driven by liquidity; (ii) further monetary and regulatory tightening measures; (iii) rising inflationary pressure; and (iv) negative sentiment from regional property sector downgrade.

♦ Our RNAV sensitivity analysis. We perform an analysis on RNAV of each property stocks under our coverage, mainly to assess the sensitivity in RNAV to changes in market conditions – higher interest rate that will affect cost of equity, lower projects’ GDV and longer sales period. Assuming a 50 bps increase in interest rate, 10% reduction in GDVs and an additional one year of sales period for each project, which we think is a reasonable outcome in 2012/2013, the estimated coefficient/sensitivity of UEM Land’s RNAV is the highest at 1.03, i.e. 1% change in GDV will lead to 1.03% change in RNAV. RNAV of other stocks under our coverage has a lesser impact with 0.5-0.7% change for every 1% change in GDV.

♦ Retail segment is preferred. As the residential segment will be subject to most policy interventions and the office segment will face massive oversupply, we are positive on the retail sub-segment, which has relatively lower supply. The appetite of local and foreign institutional funds to own strategic retail properties is strong due to higher growth potential for consumption in Asian countries (compared to western countries). Cap rate/yield for retail properties in KL is attractive at 11.6%, implying higher potential for assets monetisation. We hence prefer developers that own retail property assets, which market value is relatively inelastic that will help to mitigate sensitivity of RNAV and cyclical property development earnings.

♦ Risks. 1) No interest rate hike; 2) No regulatory tightening; 3) More sustainable and stronger-than-expected property demand.

♦ Downgrade to Neutral. We believe most of the good news, or rather expectation of strong property sales and hence earnings growth have already been factored into the share price. For sector picks, we prefer IJM Land and KSL.

Corporate Highlights Sector Update

Property Enough Is Enough

Mal

aysia

M

AR

KET D

ATELI

NE

PP

77

67

/0

9/2

01

1(0

28

73

0)

Recom : Neutral (Downgraded)

4 July 2011

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

Please read important disclosures at the end of this report.

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3Q11 Outlook

♦ Based on historical pattern, now could be the right timing. To recall, we downgraded the small cap property stocks in 2Q2011 and promoted low beta stocks such as Mah Sing and Paramount. Going into 3Q2011, we turn cautious on the property sector. Looking back to the historical pattern since 2002 (see Chart 1, where we have used annual percentage change in average property transaction values as a gauge for property cycle), a property upcycle normally lasts for two years. Where we are currently almost two years into a property upcycle. While the physical property market may still remain strong until end 2011, we believe the timing now is appropriate to be watchful on property stocks as well as the sector outlook, as share prices normally priced in 6-9 months ahead.

Chart 1: Annual percentage change in average commercial and residential property transaction values

-60%

-40%

-20%

0%

20%

40%

60%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011f

2012f

Commercial Residential

Source: JPPH

Chart 2: Historical valuations of property stocks tracked closely to the property cycle and tend to price in 6-9 months ahead

-60%

-40%

-20%

0%

20%

40%

60%

1991

1992

1993

1994

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0

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2.5

3

3.5

4

4.5

5

% change in avg transacted value for commercial properties% change in avg transacted value for residential properties

SP Setia's PBMah Sing's PB

Source: NAPIC, Bloomberg

1

2

1

2 1

2

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♦ Cautious mood ahead. We believe sentiment will turn slightly negative and expect demand to start softening next year primarily due to four key concerns:

(i) Higher risk profile as a result of excessive credit growth fueled by low interest rate-led liquidity:

While the low interest rate regime has successfully revived the property sector downturn during the 2008 global financial crisis, prolonged cheap financing has caused fast and sharp increase in property prices, not only in Malaysia, but also in many East Asian countries. In our view, the rapid growth in property prices is unlikely to be sustainable over the long run. While some countries are cash rich with high savings rate, a lot of demand are highly leveraged. This can be seen from the rising household debt/GDP ratio, where the ratio for Malaysia has surged to a high of 75.9% as at Dec 2011, and total residential property loans/total loans ratio is trending up, reaching over 50% as at May 2011 from about 47% a year ago. It is also worth noting that total approved residential property loans jumped by 156% since Jan 2009 - the previous cycle trough (the increase was 183% and 122% in the previous two property upcycles). Similar trend is seen for Hong Kong (Singapore’s household debt/GDP ratio is not high, as loans for HDB buyers extended by HDB are not captured in the banking system). This phenomenon, we believe, will continue to lead to more regulatory measures being implemented by the government of China, HK, Singapore, and potentially Malaysia to cool down the overheating property market.

Chart 3: Record high household debt/GDP ratio for Malaysia

63.5%

65.7%66.7%

69.1% 68.8%

66.9%

63.7%

76.0% 75.9%

56%

58%

60%

62%

64%

66%

68%

70%

72%

74%

76%

78%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: BNM

Chart 4: Malaysia approved residential property loans and

residential property loan/total loan ratio (+155.6% since

Jan 09, +183% and 122% in the previous 2 upcycles)

0

1,000

2,000

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1

RM mil

20%

25%

30%

35%

40%

45%

50%

55%

60%

Residential property loans% residential property loan/total loan

Source: BNM

Chart 5: Singapore household debt (consumer loans) to GDP

ratio

46.8%44.0%

40.5% 39.5%42.7%

48.0% 49.9%

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 2008 2009 2010

Source: CEIC

Chart 6: Hong Kong residential mortgage loans

outstanding/GDP ratio (mortgages upped 30% since 4Q08)

500,000

550,000

600,000

650,000

700,000

750,000

800,000

1Q

03

3Q

03

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11

HK$ mil

0%

20%

40%

60%

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120%

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200%

Mortgage outstanding Mortgage/GDP ratio

Source: HK Monetary Authority

+30%

+183%

+156%

+122%

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(ii) Further monetary and regulatory tightening measures:

“Properties are now beyond reach” is the concern to many people these days. Based on a simple average value of residential property transacted/GDP per capita for some key states in Malaysia, the ratio has surged to a record high, as low interest rate has substantially inflated property asset prices. Together with the fast rising credit growth, further increase in interest rate and tightening in regulatory measures are imminent, which will likely affect the sector given the high percentage of leverage. We expect another 25-50 bps hike in interest rate in 2H2011, which will bring effective mortgage lending rate to about 4.6%. Although this is still tolerable for some, transaction volume will, nonetheless, be affected to some extent. Furthermore, the re-imposition of progressive RPGT is possible (current RPGT is 5% flat for the first five years of purchase), which could further flush out short-term speculators in the property market. The Singapore property market has seen slower property sales, with 1Q11 total units of private residences sold falling by 2.6% yoy, after the implementation of the punitive measure – a seller’s stamp duty of 16% (from 5% previously) for those who buy a private home on or after 14th Jan 2011 and dispose of within a year.

Chart 7: Average value of residential property transacted / GDP per capita ratio for KL, Selangor, Johor and Penang

10.2

8.47.8

11.2

9.85

8.67

10.46

7.76

6.85

8.97

7.28

6.25

8.61

0

2

4

6

8

10

12

4Q07 4Q08 4Q09 4Q10

(x)

KL Selangor Johor Penang

Note: GDP per capita by state is not available for 2010.

Source: DOS, NAPIC (ratio for KL in 4Q10 is based on GDP per capita provided by Focus Economics, extracted from Savills Asia Pacific Chart

Book 2011)

Chart 8: Total units of private residences sold (including executive condos) in Singapore

0

500

1,000

1,500

2,000

2,500

3,000

Jun-0

7

Aug-0

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Oct

-07

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8

Aug-0

8

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units

Source: URA

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(iii) Rising inflationary pressure:

Although properties will continue to be a good hedge against inflation, this is only true for the wealthy group with high affordability, possibly with low leverage and hence strong holding power. CPI data may not be a reflective indicator for inflation, as it only represents a certain basket of goods and services. Real inflationary pressure is indeed getting higher with rising crude oil and food prices, as well as electricity tariff, which will lead to lower disposable income and hence demand for properties. The situation could worsen as some buyers may have to start paying their mortgage installments as batches of new housing launched under the DIBS (developers’ interest bearing scheme) are starting to be progressively completed from this year onwards. Note that, the amount of new units sold has actually surged by 62.4% (as at end 2010) since the downturn in 2008. Considering the glut of supply from the build-up in the pipeline, we foresee flattish or minimal growth in property prices over the next two years. In other words, another 20% increase is unlikely. Already, 1Q11 house price index has seen a minor 2-4% qoq correction in Penang, Selangor and Johor.

Chart 9: CPI data may have underestimated real inflation

Source: DECPG World Bank

Chart 10: New residential units sold

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010

units

Source: NAPIC, RHBRI

Chart 11: Malaysia house price index for Selangor, Johor and Penang weakened slightly in 1Q11

80

90

100

110

120

130

140

150

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180

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Index

Malaysia KL Selangor Johor Penang

Source: JPPH

+62.4%

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(iv) Downgrade in regional property sector outlook:

We believe the weak market sentiment on property stocks in China, HK and Singapore will spill over to Malaysia. On 15th June, S&P downgraded China’s property market outlook from “stable” to “negative” in view of increasingly challenging credit conditions due to regulatory tightening, and hence higher risk profile of developers. For Malaysia’s developers, most of the property developers under our coverage have a reasonable net gearing of about 0.2-0.4x. However, if interest rates rise sharply and undermine liquidity in the system, property sales and hence developers’ cash flow will be adversely affected. The impact will be more severe especially for those that have aggressively replenish their development landbank, as expensive landcost and longer turnaround period would mean high land holding cost.

♦ Our RNAV analysis. Based on our expectation of higher interest rate as well as tighter regulatory measures going forward, developers are likely to have limitations in raising selling prices further due to slowdown in demand, and may potentially undercut pricing in order to unload their inventory. In a worse case, take-up rate could take longer to achieve a satisfactory level. To evaluate the impact, we perform an analysis on RNAV of each property stocks under our coverage, mainly to assess the sensitivity in RNAV to changes in market conditions – higher interest rate that will affect cost of equity, lower projects’ GDV and longer sales period. Assuming a 50 bps increase in interest rate, 10% reduction in GDVs and an additional one year of sales period for each project, which we think is a reasonable outcome in 2012/2013, the estimated coefficient/sensitivity of UEM Land’s RNAV is the highest at 1.03, i.e. 1% change in GDV will lead to 1.03% change in RNAV. RNAV of other stocks under our coverage has a lesser impact with 0.5-0.7% change for every 1% change in GDV.

Table 3: Sensitivity analysis on RNAVs

Assumptions: (i) 50 bps interest rate hike

(ii) An additional one year sales period

Company Current RNAV RNAV / share (RM) % change from RNAV / share (RM) % change from

per share (RM) after 5% cut in GDV current RNAV/share after 10% cut in GDV current RNAV/share

UEM Land 2.81 2.61 -7.1% 2.52 -10.3%

SP Setia 4.24 4.06 -4.2% 3.95 -7.0%

IJM Land 3.28 3.10 -5.4% 3.03 -7.5%

Suncity 6.50 6.17 -5.2% 6.09 -6.4%

Mah Sing 2.90 2.79 -3.7% 2.72 -6.1%

Paramount 9.14 8.80 -3.7% 8.69 -4.9%

KSL 4.02 3.90 -3.0% 3.78 -6.0%

YNH 3.30 3.16 -4.2% 3.12 -5.3%

Glomac 2.73 2.62 -4.1% 2.58 -5.6% Source: RHBRI

Chart 12: Shanghai Property Index and China Vanke’s share

price

1,000

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16HK$

China Se Shang's Property Index China Vanke

v

Source: Bloomberg

Chart 13: Hang Seng Property Index and City

Development’s share price

1,000

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SG$

Hang Seng Property Index City Development

v

Source: Bloomberg

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♦ Prefer retail segment. As the residential segment is the segment that is subject to most policy interventions and the office segment will face massive oversupply, we are positive on the retail segment. Although there is some oversupply of new suburban malls, we prefer only those which are strategically located with reasonable size as occupany is likely to be more resilient and hence better prospects of rental growth. Some suburban malls underperformed as the pool of population is limited in addition to the competition from bigger malls. In 1Q11, Suria KLCC (Ramlee’s extension of 13,100 sqm) was completed and is targeted to be fully operational in Jun 2011. Upcoming major supply of retail space in Klang Valley include The Paradigm @ Kelana Jaya (63,600 sqm) in end 2011 and KL Sentral Shopping Mall (97,600 sqm) and Vision City @ Jalan Sultan Ismail in 2012.

♦ High cap rates/yields, high potential for assets monetisation. According to data compiled by Savills, cap rates/yields for the retail properties in KL are fairly attractive at 11.6% in 1Q11, compared to 3-5% for HK, Taipei and Singapore. This explains that the retail properties in KL are still cheaper in the region, and prospect for rental (yield) growth and return is high. The appetite of local and foreign institutional funds to own strategic and/or properly managed retail properties is strong mainly due to the higher growth potential for consumption in Asian countries, compared to western countries. Key transactions of retail properties that took place in Malaysia since last year include: (i) 1 Mont’ Kiara by ARA Asia Dragon Fund; (ii) AEON Melaka mall by ADF Tiger fund; (iii) Queensbay Mall in Penang by Capitalmall Asia; (iv) Putra Place by Sunway REIT; (v) Seremban Parade, Ipoh Parade and Klang Parade by TMW Asia Property Fund; and (vi) Kuantan East Coast Mall by CMMT. Key existing quality retail property asset owners and retail REITs that investors should take note include: (i) IGB – Mid Valley and The Gardens Mall via KrisAssets; (ii) Bandaraya Development – BSC shopping mall; (iii) CMMT – Gurney Plaza (and extension), The Mines, Sg Wang and Kuantan East Coast Mall; (iv) Sunway REIT – Sunway Pyramid, Sunway Putra Place and upcoming Sunway Velocity retail; (v) KSL – KSL City Mall. Our stock picks are hence selective, and we prefer developers that own retail property assets, which market value is relatively inelastic that will help to mitigate sensitivity of RNAV as well as cyclical property development earnings.

Table 4: Cap rates around Asia Pacific

Cities Office Residential Retail

1Q10 1Q11 1Q10 1Q11 1Q10 1Q11

Beijing 5.96% 5.66% 2.50% 2.60% N.A. N.A.

Shanghai 6.60% 5.50% 4.50% 4.50% 7.00% 6.50%

Hong Kong 3.10% 3.36% 3.01% 2.88% 3.76% 3.54%

Taipei 3.30% 2.80% 2.90% 2.50% 3.90% 3.10%

Tokyo 4.70% 4.80% 5.90% 5.80% 5.30% 5.20%

Seoul 5.90% 5.70% N.A. N.A. 7.00% 6.50%

Singapore 5.25% 3.88% 3.00% 3.00% 5.25% 4.75%

Kuala Lumpur 10.05% 10.11% 5.63% 6.13% 10.89% 11.61%

Hanoi 12.00% 12.00% N.A. N.A. 10.00% 10.00%

Ho Chi Minh City 12.00% 12.00% N.A. N.A. 10.00% 10.00%

Sydney 7.25% 7.00% N.A. N.A. 6.50% 6.50% Source: Savills

Chart 14: Supply and vacancy rate of office space in KL

Note: For 11F, data is as at 1Q11, while future supply is from 2Q-4Q11

Source: Jones Lang Wootton

Chart 15: Completions and supply of retail space in KL

Note: For 11F, completions are as at 1Q11, while future supply is from 2Q-4Q11


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♦ Impact of news flow may not be substantial. The long-awaited news flow on the potential winners for mega government development projects could be downplayed. This is the same for the excitement on MRT line beneficiaries. Although the circle line that will loop around KL city centre and the red line have yet to be announced, we think the market has largely expected the key developers that will benefit from the MRT network. As for the key mega development plans, apart from the 2,680-acre RRI Sg Buloh land, Pudu Jail land, RMAF Sg Besi land and KLIFD (construction jobs), others have largely been awarded. Successful bidders for other government land parcels could, however, be a winner’s curse as we gather that the low cost component for the RRI land could be high as the Government is now advocating affordable housing. Given our expectation of lower pricing power of developers as demand softens, development margin could be less lucrative. Also, for developers or contractors which will undertake the development of RMAF and KLIFD projects, low construction margin is expected. Having said that, if the proposed high-speed rail from KL to Singapore is approved, there could be a strong re-rating for the property sector in Malaysia.

Chart 16: Rental value and capital value index for retail

properties in KL

Note: Arrows indicate 12-month outlook Index base: 4Q06 = 100


Table 5: Existing new and upcoming supply of suburban

malls in Klang Valley

Name Location Area (sqf)1 Shamelin Cheras 322,000Citta Strip Mall Ara Damansara 433,000Festival Mall Danau Kota Setapak 350,000First Subang Subang Jaya 120,000Jaya Jusco Mahkota Cheras Mahkota 150,000One Mont' Kiara Mont' Kiara 260,000Viva Homes Jalan Loke Yew 660,000Zone.e Sungai Besi 200,000The Scott Garden Old Klang Road 250,000Kenangan Wholesale City Taman Kenangan 500,000

Total 3,245,000

Source: Oriental Daily News

Chart 17: Malaysia is one of the strongest countries for private consumption growth in the region

Source: Focus Economics from Savills Asia Pacific Chart Book 2011

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Key Risks for the sector

♦ Risks. Key risks to our downgrade in sector rating: 1) No regulatory tightening; 2) No interest rate hike; and 3) More sustainable and stronger-than-expected property demand. While the catalyst of M&A activities seems to have fizzled out, we continue to flag that privatisation angle for IJM Land and KSL is still possible. UEM Land, too, may still embark on acquisition trail to diversify its property development earnings as well as concentrated landbank exposure.

Valuations and Recommendations

♦ Where are the valuations now? For 2011, after a short rally in Jan 2011, we downgraded the smaller property developers in 2Q2011. We saw little catalysts for the small caps as the potential winners for the Government’s mega projects are likely to be the bigger and reputable players. Also, smaller players do not have the balance sheet strength to carry out material landbanking activities. If what we project is true, i.e. the property upcycle will gradually come off in 2012, current valuations appear to be on the high side, as property stocks typically price in 6-9 months ahead. We believe most of the good news, or rather expectation of strong property sales and hence strong earnings growth have already been factored into the share price. Many property stocks under our coverage are currently trading in between +1 stdev and +2 stdev of historical PB mean, and slightly above +1 stdev of historical PE mean.

♦ Downgrade to Neutral. We downgrade our property sector rating to Neutral from Overweight previously. While we expect the developers to continue with their landbanking activities, which are supposed to be RNAV positive, we are cautious on those who are very aggressive. Land prices are getting more expensive now, and the window to launch and rapidly sell property products is getting shorter. The resulting impact will be slower landbank turnaround time and higher holding costs. We reduce the fair value of some of the property stocks under our coverage by narrowing the premium by 5-10%/raising the discount to RNAV by 5%. Rating for most of the stocks is maintained except for SP Setia and Mah Sing, which we have downgraded both to Market Perform due to lower upside to our revised fair values. For stock picks, we prefer:

1. IJM Land: The company’s landbank in Sebana Cove will directly benefit from the US$20bn RAPID project in Pengerang, which is one of the more convincing ETP projects as it is spearheaded by Petronas. GDV estimate for the land of only RM1.4bn provided by management is rather conservative in our view. Based on our rough calculation, the GDV can potentially worth RM2-2.5bn if we benchmark with the home prices in Kertih. This should provide upside to our existing RNAV estimate. In addition, Khazanah’s project in Desaru as a leisure and tourism spot, which is expected to be launched in 3Q-4Q2011, will also accelerate and complement IJMLD’s township development in Sebana Cove to cater for the O&G workers.

2. Sunway Berhad (the merged entity of Sunway Holdings and Suncity): The stock will be listed in Aug 2011. We see upside in the latter given the issue price of the Newco at RM2.80. Among the listed counters and warrants, Sunway Holdings warrants will provide a cheaper entry, followed by Suncity warrants, Sunway Holdings and Suncity.

3. KSL: The stock is a good RNAV play for the Iskandar growth story. Its assets value has been deeply under-appreciated by the market. The market value of the strategically-located KSL City shopping mall (in the JB city centre) as well as the landbank in Klang is worth at least 1.2x of the current market cap of the company. Value for other landbank in Johor and the potential value of the upcoming KSL City hotel have not yet been accounted for. The mall will benefit from the proposed RTS link, which will be operational by 2018, as greater Singaporean crowd will be captured.

Table 6: Our revised indicative fair value for the property stocks under our coverage Company Current Previous Revised

Price Fair value Premium/ (Discount) Rating Fair value

Premium/ (Discount) Upside Rating

RM RM % RM % % UEM Land 2.79 3.35 0 TB 3.35 0 20.1 TB SP Setia 4.19 4.88 +15 OP 4.67 +10 11.5 MP IJM Land 2.83 3.28 0 OP 3.28 0 15.9 OP Suncity 5.49 5.10 Offer price MP 5.10 Offer price -7.1 MP Mah Sing 2.60 3.15 +10 OP 2.90 0 11.5 MP YNH 1.95 2.31 -30 MP 2.14 -35 9.7 MP KSL 1.93 2.40 -40 OP 2.40 -40 24.4 OP Paramount 2.00 2.41 -30 MP 2.23 -35 11.5 MP Glomac 1.83 2.05 -25 MP 2.05 -25 12.0 MP

Source: RHBRI

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Chart 18: Forward PB and PE for UEM Land

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Source:Bloomberg, RHBRI

Chart 19: Forward PB and PE for SP Setia

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Source: Bloomberg, RHBRI

Chart 20: Forward PB and PE for IJM Land

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Chart 21: Forward PB and PE for Mah Sing

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Chart 22: Forward PB and PE for Suncity

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Chart 23: Forward PB and PE for YNH

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IMPORTANT DISCLOSURES This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Chart 25: Forward PB and PE for Glomac

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Chart 24: Forward PB and PE for KSL

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Chart 26: Forward PB and PE for Paramount

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The recommendation framework for stocks and sectors are as follows : - Stock Ratings Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months. Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks. Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months. Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months. Industry/Sector Ratings Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request. This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

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