Small Caps. Strategy. Unveiling The 2012 Jewels. MALAYSIA EQUITY Investment Research Daily

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PP10551/09/2012 (030567) 25 April 2012 Jeffrey Tan +60 (3) 9207 7633 jeffrey.tan@my.oskgroup.

1 PP10551/09/2012 (030567) 25 April 2012 Jeffrey Tan +60 (3) The Research Team +60 (3) Strategy Small Caps Unveiling The 2012 Jewels MALAYSIA EQUITY Investment Research Daily OSK s small cap corporate day yesterday was attended by over 50 fund managers and buy-side investors. Despite the uncertainty in the market which merits a more cautious investment stance, most investors were keen to explore good ideas and continue to be on the lookout for longer-term winners in the small cap space. We see pockets of opportunities as valuations (based on our small cap universe) remained inexpensive at 7.3x FY12 EPS, a 40% discount to the broader market. There are good underlying re-rating catalysts for the small cap oil & gas, consumer and consumer-related sub-sectors. We have BUY ratings on our top picks DAYANG (FV: RM2.34), JOHORETIN (FV: RM1.51), PRESTARIANG (FV: RM1.48) and TAKAFUL (FV: RM4.42). Our NEUTRAL call on the broader market remains with our year-end target for the FBM KLCI unchanged at 1,620. Malaysia s best small caps unveiled. Held in conjunction with the launch of the 2012 edition of our small cap handbook (OSK Jewels), our corporate day for small caps drew in more than 50 local and overseas fund managers as well as buy-side investors. We showcased 4 companies from the handbook, Johore Tin, Dayang Enterprise and Syarikat Takaful Malaysia (STM) which are among our top picks for this year. At the outset, investors were given the opportunity to catch a glimpse of these companies core businesses from the management s perspective, followed by individual breakout sessions (which attracted good sign-ups). was represented by its CEO, Dr. Abu Hasan Ismail, Johore Tin by Edward Goh (Managing Director), Dayang Enterprise by Bailey Kho (Head of Corporate Affairs) and STM by Dato Mohamed Hassan Kamil (Group Managing Director). 10 new jewels. The 4 companies showcased form part of the 10 companies featured in our handbook for the first time (see Appendix). Of the shortlisted top 5 names, Kossan and Dayang need little introduction as OSK has covered the stocks for some time already. The companies that generated the most interest were, Johore Tin and Takaful as investors were either unfamiliar or had wanted to find out more from management on their earnings prospects. Since our initiation reports on these 3 stocks, their share prices have risen 17-75%. YTD, their share prices have gained % relative to the 7% rise on the FBM Small Cap index. We see further re-rating catalysts for these stocks as more investors warm up to their fundamentals and growth opportunities. Table 1: OSK Jewels 2012 Edition- Top 5 picks Source: OSK OSK Research See important disclosures at the end of this report 1

1-Jan 8-Jan 15-Jan 22-Jan 29-Jan 5-Feb 12-Feb 19-Feb 26-Feb 4-Mar 11-Mar 18-Mar 25-Mar 1-Apr 8-Apr 15-Apr 22-Apr OSK Research Figure 1: Investors at the OSK Small Cap 2012 Small Cap Day Source: OSK

3: YTD performance of companies profiled 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% FBMSC Index FBMKLCI Index Syarikat Takaful Johore Tin Dayang Enterprise YTD Performance (%) 0.0% 20.0% 40.0% 60.0% 80.

2 1-Jan 8-Jan 15-Jan 22-Jan 29-Jan 5-Feb 12-Feb 19-Feb 26-Feb 4-Mar 11-Mar 18-Mar 25-Mar 1-Apr 8-Apr 15-Apr 22-Apr OSK Research Figure 1: Investors at the OSK Small Cap 2012 Small Cap Day Source: OSK Fig. 2: FBM Small Cap Index YTD performance (%) Fig. 3: YTD performance of companies profiled 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% FBMSC Index FBMKLCI Index Syarikat Takaful Johore Tin Dayang Enterprise YTD Performance (%) 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% Source : OSK Source : OSK The best of ASEAN small caps. The launch of the Malaysian small cap handbook will be followed by similar launches by our research teams in Singapore (OSK-DMG), Indonesia (OSK Nusadana) and Thailand (OSK Securities Thailand), over the course of the next few weeks, making it the biggest small cap compendium of its kind in the Asean region. OSK Research See important disclosures at the end of this report 2

3 Key Highlights and Takeaways from the corporate presentations DAYANG (BUY, LAST CLOSE: RM2.11; FV:RM2.34) At the corporate day, management highlighted 3 key points for the company. Firstly, this year is a year of tender for Dayang where it expects to grab a portion of the RM7bn worth of brownfield services contracts and most of them are mainly for contract renewal purposes, either from themselves or its competitors. Secondly, it sees potential M&A opportunities for itself, coming not only from the Perdana acquisition but also from other potential related O&G services. Finally, Dayang is looking forward to participate in marginal oilfield developments, either directly or indirectly. Our FV of RM2.34 is premised on 13x FY12 EPS JOHORE TIN (BUY, LAST CLOSE: RM1.36; FV: RM1.51) Management articulated passionately on efforts to create further shareholder value through its venture in the food and beverage manufacturing business to complement its tin manufacturing business. We gather that management will continue to be on the lookout for other acquisitions which could leverage on its sales networks in Africa to get more earnings contribution. Although nothing is firmed up at this juncture, we believe that the group could embark on other acquisitions if the pricing and synergies are value accretive. Despite the impressive performance of the stock recently, we believe there is further upside on the stock as valuations remain attractive at 6-7x PER vs the 8-9x of comparables, coupled with multiple re-rating catalysts highlighted during the briefing such as: (i) expansion of its evaporated milk business, which will kick off by 4Q12, (ii) installation of new lines to enhance its production capacity of sweetened condensed milk, and (iii) focusing on selling its own brands for the domestic market to enhance its margins. We are reiterating our BUY recommendation for Johore Tin with a FV of RM1.51, premised on: (i) 6.5x FY12 earnings for its tin can manufacturing business, and (ii) 8.0x FY12 earnings for its dairy product manufacturing business. Maintain BUY with FV of RM1.51. PRESTARIANG (BUY, LAST CLOSE: RM0.93; FV: RM1.48) shared its plans to further grow its earnings base going forward. The key focus will be the launch of its in-house developed certification programmes such as Vocational English and Green IT solutions, coupled with the progressive rollout of the 1Citizen programme. The company targets to grow its better-yielding training and certification division from 20% of group revenue to 40%. The volatility seen in quarterly earnings is likely to be smoothened out, unlike what happened in 1H11 which saw a sharp drop in earnings due to seasonality. is looking to reward shareholders with quarterly dividend payouts going forward in view of its strong cash balance of RM46m and its light capex business model. Although the company s market capitalization has doubled since we initiated coverage last September, we see potential for further share price re-rating owing to its undemanding valuation, trading at just 5x FY12 PER, which is anchored by a dividend yield of over 10%. Our FV of RM1.48 is based on 8x FY12 EPS. SYARIKAT TAKAFUL MALAYSIA (BUY, LAST CLOSE: RM3.66; FV: RM4.42) At the corporate day, management continued to highlight its intentions to grow its family takaful business and will put more focus on growing its retail agency, in line with Bank Negara Malaysia s intentions to grow the family takaful business moving forward. Management also expects its claims ratio for its general takaful business to remain around the 65% region moving forward due to its less profitable motor insurance business, which it caps at 40% of its total portfolio. In line with our expectations, the management also highlighted that it is expecting more growth in its wakalah fees as it will be launching all new products under the wakalah model moving forward. While the stock has performed well recently, we believe that it is still trading at a discount to its peers. If the insurance companies under coverage (Allianz, LPI Capital, Kurnia discontinued last week) traded at our fair value, the stocks would trade at a range of 13-17x FY13 EPS, while Syarikat Takaful will trade at only 10x FY13 EPS. Hence, we think this company could be worth more when its PER rerates, provided that it continues to deliver on the earnings front as evidenced by its historical earnings growth. Maintain BUY with FV of RM4.42 premised on 10x FY13 EPS. OSK Research See important disclosures at the end of this report 3

4 APPENDIX OSK 2012 Jewels Market Capitalisation (RMm) OSK 2012 Jewels FY12 PER (x) Dayang Enterprise MBM Resources Kossan Rubber Coastal Contracts Hock Seng Lee SEG International Padini Holdings Allianz Faber Group Alam Maritim Resources NTPM Holdings Glomac Bonia Holdings Syarikat Takaful OldTown Malaysia Smelting Corp KimLun Corp Delloyd Ventures Perdana Petroleum Sentoria Group Pantech Petra Energy Adventa TASCO Multi Sports Ivory Properties Group Freight Management Johore Tin Catcha Media ,200 Multi Sports Ivory Properties Malaysia Smelting Allianz Coastal Contracts MBM Resources Johor Tin Pantech TASCO Catcha Media Glomac Sentoria Group Syarikat Takaful Freight Delloyd Ventures Faber Group Bonia Holdings KimLun Corp Perdana Petroleum Kossan Rubber Petra Energy Hock Seng Lee OldTown Padini Holdings SEG International Alam Maritim Dayang Enterprise Adventa NTPM Holdings OSK Research See important disclosures at the end of this report 4

5 All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ("DMG"). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published by OSK Research Sdn. Bhd., 6th Floor, Plaza OSK, Jalan Ampang, Kuala Lumpur Printed by Xpress Print (KL) Sdn. Bhd., No. 17, Jalan Lima, Off Jalan Chan Sow Lin, Kuala Lumpur OSK RESEARCH SDN. BHD. ( V) (A wholly-owned subsidiary of OSK Investment Bank Berhad) Kuala Lumpur Hong Kong Singapore Malaysia Research Office OSK Research Sdn. Bhd. 6 th Floor, Plaza OSK Jalan Ampang Kuala Lumpur Malaysia Tel : +(60) Fax : +(60) OSK Securities Hong Kong Ltd. 12 th Floor, World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) Fax : +(852) DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore Tel : +(65) Fax : +(65) Jakarta Shanghai Phnom Penh PT OSK Nusadana Securities Indonesia Plaza CIMB Niaga, 14 th Floor, Jl. Jend. Sudirman Kav. 25, Jakarta Selatan Indonesia Tel : (6221) Fax : (6221) OSK (China) Investment Advisory Co. Ltd. Room 6506, Plaza 66 No.1266, West Nan Jing Road Shanghai China Tel : +(8621) Fax : +(8621) OSK Indochina Securities Limited No. 1-3, Street 271, Sangkat Toeuk Thla, Khan Sen Sok, Phnom Penh, Cambodia Tel: (855) Fax: (855) Bangkok OSK Securities (Thailand) PCL 10 th Floor,Sathorn Square Office Tower, 98, North Sathorn Road,Silom, Bangrak, Bangkok Thailand Tel: +(66) Fax : +(66)

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