PP 7767/09/2010(025354)

Malaysia
RHB12 July 2010
Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te 12 July 2010

Recom : Overweight
MARKET DATELINE

Motor (Maintained)

First Growth Year Of A New 3-Year Cycle

Table 1: Motor Sector Valuations

Fair EPS growth PER P/NTA P/CF ROE GDY
Price
FYE Value (%) (x) (x) (x) (%) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Proton^ Mar 4.37 5.50 49.2 11.6 7.0 6.3 0.5 0.5 n.m 6.5 0.0 OP
MBM Dec 2.91 5.31 62.3 5.3 6.4 6.0 0.7 0.7 15.5 11.4 4.1 OP
Tan Chong Dec 4.23 6.16 72.0 16.2 10.8 9.3 1.7 1.5 9.2 16.1 2.7 OP
UMW Dec 6.34 7.50 64.4 7.2 11.5 10.7 1.8 1.6 9.0 15.3 3.7 OP
Sector 42.1 14.3 10.1 8.9
Sector Avg (ex-Proton) 47.3 6.8 17.1 16.0
^ Refer to FY11-12

Chart 1. TIV Growth

♦ First growth year in a new 3-year cycle. We believe it is now the best
time to invest in local motor stocks as the motor sector is currently into 600,000 100.0

80.0

its second year of a new 3-year cycle that has started in 2009. 500,000
60.0

400,000 40.0

♦ Replacement cycle accelerated. A closer look at Malaysia’s TIV reveals 300,000

20.0

0.0

that the local motor sector has been moving in 3-year cycles since 2000, 200,000 -20.0

-40.0

i.e. 2000-2002, 2003-2005, 2006-2008 and potentially we see this again

100,000
-60.0

0 -80.0

for 2009-2011. We believe the replacement cycle for motor vehicles,

2009F

2010F
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
widely believed to be 5-7 years, may have accelerated in recent years as: TIV (LHS) Growth yoy % (RHS)

1. Buyers may have been enticed by more new models; and Chart 2. Market Share
2. Car owners may have realised that the re-sale values of their new
60.0

cars can only be maximised if the cars are replaced within three years 50.0

given the shortened product life cycle of new models now. 40.0

We project Malaysia’s total industry volume (TIV) to jump +9.5% 30.0

%

(previously +8.9%) in 2010, followed by a decent +4% (previously 2.8%) 20.0

growth in 2011 as we have revised our projections for Proton due to 10.0

positive sentiment. 0.0

2009F

2010F
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

♦
Proton Perodua Toyota Nissan Honda

Our 2010 TIV forecast looks achievable. We believe our new TIV
projection of 587,698 units in 2010 is achievable. TIV for the first five Source: MAA, RHBRI
months in 2010 already made up 42% of our full-year forecast.

♦ Fair values raised. We have rolled forward our valuation base year for
motor stocks to FY11 (from FY10 previously):

a) Tan Chong: Our indicative fair value has been raised to RM6.16/share
(from RM5.26 previously) which is now based on 14x FY11 EPS.
Maintain Outperform.

b) UMW: Our SOP-based fair value has been reduced slightly to RM7.50
(previously RM7.52) based on 14x PER (previously 16x PER) for its
automotive and oil & gas divisions, 8x for its heavy equipment and 7x
for its manufacturing division. Maintain Outperform.

c) Proton: We raised our EPS forecasts from 65.3sen to 67.4sen for

FY11 and from 70.2sen to 75.2sen for FY12. We reiterate our
Outperform call on the stock with an indicative fair value of RM 5.50
based on stripped down book value. Joshua CY Ng
(603) 9280 2151
d) MBM: Fair value was revised up to RM5.31/share (from RM5.04 joshuang@rhb.com.my
previously), based on 11x FY11 EPS. Reiterate Outperform.

Please read important disclosures at the end of this report.

Page 1 of 5

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 12 July 2010

First Growth Year Of A New 3-Year Cycle

♦ First growth year in a new 3-year cycle. We believe it is now the best time to invest in local motor stocks
as the motor sector is currently into its second year of a new 3-year cycle that has started in 2009.

♦ Replacement cycle accelerated. A closer look at Malaysia’s TIV reveals that the local motor sector has been
moving in 3-year cycles since 2000, i.e. 2000-2002, 2003-2005, 2006-2008 and potentially we see this again
for 2009-2011. TIV growth is normally seen in the second and third years of the cycle (also see Chart 1). We
believe the replacement cycle for motor vehicles, widely believed to be 5-7 years, may have accelerated in
recent years as:
3. Buyers may have been enticed by more new models (see Table 2); and
4. Car owners may have realised that the re-sale values of their new cars can only be maximised if the cars
are replaced within three years given the shortened product life cycle of new models now.

We project Malaysia’s total industry volume (TIV) to jump +9.5% in 2010, followed by a decent +4% growth
in 2011 (see Chart 1). This is now higher than our previous projections of +8.9% and 2.8% as we have revised
our projections for Proton due to positive sentiment. Our projections are higher vis-à-vis those of Malaysian
Automobile Association (MAA), but this is understandable as MAA is known to be conservative in its projections
(see Table 1).

Chart 3: TIV vs. YoY Growth

700000 25.0

600000 20.0

15.0
500000
10.0
400000
5.0
300000
0.0
200000
-5.0

100000 -10.0

0 -15.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f

TIV growth yoy %

Source: MAA, RHBRI

Table 1: TIV Comparison: RHBRI vs. MAA

TIV TIV Growth (%)
Year RHBRI MAA Var* RHBRI MAA Var*
(%) (%-pts)
2010 587,698 550,000 +6.9 +9.5 +2.4 +7.1
2011 611,265 566,500 +7.9 +4.0 +3.0 +1.0
2012 630,953 583,500 +8.1 +3.2 +3.0 +0.2
*RHBRI against MAA
Source: MAA, RHBRI

Page 2 of 5

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 12 July 2010
Table 2: New Models Launched
Year Models launched
2000 Proton Waja, Perodua Kenari, Nissan Sentra
2001 Proton Juara, Perodua Kelisa
2002 Honda City (4th gen), Honda CRV (2nd gen)
2003 Proton Saga, Proton Arena, Toyota Vios, Honda Accord (7th Gen), Nissan X-Trail
2004 Gen-2, Toyota Avanza
2005 Proton Savvy, Perodua MyVi, Toyota Innova, Toyota Fortuner
2006 Satria Neo, Toyota Camry (4th gen), Toyota Yaris, Toyota Wish, Honda Civic
2007 Proton Persona, Perodua Viva, Toyota Vios (2nd gen), Honda CRV (3rd gen), Grand Livina
2008 Toyota Rush, Nissan Sylphy, Honda City (5th gen), Honda Accord (8th gen)
2009 Proton Exora, Perdua Alza, Toyota Prius, Toyota Camry (5th gen)
2010 Waja replacement model, Nissan X-Trail, Nissan Teana

♦ Our 2010 TIV forecast looks achievable. We believe our new TIV projection of 587,698 units in 2010 is
achievable. TIV for the first five months in 2010 of 247,072 already made up 42% of our full-year forecast. In
terms of yoy growth rate, it came in at +19.9% for the first five months in 2010 largely due to the low base in
2009. Given the higher base for the remaining months, our forecast of +9.5% implies TIV growth would need
to average around 3.0% yoy between Jun and Dec to come in within our forecast.

Table 3: Motor Sales For May 2010

May-09 Apr-10 May-10 Mom Chg Yoy Chg YTD 09 YTD 10 Yoy chg
(Nos.) (Nos.) (Nos.) (%) (%) (Nos.) (Nos.) (%)
Proton 12,542 11,269 14,110 25.2 12.5 53,856 65,511 21.6
Perodua 13,194 15,915 15,016 (5.6) 13.8 63,855 78,682 23.2
Toyota 6,696 7,456 8,091 8.5 20.8 30,884 36,661 18.7
Nissan 2,664 2,999 2,874 (4.2) 7.9 12,363 14,520 17.4
Honda 3,247 3,980 3,887 (2.3) 19.7 17,310 17,892 3.4
TIV 43,985 48,812 50,845 4.2 15.6 206,060 247,072 19.9
Passenger 40,159 43,661 46,229 5.9 15.1 187,270 222,947 19.1
Commercial 3,826 5,151 4,616 (10.4) 20.6 18,790 24,125 28.4

Source: MAA

Fair values raised

We have rolled forward our valuation base year for motor stocks to FY11 (from FY10 previously):

e) Tan Chong: Our indicative fair value has been raised to RM6.16/share (from RM5.26 previously) which is
now based on 14x FY11 EPS. Maintain Outperform.

f) UMW: Our SOP-based fair value has been reduced slightly to RM7.50 (previously RM7.52) based on 14x
PER (previously 16x PER) for its automotive and oil & gas divisions, 8x for its heavy equipment and 7x for
its manufacturing division. Maintain Outperform.

g) Proton: We raised our EPS forecasts from 65.3sen to 67.4sen for FY11 and from 70.2sen to 75.2sen for
FY12. We reiterate our Outperform call on the stock with an indicative fair value of RM 5.50 based on
stripped down book value.

h) MBM: Fair value was revised up to RM5.31/share (from RM5.04 previously), based on 11x FY11 EPS.
Reiterate Outperform.

Page 3 of 5

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 12 July 2010

Table 4: Changes in Fair Value

Fair Value Recommendation
Company Method Before After Change (%) Before After Remarks

Tan Chong PER 5.26 6.16 17.11% OP OP Unchanged

UMW PER 7.52 7.50 -0.2% OP OP Unchanged
Proton P/Book 5.50 5.50 Unchanged OP OP Unchanged
MBM PER 5.04 5.31 5.36% OP OP Unchanged

Source: RHBRI

Table 5: Motor Sales Forecast By Key Marques

2009a 2010 2011 2012 2010 2011 2012
(Nos.) (Nos.) (Nos.) (Nos.) (% yoy) (% yoy) (% yoy)
Proton 148,031 162,114 174,837 182,346 9.5% 7.8% 4.3%
Perodua 166,736 195,090 196,803 202,252 17.0% 0.9% 2.8%
Toyota 81,785 89,692 91,286 97,290 9.7% 1.8% 6.6%
Nissan 31,493 41,410 43,599 57,813 31.5% 5.3% 32.6%
Honda 38,783 40,000 44,000 48,517 3.1% 10.0% 10.3%
TIV 536,905 587,698 611,265 630,953 9.5% 4.0% 3.2%
Passenger 486,342 536,392 558,417 584,398 10.3% 4.1% 4.7%
Commercial 50,563 51,306 52,848 46,555 1.5% 3.0% -11.9%
Source: RHBRI

Chart 4: TChong Technical View Point

♦ After failing an attempt to penetrate the RM3.65
resistance level in Jan 2010 at a high of RM3.61,
the share price of TChong went down to a low of
RM2.68 in Feb 2010.

♦ It, however, regenerated another round of rally

shortly after that, and successfully removed the
RM3.65 hurdle in late Mar.

♦ As the rally continued, the stock soared to a more-

than-a-decade high of RM5.20 in Apr.

♦ But, the achievement triggered a profit-taking leg

on the stock.

♦ It hit a low of RM3.76 in May, before recovering to

consolidate at between the RM4.15 and RM4.50
region in recent weeks.

♦ At the close on Friday, it ended with an insignificant

candle at RM4.23, suggesting a persistent sideways
movement ahead.

♦ Although the stochastic oscillators showed a fresh

“buy” signal from the oversold region, the 10-day
SMA is due to cut below the 40-day SMA, this
implies further rangebound trading ahead.

♦ Technically, unless the stock breaks out from the

current trading range, it is more likely to stay
within the current levels, in our view.

Page 4 of 5

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 12 July 2010

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.

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.

Page 5 of 5

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com