Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction Construction Neutral (Maintained) Put To The Acid Test Stocks Covered 13 Ratings (Buy/Neutral/Sell): 5 /6/ 2 Last 12m Earnings Within Revision Trend:  Staying NEUTRAL. We remain cautious on the construction sector’s Top Picks Target Price outlook. Job scarcity worries are exacerbated by the temporary work suspensions in 1Q20. This, coupled with the current macroeconomic Kerjaya Prospek (KPG MK) – BUY MYR1.25 challenges – ie the ongoing global health, economic, and oil crises – means Hock Seng Lee (HSL MK) – BUY MYR1.23 that downside risks appear more pronounced. Among investors, this provides Pintaras Jaya (PINT MK) – BUY MYR3.31 more reason to stay on the sidelines. We are comforted by near-term Analyst s earnings visibility looking reasonable for now, thanks to sizeable existing

orderbooks built up during previous years. Muhammad Danial Abd Razak  Any help for the sector is welcome. Prime Minister Muhyiddin Yassin +603 9280 8682 unveiled an enhanced stimulus package last week. While we see no positive [email protected] surprises for the sector arising from this announcement, the cumulative MYR4bn allocation should help keep contractors afloat. Based on our estimates, it roughly points towards a c.3% annual sector impact. Notably, Eddy Do Wey Qing G1 to G4 contractors – classified as small & medium enterprises (SMEs) with +603 9280 8856 paid-up capital of Johor Bahru-Singapore Rapid Transit System (RTS), and Bandar Malaysia are also upside risks. Downside risks include a prolonged slowdown in the property market, longer-than-expected delays in the resumption of public sector projects, and new job values falling short of our assumption.

TP % Upside P/E (x) P/BV (x) Yield (%) Company Rating (MYR) (Downside) Dec-20F Dec-20F Dec-20F HSL Buy 1.23 22.0 5.5 0.6 2.3 Pintaras Buy 3.31 32.4 9.4 1. 2 6.0 Kerjaya Buy 1.25 38.9 8.4 1.0 3.7 MuhibbahProspek Buy 1.01 14.0 5.0 0.4 4.0 IJM Corp^ Neutral 1.57 (0.6) 18.0 0.6 3.8 Gadang^ Neutral 0.65 (5.0) 7.4 0.6 2.0 George Kent^ Sell 0.43 (20.0) 6.7 0.6 4.6 Kimlun Sell 0.48 (-11.0) 4.2 0.2 4.9 MGB Neutral 0.56 (1.8) 12.4 0.6 - SunCon Neutral 1.74 (1.7) 14.5 3.4 4.3 Note: ^FY20 valuation refers to those of FY21 Source: Company data, RHB

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Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

A quick recap on FY19 results

Figure 1: Quarterly performance vs estimates (RHB universe) Company Reporting date Quarter Against our forecast Gadang 22-Jan-20 2QFY20 Within HSL 27-Feb-20 4Q19 Below Sunway 20-Feb-20 4Q19 Within Construction MGB 22-Feb-20 4Q19 Within MRCB 27-Jan-20 4Q19 Above Pintaras 22-Feb-20 2QFY20 Above KPG 26-Feb-20 4Q19 Within IJM 25-Jan-20 3QFY20 Below Kimlun 27-Feb-20 4Q19 Within George Kent 18-Dec-19 3QFY20 Below Malaysia

Source: Company data, RHB

Putting the numbers into context On a full year basis, construction stocks generally saw negative revisions between 4% and 14% in FY20 due to weaker margins. Construction EBIT margins – PBT/PAT margins used when unavailable – in FY19 could range between 7% and 12%. This excludes Malaysian Resources Corp (MRCB), which incurred prudent expensing for some of its projects, coupled with the results of several legal proceedings. Moving ahead, contractors with Light Rail Transit Line 3 (LRT3) exposure could see earnings improve, as the cycle moves towards the peak stage expected in 2H21. Sunway Construction (SunCon), which was hit by LRT3 progress delays, has seen contributions improve in 4Q19 – driven by the increase in certifications during the quarter. However, we understand that the value of the LRT3 project will likely be reduced, with the revised work scope still being negotiated. Details on the final value appear unclear, but our estimates point to a tentative c.2.5-3.1% loss in yearly earnings for every 10% reduction in value.

Figure 2: LRT3 timeline

Source: LRT3

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Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Contractors still able to generate earnings from Mass Rapid Transit Line 2 (MRT2) Among our covered names, eight out of 13 have benefited from MRT2 jobs as work package contractors (WPCs). In aggregate, the amount clinched by these WPCs represent approximately 58% of the total awarded amount. Among them are WCT, MRCB, IJM Corp, and SunCon. Recall that MRT Corp dished out the packages between Mar 2016 and Dec 2017, with scope of various types. These included advance, underground, and viaduct works. The amount per package entailed sizeable values, allowing such WPCs to generate earnings till today. With remaining balance stands at c.30%, estimated at around MYR7-9bn. The MRT2 project provides earnings visibility in the near to medium term. Figure 3: Awarded contractors under our coverage for the MRT2 project Contractor(s) Date of award Value (MYRm) Type of Jobs WCT 29-Mar-16 133.93 Advance works MMC Gamuda KVMRT (T) 31-Mar-16 15,470.00 Underground works SunCon 31-Mar-16 1,180.00 Guideway (viaduct) IJM Construction 19-May-16 1,470.00 Guideway (viaduct) MRCB 19-May-16 648.00 Guideway (viaduct) China Communications Construction Co- 25-Aug-16 1,010.00 Systems George Kent JV WCT 14-Nov-16 896.41 Guideway (viaduct) Gadang Engineering (M) 10-Mar-17 952.09 Guideway (viaduct) SunCon 10-Mar-17 212.30 Stations IJM Construction 14-Jun-17 342.18 Stations MRCB 15-Sep-17 145.80 Stations WCT 19-Sep-17 199.50 Stations Muhibbah Engineering (M) 15-Dec-17 189.00 Designated contractors Total 22,849.21 Source: Company, RHB

Klang Valley MRT2 (KVMRT2) jobs form the largest share of Gamuda’s outstanding orders at 79%. Quoting the statement of the previous finance minister, Lim Guan Eng, the completion – as of January – stood at 70%. This involved underground and above ground works. Major works are slated for completion in 2022. As one of the big players. Gamuda’s outstanding order-value is laudable, standing at MYR8.2bn. However, it is worth noting that major uncertainties lie ahead – leaving big overhang issues on the stock. Despite its diversified exposure overseas, Gamuda is not spared from the local industry slowdowns. Figure 4: Gamuda’s construction orderbook Major projects Balance works (MYRbn) Completion year Remarks KVMRT2 (50% share) 6.8 2022 Restructured into a single turnkey. Pan Borneo Sarawak (65% share) 0.4 2021 Work momentum steadily building up. Marine bridge, Taiwan (70% share) 0.4 2022 Newly secured. Bus depot, Singapore (45% share) 0.4 2023 Part of Singapore’s Mass Rapid Transit project. Seawall project, Taiwan (70% share) 0.7 2025 Second Taiwan win within a year Other local projects 0.6 Various Building works. Total 8.2 Source: Company data, RHB

See important disclosures at the end of this report 3 Market Dateline / PP 19489/05/2019 (035080)

Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Figure 5: Outstanding orderbook among construction peers

25,000

20,000

15,000

10,000

5,000

0

Note: *MRCB includes long-term projects such as MYR10,116m from Bukit Jalil Sentral, MYR5,928m LRT3, and MYR2,958m Kwasa Utama C8 Source: Company data, RHB

Moving forward, delay risks could take centre stage The Government may need more time to reassess the country’s infrastructure strategy, as most public sector resources now are geared towards curbing the health crisis. Against this backdrop, it is likely that new large scale projects will be put on hold. The timeframes for large-scale infrastructure projects like MRT3 and HSR remain uncertain. In the stimulus announcement last week, the Government reiterated its commitment towards completing the MRT2 and ECRL projects. The latter refers to the scaled-down MYR44bn version of the project. It was agreed that Malaysia Rail Link (MRL) will allocate 40% (raised from the initial 30%) of civil works, valued at around MYR9-11bn, to local contractors. The scope comprises earthworks, foundation and structural works, construction of viaducts and stations, and road works. Section B is likely to start first. It will stretch from Dungun to Mentakab (223km) – and is the closest to clear for awards, as it was not affected by relocations or realignments. First round of permanent work tenders is likely to involve track alignments, substructure works, and bridge construction, to name a few. Our estimates pointed towards a rough average of below MYR1bn per package, with works expected to commence in 1H20 – provided the Movement Control Order (MCO) is no longer extended. Land acquisitions. Progress has been extensive for Section B, allowing permanent works to take off. Around 70% of the alignment will be in Pahang, with tracks passing through Kuantan, Maran, Bera, and Temerloh, involving 978.8ha of land. This will include 379.2ha of state government, private (542.58ha), forest reserves (44.1ha), and federal land (13ha). That said, the stretch in Pahang could actually involve a range c.40% of state government land. Meanwhile, land acquisitions involving Sections A and C are still in the early stages, as public displays have just commenced. Of Section C, the public display in Negeri Sembilan will be held between January and April. The timeframe is likely to be extended due to the COVID-19 crisis.

Figure 6: Status update on the ECRL project Sections Scope details Current status Comments

A Kota Bahru-Dungun, comprising a Public Inspections ongoing from We expected that tenders will be called in 2H20. It remains to 210.4km mainline, a proposed future 25 Nov 2019 to 24 Feb 2020. be seen whether this timeline remains intact due to COVID- spurline spanning 14.4 km, and six 19. passenger/freight stations B Dungun-Mentakab, comprising a 223km Construction works are ongoing It was expected that tenders will be called within 1H20. At this mainline. at 27 priority locations. Tenders juncture, the timeframe is likely to get an extension. for permanent works yet to be called. C Mentakab-Port Klang, comprising a Public inspection ongoing from According to MRL CEO Datuk Seri Darwis Abdul Razak, 143.1km mainline, spurline measuring 20 Jan to 14 Apr. construction work – including earthworks and foundation 41.5 km, and five passenger/freight works – is targeted to commence from July onwards. We do stations and one future station not rule out the possibility of a delay.

Source: Various media, MRL, RHB

See important disclosures at the end of this report 4 Market Dateline / PP 19489/05/2019 (035080)

Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Any help to the sector is welcome Prime Minister Muhyiddin unveiled a stimulus package last week. There were no positive surprises from the announcement made, but the cumulative MYR4bn allocation is expected to keep contractors afloat. Based on our estimate, it roughly equates to an annual sector impact of around 3%. Notably, G1 to G4 contractors – classified as SMEs with paid-up capital of less than MYR150k – are expected to benefit the most, given the focus on small projects with construction durations of less than a year. These include upgrading works for roads and tourism facilities, repair works for dilapidated schools in Sabah and Sarawak, as well as the development of basic infrastructure in rural areas.

Getting down to the brass tacks The timeframe for proposed large-scale infrastructure projects like MRT3 and HSR remains uncertain. Other sizeable job prospects could stem from Bandar Malaysia, with an estimated GDV amounting to MYR140bn. However, we have yet to see new developments on the project since its return in Apr 2019. This could possibly mean that the terms of the Master Plan contract are pending finalisation. In the current environment, it will likely take more time for the Government to announce the outcome due to the ongoing COVID-19 health crisis and collapse in global oil prices – which has put a strain on government coffers. Recall that the Johor-Singapore RTS and ECRL projects have made comebacks after hefty cost cuts. Positively, it will provide replenishment opportunities in the sector, with construction works spanning over 4-5 years. While these comebacks sound encouraging, details – in terms of determining whether their values are lucrative – are still scarce, pending the outcome of the tender details. The lingering scarcity of public jobs will potentially lead to overly competitive bidding rounds.

Figure 7: Johor-Singapore RTS proposal Figure 8: Announcement on Johor-Singapore RTS’ revival

Source: News Straits Times Source: Borneo Post Online

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Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Figure 9: Key metrics for construction companies under our coverage universe Construction Outstanding Orderbook to Current FY Company revenue (Last FY, Last FY orders (MYRm) orderbooks (MYRm) revenue (x) orders (MYRm) burn rate) Gadang 1,000 479.2 2.1 125 nil HSL 2,200 591.1 3.7 802 0 Suncon 5,200 1,618.9 3.2 1,600 1,730 MGB 1,380 631.8 2.2 434 0 MRCB 21,716 679.5 32.0 317 0 Pintaras 330 280.0 1.2 250 446 Kerjaya 3,900 1,006.3 3.9 1,300 990 IJM 4,500 1,447.7 3.1 505 nil Gamuda 8,200 1,939.3 4.2 1,100 652 Kimlun 1,300 1,022.2 1.3 413 93 George Kent 4,900 297.7 16.8 nil nil Aggregate/average 46,526 8,054.5 5,745 3,258

Note: *MRCB includes long-term projects such as MYR10,116m from Bukit Jalil Sentral, MYR5,928m LRT3, and MYR2,958m Kwasa Utama C8 Source: Company data, RHB

Figure 10: Construction projects already/expected in the pipeline (not comprehensive) Estimated job Projects Latest updates value (MYRbn) Bandar Malaysia 56.0 In Budget 2020, the Government announced its commitment to this project.

KVMRT2 30.5* Overall progress at 70%, with completion expected in 2022.

KVLRT3 Progress resumed in 2H19. Subcontractors expect awarded contract values to reduce, but 16.6* the quantum remains up in the air. Gemas-Johor Bahru Double Tracking 8.9 Subcontracting works awarded, with expected completion by Oct 2021.

To be implemented, but no particular timeline was announced. 6-month extensions were granted by Singapore after restoration. Currently, supplementary agreements are being Johor Bahru-Singapore RTS 3.2 drafted as Malaysia looks for options to cut costs. Extension was granted until April.

Pan Borneo Sarawak Highway 18.8 Progress of 11 packages (awarded previously) are ongoing.

Under review. 12 out of 35 packages of Phase 1 were awarded to Sabah contractors. Three Pan Borneo Sabah Highway 12.8 additional packages will be tendered out in the near future.

Expected completion is 2022, with land acquisition at 95% completion. Four sections West Coast Expressway 6.5 (5,8,9,10) were opened from May to Dec 2019. Tolling began in Jan 2020 for Sections 8, 9, and 10. In percentage length, about 32% opened to the public now. Central Spine Road 4.0 Implementation to be continued.

Sarawak Coastal Road, Second Trunk Few packages for Coastal Road and Water Grid were already awarded in 2019. Works Road, and State Water Grid 9.1 expected to start by 1H19.

Penang Transport Master Plan 27.0 Letter of Award for Project Delivery Partner appointment has been extended to Mar 2020.

ECRL Restored. Target completion is Dec 2026. Permanent works for Section B are expected to 9.0 commence in 2H20. KVMRT3 30.0 Cancelled until construction of the KVMRT2 is completed.

HSR 40.0> Decision deferred to May 2020.

Note: *Project value reduced after revision Note 2: >Civil works Source: Various, Company data, RHB

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Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Figure 11: HSR project details Project name HSR Distance 350km (including a rail bridge over the Straits of Johor). Breakdown alignment Malaysia: 335km (95.7% of total length), Singapore: 15km (4.3% of total length). Travel time 90 minutes. Number of stations Eight stations (seven in Malaysia, one in Singapore). Bandar Malaysia, Putrajaya, Seremban, Ayer Keroh, Muar, Batu Pahat, Iskandar Puteri, and Jurong East Station location Singapore. Speed c.320km/h. Passenger capacity 100 pax per car capacity (10 cars per train). Estimated cost MYR110bn (Civil work value estimated at MYR40bn). Tender type Infrastructure: Domestic contractors; Assetco: international tender. Target completion period 2020-2030 (10 years). Target commercial 2031 operations Source: MyHSR, RHB

Figure 12: MRT3 project details Project name MRT3 circle line (CCL) Cost estimates MYR21bn Total length 40km (32km elevated and 8km underground). Number of stations 26 stations. Ampang Jaya, KLCC, Jalan Bukit Bintang, TRX, Bandar Malaysia, KL Eco City, Pusat Bandar Damansara, Station location Mont Kiara, and Sentul. Number of depots Two (one primary and one secondary). Project owner/operator MRT Corp. Project period Six years. Target completion period 2025 (moved ahead from 2027) Source: MRT Corp, RHB

See important disclosures at the end of this report 7 Market Dateline / PP 19489/05/2019 (035080)

Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Penang Transport Master Plan (PTMP) hanging in the balance There is no clear indication of how things will proceed. Quoting Penang Chief Minister Chow Kon Yeow, the Bayan Lepas LRT will be the first to commence works under the PTMP, with a timeline beginning from 2H20.The whole project is expected to cost MYR8bn, with the construction period spanning over six years. We understand that the Penang State Government is in the midst of getting confirmation from the Federal Government on providing guarantees for the PTMP’s bonds issuance. In the meantime, we believe the Penang South Reclamation (PSR) project can be seen as the primary financing source for now. According to Gamuda, there is higher urgency to commence works on the PSR, as further delays will impact the financing model of this monster project. The group further added that it will be in position to sign the Project Delivery Partner appointment between May and June. The deadline for appointment was extended till Aug 2020, signalling that delays will be stretched. In our view, this could hinge on the unknown outcome of Gamuda’s intercity highway takeover, which is most probably off the table already. Currently, uncertainties are seen as major barriers before any significant progress can be made. Figure 13: Layout of the PTMP Figure 14: Man-made islands under the PSR project

Source: Various Media Source: Various media, RHB

See important disclosures at the end of this report 8 Market Dateline / PP 19489/05/2019 (035080)

Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

External and internal challenges pose downside risks The ongoing internal and external developments have contributed to the market’s weak sentiment. This includes the recent “no deal” for OPEC+, unscheduled change in domestic political leadership, and broad-based economic slowdown stemming from COVID-19. The construction sector was not sparred from any impacts due to the cyclical nature of the business. In our previous report, we highlighted that the risks for mega projects are mostly tied to potential delays instead of outright cancellations. Our view still stands, but we note that fears could develop further and affect confidence. This could be due to: i. Rising concerns from COVID-19. In a bear case, this pandemic could involve the risk of a broad-based global slowdown, which may affect the completion of progressing works. Recall that the ECRL was one of the mega projects recently revived and involves a significant participation from a Chinese party. We have seen concerns mounting as a result of the rising number of COVID-19 cases. It appears that our concerns of shutdowns at work sites have already materialised due to the Government’s MCO. The latter has been extended until 14 Apr 2020; ii. Oil price war impacting future projects? Our 2020F oil price assumptions had a sharp cut to USD40.00 per bbl from USD62.30 per bbl. This was after our house’s fundamental underlying assumption – that OPEC+ will continue balancing the oil markets – had been thrown into disarray after the OPEC+ meeting on 5-6 Mar. In the longer term, our 2021-2022 crude oil price assumption was cut to USD60.00 per bbl from USD64.00 per bbl, given expectations of a milder recovery from the 2020 bear market; iii. Putting this into context, it is hard to accurately gauge the impact from lower oil prices on the construction sector for now. In terms of risk, we see possible downsides emerging from government-funded projects. The latter includes existing ones like the Pan Borneo Highway (Sabah and Sarawak), which are backed by the Federal Budget and debt issued by infrastructure funding entity DanaInfra Nasional (DanaInfra). In particular, MYR5bn of the aforementioned project's total costs will be borne by the Government, while the remaining MYR11bn came from DanaInfra. Over the longer term, potential reduction in government revenue could possibly give rise to cash flow issues for projects funded by the Federal Government, leading to delays in payments. However, the near-term impact is seen as muted, given that financing for existing jobs have already been secured through previous budget announcements; iv. At this juncture, we remain unclear on the new Government’s policy priorities. The new leadership may want to re-assess the country’s infrastructure strategy, which could delay project implementation. While we are unable to rule out the proposed large scale infrastructure projects like MRT3 and HSR, their timeframes remain uncertain.

We prefer construction players with either private or overseas exposure… In this environment, we like contractors that have not disappointed in terms of clinching new contracts in 2019 and 2020. The company that met this criterion is KPG, which we rate as a BUY. Its FY19 total contract wins of MYR1.3bn exceeded management’s guidance of MYR1.2bn – the bulk of which comprised build-and-design works. YTD, the company has already clinched MYR990m worth of new projects. Subsequently, we note that management has raised its FY20 new wins target to MYR1.5bn, citing further wins from property developers. The steady flow of awards from external private developers and in-house units are expected to help KPG to weather challenges in the current tepid landscape. Better project certainties in Singapore will lend support to Pintaras, with its tenderbook standing at c. MYR3bn. YTD, the company has secured new construction orders valued at MYR366m (SGD119m), bringing its outstanding orderbook to MYR446m. At this juncture, we still favour Pintaras despite an overall challenging environment on the local front. Amidst the lack of new public infrastructure job opportunities in Malaysia, its Singapore exposure is seen as a strong component supporting its prospect. We note that its Pintary unit is currently one of the largest pilling specialist in Singapore in terms of fleet size.

…without forgetting Sarawak HSL remains our favourite stock for Sarawak infrastructure play. Construction billings remained healthy, with prospects of construction and engineering jobs remaining bright. Despite the change in the federal administration, the political landscape in Sarawak appears intact.

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Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

This signals the State Government’s stated commitment towards further infrastructure improvements still stands. Fundamentally, HSL is backed by an outstanding orderbook of MYR2.2bn, which should last the construction segment’s income for approximately four years.

The extra cash pile will come in handy Companies with net cash are expected to withstand the challenging environment. This is expected to help meet debt obligations and finance working capital despite activities being shut down due to the MCO. Our base-case scenario is that the pandemic will be contained by 1H20. Thereafter, construction progress is expected to resume as usual. Figure 15: Details on net gearing as of 2019 Cash and cash Short-term Long-term Net debt Total equity Net gearing Gross interest Counters equivalents borrowings borrowings (MYRm) (MYRm) (%) cover ratio (MYRm) (MYRm) (MYRm) SunCon 623.8 213.9 163.2 246.6 605.1 Net Cash 26.6 KPG 251.1 78.8 1.8 170.5 1,022.3 Net Cash 22.0 HSL 122.5 4.4 56.8 61.3 802.0 Net Cash 140.9 George Kent 265.5 62.4 0.6 202.5 480.7 Net Cash 20.0 Pintaras 110.5 7.6 19.6 83.2 318.4 Net Cash 48.0 Gadang 216.9 168.4 191.8 -143.4 738.3 -19.4% 15.9 MRCB 516.9 824.8 1,003.3 -1,311.2 4,823.5 -27.2% 4.4 MGB 44.4 98.0 90.3 -143.8 449.2 -32.0% 3.1 Muhibbah 534.6 1,089.0 63.4 -617.8 1,741.4 -35.5% 5.9 Gamuda 2,538.2 1,895.7 3,957.9 -3,315.4 8,405.1 -39.4% 4.7 IJM 2,032.4 2,619.8 4,621.6 -4,985.9 11,691.3 -42.6% 2.5 Kimlun 56.8 180.7 179.8 -303.7 681.6 -44.6% 4.5

Source: Bloomberg, RHB

Less USD exposure is a positive With the MYR/USD rate spiking up, we had a quick look on the potential impact to the construction companies. We note that, most firm have minimal USD exposure, as their operations are mostly in Malaysia. Nonetheless, for those with an extensive geographical presence, their books are not freed from the US currency. For IJM, it has reduced its USD-denominated debt by 10% from last year’s numbers as part of its de-gearing initiative. Approximately 30-50% of that exposure is derived from 1-3-year term loans. We are aware that global currency markets remain volatile and are perceived as bottomline risks. Note that IJM’s exposure is also hedged via derivative contracts. For estimation purposes, should the USD strengthen by 1% against the MYR, PAT is likely to be affected by around -2%.

Still NEUTRAL We retain our cautious stance on the construction sector’s outlook. The lingering worries on job security have been made worst by the temporary work suspensions in 1Q20. Coupled with the current macroeconomic challenges – ie ongoing global health, economic, and oil upheavals – the downside risks appear more pronounced. Among investors, this gives more reasons to stand on the sidelines. We are comforted by near-term earnings visibility that look reasonable for now, owing to the sizeable orderbooks built up in previous years. From a valuation perspective, construction stock earnings in FY20-FY21 are pegged to P/Es of 12-13x. This represents a multiple close to -1SD of the sector’s 5-year mean. We think this is justified, based on the challenging outlook for the global economy.

See important disclosures at the end of this report 10 Market Dateline / PP 19489/05/2019 (035080)

Construction Malaysia Sector Update

31 March 2020 Construction & Engineering | Construction

Figure 16: Ratings breakdown among companies under coverage

SELL 8%

BUY 38%

NEUTRAL 54%

Source: RHB

Risks Against the backdrop highlighted above, we maintain NEUTRAL on the sector. Upside risks to our call: i. Faster project implementations; ii. Higher-than-expected new jobs awarded; iii. Clearer direction by the Government on its mega projects strategy. Downside risks: i. A prolonged slowdown in sector activities; ii. Longer-than-expected delays in the resumption of public sector projects; iii. Inability to roll out any new orders.

See important disclosures at the end of this report 11 Market Dateline / PP 19489/05/2019 (035080)

Malaysia Company Update

31 March 2020 Industrials | Engineering & Construction

Kerjaya Prospek (KPG MK) Buy (Maintained) Did Not Disappoint; Keep BUY Target Price (Return): MYR1.25 (+45%) Price: MYR0.86 Market Cap: USD244m Avg Daily Turnover (MYR/USD) 0.50m/0.12m

 Stay BUY with a new MYR1.25 TP from MYR1.75, 45% upside and 3.9% Analysts yield. YTD, Kerjaya Prospek has already secured c.MYR990m in jobs, with >9 months to go, leading to a revised FY20 replenishment target of Muhammad Danial bin Abd Razak MYR1.5bn from >MYR1.2bn. We are positive on the wins, as it instils +603 9280 8682 earnings visibility confidence. Additionally, KPG’s reputation is well-earned, given its strong track record. The stock trades at an undemanding 8x [email protected] forward P/E, below -1SD of its 5-year mean. Eddy Do Wey Qing  Delay risks look inevitable. The Government may need more time to reassess the country’s infrastructure strategy, as most public sector +603 9280 8856 [email protected] resources are geared towards curbing the severe health crisis. Against this backdrop, it is likely that discussions on mega projects will be put on hold. Share Performance (%) While we are unable to rule out proposed large-scale infrastructure projects like the Mass Rapid Transit Line 3 and Kuala Lumpur-Singapore High YTD 1m 3m 6m 12m Speed Rail, their timeframes remain uncertain. Absolute (34.4) (31.2) (32.8) (35.8) (30.1) Relative (18.0) (20.8) (15.0) (19.7) (10.9)  Positively, KPG did not disappoint in terms of clinching new contracts in 52-wk Price low/high (MYR) 0.80 – 1.48 2019 and 2020. Its total FY19 contract wins of MYR1.3bn exceeded

management’s MYR1.2bn guidance – the bulk of which comprised build- and-design works. YTD, the company has already clinched MYR990m Kerjaya Prospek (KPG MK) Price Close worth of new projects. Subsequently, we note that management has raised Relative to FTSE Bursa Malaysia KLCI Index (RHS) its FY20 new wins target to MYR1.5bn – citing further wins from property 1.6 123 developers. The steady flow of awards from external private developers and 1.5 119 in-house units are expected to help KPG to weather challenges in the 1.4 114 1.3 110

current tepid landscape. 1.2 105

1.1 101

 Current challenges warrant adjustments to forecast and TP. Hence, our 1.0 96

FY20F-22F earnings are cut by 15%, 3%, and 1%. Some of the changes 0.9 92 made include scaling back on work progress by 10% due to work 0.8 87

suspensions during Movement Control Order and adjusting down our FY21 0.7 83

Jul-19 Jul-19

Apr-19 Apr-19 Oct-19 Oct-19

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Dec-19 Nov-19 Nov-19 Dec-19

Aug-19 Sep-19

property sales assumption by 30%. Taken together, our SOP-derived TP Aug-19 May-19 May-19 decreases to MYR1.25. Source: Bloomberg  Key downside risks include margins erosion from increasing competition, higher raw material prices, lower-than-expected new contract wins, and a severe slowdown in the property market – KPG’s largest client base.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total turnover (MYRm) 1,069 1,055 1,016 1,184 1,307 Recurring net profit (MYRm) 138 140 133 155 178 Recurring net profit growth (%) 8.7 1.3 (5.4) 16.4 15.0 Recurring P/E (x) 7.71 7.61 8.04 6.91 6.00 P/B (x) 1.1 1.0 0.9 0.8 0.8 P/CF (x) 13.27 12.08 3.35 7.30 6.45 Dividend Yield (%) 4.1 4.7 3.9 4.6 5.2 EV/EBITDA (x) 3.93 3.64 2.89 2.30 1.78 Return on average equity (%) 14.9 13.7 11.9 12.7 13.4 Net debt to equity (%) net cash net cash net cash net cash net cash

Source: Company data, RHB

See important disclosures at the end of this report 12 Market Dateline / PP 19489/05/2019 (035080)

Kerjaya Prospek Malaysia Company Update

31 March 2020 Industrials | Engineering & Construction

Financial Exhibits

Asia Financial summary (MYR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Malaysia Recurring EPS 0.11 0.11 0.11 0.12 0.14 Industrials DPS 0.04 0.04 0.03 0.04 0.05 Kerjaya Prospek BVPS 0.79 0.86 0.94 1.02 1.12 KPG MK Return on average equity (%) 14.9 13.7 11.9 12.7 13.4 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 7.71 7.61 8.04 6.91 6.00 We value KPG based on its SOP, derived from a P/B (x) 1.1 1.0 0.9 0.8 0.8 combination of P/E, net cash, and RNAV valuation FCF Yield (%) 2.8 4.9 26.6 10.4 12.2 methodologies. Dividend Yield (%) 4.1 4.7 3.9 4.6 5.2

EV/EBITDA (x) 3.93 3.64 2.89 2.30 1.78

EV/EBIT (x) 4.62 4.34 3.49 2.71 2.05 Key drivers KPG’s earnings are underpinned by: i. Construction work orders; Income statement (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F ii. Property sales; Total turnover 1,069 1,055 1,016 1,184 1,307 iii. The manufacture of interior fixtures & fittings. Gross profit 206 217 201 233 266 EBITDA 220 232 217 245 275 Depreciation and amortisation (33) (38) (37) (37) (36) Key risks Operating profit 187 195 180 208 239 Key risks include: Net interest (8) (9) (5) (5) (5) i. Delays and cost overruns for construction; Pre-tax profit 180 186 175 203 234 ii. A prolonged slowdown in the property market; iii. Increasing competition. Taxation (41) (46) (42) (49) (56) Reported net profit 138 140 133 155 178

Recurring net profit 138 140 133 155 178 Company Profile KPG gained its listing through a reverse Cash flow (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F takeover of Fututech. The company is involved in Change in working capital (100) (103) 149 (45) (49) construction, property development, and Cash flow from operations 80 88 319 146 165 manufacturing. Capex (50) (36) (35) (35) (35)

Cash flow from investing activities (40) (30) (35) (35) (35)

Dividends paid (25) (25) (42) (49) (56)

Cash flow from financing activities 27 (66) (65) (49) (56) Cash at beginning of period 185 253 233 452 515 Net change in cash 67 (8) 219 63 75 Ending balance cash 253 245 452 515 589

Balance sheet (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total cash and equivalents 253 233 452 515 589 Tangible fixed assets 161 140 156 155 153 Total investments 11 13 13 13 13 Total assets 1,331 1,370 1,449 1,595 1,743 Short-term debt 60 23 23 23 23 Total liabilities 352 297 285 325 352 Total equity 979 1,073 1,164 1,270 1,392 Total liabilities & equity 1,331 1,370 1,449 1,595 1,743

Key metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Revenue growth (%) 11.8 (1.3) (3.7) 16.5 10.4 Recurrent EPS growth (%) 8.7 1.3 (5.4) 16.4 15.0 Gross margin (%) 19.3 20.6 19.8 19.7 20.4 Operating EBITDA margin (%) 20.6 22.0 21.3 20.7 21.0 Net profit margin (%) 13.0 13.3 13.1 13.1 13.6 Dividend payout ratio (%) 31.4 35.4 35.0 35.0 35.0 Capex/sales (%) 4.7 3.4 3.4 3.0 2.7 Interest cover (x) 24.2 22.0 36.9 42.8 49.1

Source: Company data, RHB

See important disclosures at the end of this report 13 Market Dateline / PP 19489/05/2019 (035080)

Kerjaya Prospek Malaysia Company Update

31 March 2020 Industrials | Engineering & Construction

Figure 1: Kerjaya Prospek's SOP valuation Business segments Valuation method Total value (MYRm) Construction 12x FY20F Construction PAT 1,440.4 Property 30% discount to RNAV 89.4 Manufacturing 7x PE multiple 25.8

Total SOP value 1,555.6 Shares outstanding 1,242.0 SOP value per share 1.25

Source: Company data, RHB

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-02-27 Buy 1.75 1.27 2.0

Recommendations & Target Price 2019-11-27 Buy 1.78 1.29

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1.68 1.68 1.64 1.64 1.50 1.72 1.72 1.75 1.8 1.73 2019-11-11 Buy 1.72 1.31 2019-08-28 Buy 1.68 1.41 1.6 1.78 1.4 2019-07-23 Buy 1.72 1.46 2019-05-31 Buy 1.50 1.23 1.2 2019-03-01 Buy 1.50 1.24 1.0 2019-02-21 Buy 1.50 1.35 0.8 2018-11-27 Buy 1.50 1.27 0.6 Source: RHB, Bloomberg 0.4 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Jan-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 14 Market Dateline / PP 19489/05/2019 (035080)

Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Pintaras (PINT MK) Buy (Maintained) Revising Down Earnings; Stay BUY Target Price (Return): MYR3.31 (+32%) Price: MYR2.50 Market Cap: USD95.8m Avg Daily Turnover (MYR/USD) 0.06m/0.01m

 Maintain BUY with new TP of MYR3.31 from MYR3.72, 32% upside plus Analysts c.6% yield. Thus far, contribution from Singapore has been strong, backed by outstanding orderbook of MYR330m. Management remains active to Muhammad Danial bin Abd Razak secure new contracts, with a tenderbook of MYR3.3bn (at 10x orderbook). +603 9280 8682 Its venture in Singapore looks fruitful now, as the local construction outlook turns sombre. At the latest closing price, the stock remains attractive – [email protected] trading at 9x FY20F EPS (equivalent to -1.5SD from its 5-year mean). Eddy Do Wey Qing  Risk of delays. The Government may need more time to reassess Malaysia’s infrastructure strategy, as most resources are being geared to +603 9280 8856 [email protected] curb the severe health crisis. Against this backdrop, it is likely that discussions on mega projects’ revival will be put on hold. While we are Share Performance (%) unable to rule out proposed large-scale infrastructure projects like the Mass Rapid Transit 3 (MRT3) and Kuala Lumpur-Singapore High Speed Rail YTD 1m 3m 6m 12m (HSR), the timeframe remains uncertain. Absolute (16.7) (13.8) (16.7) (24.7) 15.7 Relative (0.3) (3.4) 1.1 (8.6) 34.9 Better project visibility in Singapore. The tenderbook stands at c.MYR3bn. YTD, the company has secured new construction orders valued 52-wk Price low/high (MYR) 1.93 – 3.40

at MYR366m (SGD119m), bringing the outstanding orderbook to MYR446m. At this juncture, we still favour Pintaras Jaya despite an overall Pintaras (PINT MK) Price Close challenging environment on the local front. Amidst the lack of new public Relative to FTSE Bursa Malaysia KLCI Index (RHS) infrastructure job opportunities in Malaysia, exposure in Singapore is seen 3.5 172 as a strong component supporting the company. We note that Pintary 3.3 163 Foundations is currently one of the largest piling specialists in Singapore in 3.1 154 2.9 145

terms of fleet size. 2.7 136  We adjusted our earnings forecasts for FY20-22 by -7%, +11% and +9%. 2.5 128 2.3 119

Following FY20, we expect earnings to improve in subsequent years after 2.1 110 a slowdown period in progress, coupled with potential margin contraction, 1.9 101

in view of increased competition. Since our last report, we believe that the 1.7 92

Jul-19 Jul-19

Apr-19 Apr-19 Oct-19 Oct-19

Jun-19 Jan-20 Jan-20

issue of COVID-19 has not eased, let alone been resolved. Hence, Jun-19

Feb-20 Mar-20 Mar-20

Dec-19 Nov-19 Nov-19 Dec-19

Aug-19 Aug-19 Sep-19

May-19 May-19 necessary adjustments were made to appropriately reflect the current Source: Bloomberg challenges. The TP we ascribed is derived from 12x P/E (close to -1SD of KLCON Index’s 5-year mean) to FY20 construction EPS.  Key downside risks include a failure to secure new contracts, more intense competition among piling contractors, and a prolonged downturn in

the retail and property markets.

Forecasts and Valuation Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F Total turnover (MYRm) 96 316 392 478 468 Recurring net profit (MYRm) 16 38 44 57 58 Recurring net profit growth (%) (71.6) 140.6 16.4 29.1 1.8 Recurring P/E (x) 26.18 10.88 9.35 7.24 7.11 P/B (x) 1.3 1.3 1.2 1.1 1.0 P/CF (x) 14.51 15.15 69.29 7.30 4.78 Dividend Yield (%) 8.0 8.0 6.0 6.0 8.0 EV/EBITDA (x) 6.62 3.50 4.16 3.17 2.68 Return on average equity (%) 4.7 8.1 13.5 16.2 15.2 Net debt to equity (%) net cash net cash net cash net cash net cash

Source: Company data, RHB

See important disclosures at the end of this report 15 Market Dateline / PP 19489/05/2019 (035080)

Pintaras Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Financial Exhibits

Asia Financial summary (MYR) Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F Malaysia Recurring EPS 0.10 0.23 0.27 0.35 0.35 Construction & Engineering DPS 0.20 0.20 0.15 0.15 0.20 Pintaras BVPS 1.96 1.92 2.04 2.23 2.38 PINT MK Return on average equity (%) 4.7 8.1 13.5 16.2 15.2 Buy Valuation metrics Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F Valuation basis Recurring P/E (x) 26.18 10.88 9.35 7.24 7.11 We use an ex-cash target 12x FY20F (Jun) P/E. P/B (x) 1.3 1.3 1.2 1.1 1.0 FCF Yield (%) 6.8 0.7 (8.2) 11.3 18.5 Key drivers Dividend Yield (%) 8.0 8.0 6.0 6.0 8.0 Our FY20 forecasts are most sensitive to changes in EV/EBITDA (x) 6.62 3.50 4.16 3.17 2.68 the implementation of various mega infrastructure EV/EBIT (x) 11.56 5.98 6.02 4.34 3.67

projects in Singapore. Income statement (MYRm) Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F

Total turnover 95.9 315.9 392.3 477.6 467.7 Key risks Gross profit 10.7 78.7 95.3 120.3 120.2 Key downside risks include a failure to secure new EBITDA 30.7 77.4 79.1 97.0 98.5 contracts, more intense competition among piling contractors, and prolonged downturn in the retail and Depreciation and amortisation (13.1) (32.1) (24.5) (26.1) (26.8) property markets. Operating profit 17.6 45.2 54.7 70.9 71.7 Net interest 3.6 0.9 0.1 (0.2) 0.3 Pre-tax profit 20.7 31.6 54.7 70.7 72.0 Company Profile Taxation (5.2) (5.5) (10.4) (13.4) (13.7) Pintaras Jaya is a piling specialist. Leveraging on its Reported net profit 15.5 26.1 44.3 57.3 58.3 core competence in piling, it has also extended the Recurring net profit 15.8 38.1 44.3 57.3 58.3 range of the services it offers to the general building and civil engineering works segments. Pintaras Jaya also has a small, but profitable, manufacturing outfit that Cash flow (MYRm) Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F produces industrial metal containers. Change in working capital 9 (56) (63) (27) 2 Cash flow from operations 29 27 6 57 87 Capex (1) (25) (40) (10) (10) Cash flow from investing activities (9) (46) (39) (9) (9) Dividends paid (33) (33) (25) (25) (33) Cash flow from financing activities (33) (45) (26) (26) (34) Cash at beginning of period 179 183 110 52 73 Net change in cash (13) (64) (59) 22 44 Ending balance cash 180 110 52 73 117

Balance sheet (MYRm) Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F Total cash and equivalents 183 110 52 73 117 Tangible fixed assets 81 135 151 135 118 Total investments 29 61 61 61 61 Total assets 382 498 501 557 578 Short-term debt 0 8 8 8 8 Total long-term debt 0 20 20 20 20 Total liabilities 57 180 163 186 182 Total equity 325 318 338 370 395 Total liabilities & equity 382 498 501 557 578

Key metrics Jun-18 Jun-19 Jun-20F Jun-21F Jun-22F Revenue growth (%) (50.5) 229.4 24.2 21.7 (2.1) Recurrent EPS growth (%) (71.8) 140.6 16.4 29.1 1.8 Gross margin (%) 11.1 24.9 24.3 25.2 25.7 Operating EBITDA margin (%) 32.0 24.5 20.2 20.3 21.1 Net profit margin (%) 16.2 8.3 11.3 12.0 12.5 Dividend payout ratio (%) 212.3 127.1 56.1 43.4 56.9 Capex/sales (%) 0.6 7.8 10.2 2.1 2.1 Interest cover (x) 48 58 75 76

Source: Company data, RHB

See important disclosures at the end of this report 16 Market Dateline / PP 19489/05/2019 (035080)

Pintaras Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-02-24 Buy 3.72 3.04 4.4

Recommendations & Target Price 2019-11-25 Buy 3.64 3.22

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2.90 2.90 2.58 2.43 2.43 2.56 3.57 3.64 3.72 3.65 3.65 2019-08-30 Buy 3.57 3.09 3.9

2019-05-27 Neutral 2.56 2.48 3.40 3.40 2019-02-25 Neutral 2.43 2.30 3.4 2018-11-29 Neutral 2.58 2.50 2018-08-29 Neutral 2.58 2.50 2.9 2018-05-28 Neutral 2.90 2.95 2018-05-28 Neutral 2.90 2.95 2.4 Source: RHB, Bloomberg 1.9 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Jan-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 17 Market Dateline / PP 19489/05/2019 (035080)

Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Hock Seng Lee (HSL MK) Buy (Maintained) Earnings Visibility Stays Intact; Stay BUY Target Price (Return): MYR1.13 (14%) Price: MYR0.99 Market Cap: USD126m Avg Daily Turnover (MYR/USD) 0.23m/0.05m

 Maintain BUY, new SOP-derived MYR1.13 TP from MYR1.50, 14% Analysts upside, and 2.3% yield. Despite our earnings cut, we like the company for its still higher-than-average earnings visibility, recognised track record in Muhammad Danial bin Abd Razak Sarawak and clearer replenishment opportunities in the state. Perceived as +603 9280 8682 a key beneficiary of Sarawak’s infrastructure plans, the stock is attractively priced at 6x FY20F EPS, below -2SD of its 5-year mean. As a local player, [email protected] Hock Seng Lee stands to benefit from the well-defined state infrastructure projects pipeline. Eddy Do Wey Qing  Risk of delay. The Government may need more time to reassess the +603 9280 8856 [email protected] country’s infrastructure strategy, as most government resources are being geared to curb the severe COVID-19 health crisis. Against this backdrop, it Share Performance (%) is likely that discussions on mega projects’ revival will be put on hold. While we are unable to rule out proposed large-scale infrastructure projects like YTD 1m 3m 6m 12m the Mass Rapid Transit (MRT) 3 and Kuala Lumpur-Singapore High Speed Absolute (25.6) (22.1) (25.0) (26.1) (30.3) Rail (HSR), the timeframe remains uncertain. Relative (9.2) (11.7) (7.2) (10.0) (11.1)  HSL remains our favourite stock for Sarawak infrastructure play. 52-wk Price low/high (MYR) 0.99 – 1.50

Despite the change in federal administration, the political landscape in the state appears unchanged. This signals that the state’s commitments to Hock Seng Lee (HSL MK) Price Close further improve infrastructure still stand. Fundamentally, HSL is backed by Relative to FTSE Bursa Malaysia KLCI Index (RHS) an outstanding orderbook of MYR2.2bn to keep the construction segment 1.6 111 busy for the next four years (>average industry peer). As a key beneficiary 1.5 107 of Sarawak’s development, HSL is attractively valued at 11x FY20F EPS, 1.4 104

-0.5SD from its 5-year average forward P/E, and trading at a 52-week low. 1.3 100  We trim our earnings for FY20F-21F by 31% and 9%. Since our last 1.2 97 report, we believe that the COVID-19 issue has worsened. Some of the 1.1 93 changes we made include reducing the replenishment target to MYR300m 1.0 90

(from MYR600m), scaling back on work progress by 10% due to work 0.9 86

Jul-19 Jul-19

Apr-19 Apr-19 Oct-19 Oct-19

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Dec-19 Nov-19 Nov-19 Dec-19

Aug-19 Sep-19

suspension during the Movement Control Order and adjusting down our Aug-19 May-19 May-19 property sales assumption by 30% in FY20. The TP we ascribed is derived Source: Bloomberg from pegging 12x target P/E (close to -1SD of KLCON 5-year mean) to FY20 construction EPS along with 60% RNAV discount to value its property division.  Key downside risks include failure to secure new contracts, a prolonged

downturn in the retail and property markets, and slower-than-expected progress of construction projects.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total turnover (MYRm) 610 684 544 645 661 Recurring net profit (MYRm) 54 55 44 54 57 Recurring net profit growth (%) 12.9 2.5 (21.1) 23.5 6.8 Recurring P/E (x) 5.05 4.78 5.39 5.46 4.99 P/B (x) 0.7 0.7 0.6 0.6 0.6 P/CF (x) 2.55 na 1.71 6.81 4.23 Dividend Yield (%) 3.2 2.4 2.3 2.9 3.1 EV/EBITDA (x) 2.64 2.71 2.32 2.38 2.01 Return on average equity (%) 7.1 6.9 5.2 6.2 6.3 Net debt to equity (%) net cash net cash net cash net cash net cash

Source: Company data, RHB

See important disclosures at the end of this report 18 Market Dateline / PP 19489/05/2019 (035080)

Hock Seng Lee Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Financial Exhibits

Asia Financial summary (MYR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Malaysia Recurring EPS 0.20 0.21 0.18 0.18 0.20 Construction & Engineering DPS 0.03 0.02 0.02 0.03 0.03 Hock Seng Lee BVPS 1.41 1.49 1.55 1.63 1.71 HSL MK Return on average equity (%) 7.1 6.9 5.2 6.2 6.3 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 5.05 4.78 5.39 5.46 4.99 We value HSL based on SOP, its construction unit P/B (x) 0.7 0.7 0.6 0.6 0.6 based on 12x P/E (in line with our 10-14x target 1-year FCF Yield (%) 13.3 (12.3) 45.8 4.5 13.2 forward P/Es for small- and mid-cap construction Dividend Yield (%) 3.2 2.4 2.3 2.9 3.1 stocks). Separately, we value its property unit at a 60% EV/EBITDA (x) 2.64 2.71 2.32 2.38 2.01 discount to RNAV. EV/EBIT (x) 3.17 3.33 3.06 3.04 2.56

Key drivers HSL's outstanding orderbook worth MYR2.2bn as at 31 Income statement (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Dec 2020 would keep the company busy for the next Total turnover 610 684 544 645 661 four years. Separately, the firm is selectively bidding on Gross profit 90 88 72 88 94 further projects of interest, including various EBITDA 84 87 72 86 92 infrastructure works throughout Sarawak. Depreciation and amortisation (14) (16) (17) (19) (20)

Operating profit 70 71 54 68 72 Key risks Net interest 2 3 3 3 3 Failure to secure new roadwork contracts may result in Pre-tax profit 72 74 57 71 76 new contract wins falling short of our assumption, while an escalation in input costs could trim margins. Taxation (18) (19) (14) (17) (18) Reported net profit 54 55 44 54 57 Company Profile Recurring net profit 54 55 44 54 57 HSL is a Sarawak-based construction company. It is also engaged in property development in Sarawak. Cash flow (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Change in working capital 39 (71) 80 (26) (6) Cash flow from operations 106 (3) 138 43 68 Capex (70) (30) (30) (30) (30) Cash flow from investing activities (81) (30) (30) (30) (29) Dividends paid (13) (14) (10) (12) (13) Cash flow from financing activities 55 (30) (85) 32 17 Cash at beginning of period 72 154 112 213 217 Net change in cash 80 (62) 23 45 56 Ending balance cash 152 92 134 258 273

Balance sheet (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total cash and equivalents 154 112 213 217 247 Tangible fixed assets 211 225 238 249 259 Total investments 44 44 44 44 44 Total assets 1,110 1,175 1,172 1,239 1,288 Short-term debt 43 43 43 43 43 Total long-term debt 52 52 52 52 52 Total liabilities 331 354 317 342 345 Total equity 779 821 855 897 943 Total liabilities & equity 1,110 1,175 1,172 1,239 1,288

Key metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Revenue growth (%) 45.3 12.0 (20.4) 18.6 2.5 Recurrent EPS growth (%) 15.7 5.5 (11.2) (1.3) 9.4 Gross margin (%) 14.7 12.8 13.2 13.7 14.2 Operating EBITDA margin (%) 13.8 12.7 13.2 13.4 13.9 Net profit margin (%) 8.8 8.1 8.0 8.3 8.7 Dividend payout ratio (%) 24.5 24.5 22.0 22.0 22.0 Capex/sales (%) 11.5 4.4 5.5 4.7 4.5 Interest cover (x) 74.8 58.4 108.6 135.1 144.4

Source: Company data, RHB

See important disclosures at the end of this report 19 Market Dateline / PP 19489/05/2019 (035080)

Hock Seng Lee Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Figure 1: HSL’s SOP valuation Business segment Methodology Multiple Total value Value per share Description Construction P/E 12 348 0.63 12x FY20F construction earnings; (Five-year mean) 60% discount to its projected Property RNAV -60% 273 0.50 RNAV 621 1.13

SOP valuation 621 1.15

Source: Company data, RHB

See important disclosures at the end of this report 20 Market Dateline / PP 19489/05/2019 (035080)

Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

IJM Corp (IJM MK) Neutral (Maintained) Delay Risks Could Dominate Target Price (Return): MYR1.57 (-1%) Price: MYR1.58 Market Cap: USD1,325m Avg Daily Turnover (MYR/USD) 8.07m/1.92m

 Maintain NEUTRAL with a new MYR1.57 TP from MYR2.04, 1% Analysts downside with 4% yield. The unfortunate confluence of COVID-19 and oil price collapse will put pressure on IJM Corp’s outlook, in our view. Delay Muhammad Danial bin Abd Razak risks could dominate, as uncertainties have yet to fade. Taken together, we +603 9280 8682 believe IJM’s share price is fairly valued. The new TP implies 14x forward P/E to its FY21F (Mar) EPS after downward adjustments to its earnings. [email protected]  Delay risks. The Government may need more time to reassess the Eddy Do Wey Qing country’s infrastructure strategy, as most government resources are geared towards curb the severe health crisis. Against this backdrop, it is likely that +603 9280 8856 [email protected] discussions on the revival of mega projects are on hold. While we are unable to rule out proposed large-scale infrastructure projects like the Mass Share Performance (%) Rapid Transit Line 3 and Kuala Lumpur-Singapore High Speed Rail, their timeframe remains uncertain. YTD 1m 3m 6m 12m Absolute (27.2) (18.6) (25.8) (27.9) (28.8)  Near-term outlook. IJM had its first FY20 contract win in mid-March for the Relative (10.8) (8.2) (8.0) (11.8) (9.6) Tun Razak Exchange’s superstructure works. This added MYR530m to its 52-wk Price low/high (MYR) 1.34 – 2.50 existing orders. In cumulative terms, the value replenished c. 44% of our

MYR1.2bn FY20 target. We are encouraged to see the new award ending the previous quarters’ dry spell. With this latest win, IJM’s outstanding IJM Corp (IJM MK) Price Close orderbook stands at MYR5bn: >2 years’ visibility. Relative to FTSE Bursa Malaysia KLCI Index (RHS) 2.6 114

 Net gearing stands at 42.6%. Compared to the same period last year, the 2.4 109 company has reduced its USD-denominated debt by 10% as part of its de- 2.2 104 gearing initiative. Approximately 30-50% of that exposure is derived from 1- 2.0 99 3-year term loans. The global currency markets remain volatile and are perceived as a bottomline risk. We understand that, should the USD 1.8 94 strengthen by 1% against the MYR, PAT is likely to be affected by 1.6 89 approximately -2%. 1.4 84 1.2 79

 Earnings cut. We cut our FY20F-22F earnings by 8%, 11%, and 13%.

Jul-19 Jul-19

Apr-19 Apr-19 Oct-19 Oct-19

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Dec-19 Nov-19 Nov-19 Dec-19

Aug-19 Aug-19 Sep-19 May-19 Since our last report, we believe the COVID-19 issue has worsened. The May-19 changes include scaling back on work progress by 10% due to work Source: Bloomberg suspensions during Movement Control Order, adjusting down our property sales assumption by 30% in FY21, and increasing the RNAV discount to 65%, or -2SD of the historical discount.  Key downside risks to our call include a prolonged slowdown in the property market, longer-than-expected delays in the resumption of projects, and failure to secure new orders. Upside risk for the stock could stem from the Government taking a more aggressive tack to pump prime the economy via the resumption of large-scale public infrastructure projects.

Forecasts and Valuation Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Total turnover (MYRm) 5,966 5,656 5,481 5,359 5,524 Recurring net profit (MYRm) 362 406 320 379 397 Recurring net profit growth (%) (33.9) 12.3 (21.2) 18.2 4.9 Recurring P/E (x) 15.89 14.15 17.96 15.19 14.47 P/B (x) 0.6 0.6 0.6 0.6 0.5 P/CF (x) 6.45 57.83 7.73 9.91 76.14 Dividend Yield (%) 3.8 2.5 3.8 3.8 3.8 EV/EBITDA (x) 8.68 10.91 11.70 10.45 9.61 Return on average equity (%) 3.7 4.4 3.3 3.8 3.7 Net debt to equity (%) 42.0 44.5 41.3 34.7 28.6

Source: Company data, RHB

See important disclosures at the end of this report 21 Market Dateline / PP 19489/05/2019 (035080)

IJM Corp Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Financial Exhibits

Asia Financial summary (MYR) Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Malaysia Recurring EPS 0.10 0.11 0.09 0.10 0.11 Construction & Engineering DPS 0.06 0.04 0.06 0.06 0.06 IJM Corp BVPS 2.57 2.62 2.67 2.84 3.12 IJM MK Return on average equity (%) 3.7 4.4 3.3 3.8 3.7 Neutral Valuation metrics Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Valuation basis Recurring P/E (x) 15.89 14.15 17.96 15.19 14.47 As a conglomerate, we value the group based on its P/B (x) 0.6 0.6 0.6 0.6 0.5 SOP, derived from a combination of P/E, DCF, and FCF Yield (%) (5.6) (12.1) 9.1 7.1 (1.6) RNAV valuation methodologies. Dividend Yield (%) 3.8 2.5 3.8 3.8 3.8

EV/EBITDA (x) 8.68 10.91 11.70 10.45 9.61 Key drivers EV/EBIT (x) 13.17 16.91 19.43 16.78 15.75 IJM’s earnings are underpinned by construction orders, property sales, throughput volume at Kuantan Port, and income from its toll road concessions. Income statement (MYRm) Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Total turnover 5,966 5,656 5,481 5,359 5,524 Gross profit 1,432 1,363 1,143 1,188 1,227 Key risks EBITDA 1,072 960 870 921 952 Key downside risks include: Depreciation and amortisation (365) (340) (346) (347) (371) i. A prolonged slowdown in the property market; Operating profit 706 619 524 574 581 ii. Longer-than-expected delays in the resumption Net interest (68) (117) (111) (98) (86) of projects; Pre-tax profit 607 647 440 513 537 iii. Failure to secure new orders. Taxation (233) (207) (99) (114) (119) Upside risk for the stock could stem from the Reported net profit 343 418 320 379 397 Government taking a more aggressive tack to pump Recurring net profit 362 406 320 379 397 prime the economy via the resumption of large-scale public infrastructure projects. Cash flow (MYRm) Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F

Change in working capital 100 (942) (27) (226) (758) Company Profile Cash flow from operations 891 99 744 580 76 IJM is a conglomerate with interests in construction, Capex (1,212) (796) (220) (170) (170) property, plantation, building materials, and concessions. Cash flow from investing activities (1,183) (770) (110) (57) (55) Dividends paid (139) (168) (128) 227 636 Cash flow from financing activities (378) 715 (649) (284) 135 Cash at beginning of period 2,148 1,468 1,558 1,543 1,781 Net change in cash (670) 44 (15) 239 155 Ending balance cash 1,468 1,558 1,543 1,781 1,936

Balance sheet (MYRm) Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Total cash and equivalents 1,468 1,558 1,543 1,781 1,936 Tangible fixed assets 3,567 3,725 3,737 3,702 3,670

Total investments 2,033 2,195 2,222 2,260 2,303 Total assets 21,233 23,006 22,148 22,385 23,206 Short-term debt 2,904 1,797 1,697 1,597 1,497 Total long-term debt 2,976 4,832 4,632 4,432 4,232 Total liabilities 10,715 11,622 10,551 10,161 9,928 Total equity 10,518 11,384 11,598 12,224 13,278 Total liabilities & equity 21,233 23,006 22,148 22,385 23,206

Key metrics Mar-18 Mar-19 Mar-20F Mar-21F Mar-22F Revenue growth (%) (1.6) (5.2) (3.1) (2.2) 3.1 Recurrent EPS growth (%) (34.4) 12.3 (21.2) 18.2 4.9 Gross margin (%) 24.0 24.1 20.9 22.2 22.2 Operating EBITDA margin (%) 18.0 17.0 15.9 17.2 17.2 Net profit margin (%) 5.7 7.4 5.8 7.1 7.2 Capex/sales (%) 20.3 14.1 4.0 3.2 3.1 Interest cover (x) 3.80 2.75 2.37 2.72 2.89

Source: Company data, RHB

See important disclosures at the end of this report 22 Market Dateline / PP 19489/05/2019 (035080)

IJM Corp Malaysia Company Update

31 March 2020 Construction & Engineering | Construction

Figure 1: IJM’s SOP valuation Value to IJM Value per share SOP component Justification Stake (MYRm) (MYR) Construction 12x P/E FY20F 100% 786 0.22 Manufacturing/Industry 10x P/E FY20F 100% 127 0.04 Plantation IJMP TP of MYR1.45 56% 715 0.20 Toll Concessions DCF (WACC: 8.5%) Various 2,466 0.68 Kuantan Port DCF (WACC: 8.5%) 60% 1,047 0.29 Property 65% discount to RNAV 100% 2,460 0.68 Investments in WCE Holdings Market value 27% 62 0.02 Investments in Scomi Market value 25% 3 0.00 Total SOP 30% 6,516 2.11 Holding Company's Discount (1,955) -0.54 Revised TP 4,561 1.57 Source: Company data, RHB

See important disclosures at the end of this report 23 Market Dateline / PP 19489/05/2019 (035080)

Malaysia Company Update

31 March 2020 Property | Real Estate

Malaysian Resources Corp Buy (Maintained) (MRC MK) Target Price (Return): MYR0.48 (+23%) Still Attractive; Keep BUY Price: MYR0.39 Market Cap: USD393m Avg Daily Turnover (MYR/USD) 5.06m/1.21m

 Keep BUY with a new SOP-based MYR0.48 TP from MYR0.87, 23% Analysts upside and 6% yield. Malaysian Resources Corp is sitting on sizeable job orders totalling MYR21bn. We stay mindful that near-term sales for the Muhammad Danial bin Abd Razak property arm could be affected due to the economy’s broad-based +603 9280 8682 slowdown. Nonetheless, it appears that the perceived selldown is overdone – we see value in the stock, which is trading at 13x forward P/E (-1SD below [email protected] its 5-year mean) to FY20F EPS. We deem this attractive. Eddy Do Wey Qing  Delay risks. The Government may need more time to reassess the country’s infrastructure strategy, as most public sector resources are +603 9280 8856 [email protected] currently geared towards curbing COVID-19. Against this backdrop, it is likely that discussions on the revival of mega projects are on hold. While we Share Performance (%) are unable to rule out proposed large-scale infrastructure initiatives, such as the Mass Rapid Transit Line 3 and Kuala Lumpur-Singapore High Speed YTD 1m 3m 6m 12m Rail, their timeframes remain uncertain. Absolute (47.3) (32.5) (47.6) (47.6) (56.5) Relative (30.9) (22.1) (29.8) (31.5) (37.3)  MRCB’s orderbook is among the highest in the industry. It is currently 52-wk Price low/high (MYR) 0.31 – 1.07 valued at MYR21bn and includes the MYR10bn Bukit Jalil Sentral project –

this provides long-term earnings visibility. However, we note that only <40% of the outstanding value contributes to MRCB’s earnings. In the property Malaysian Resources Corp (MRC MK) Price Close arm, we expect sales to be affected due to the broad-based slowdown in Relative to FTSE Bursa Malaysia KLCI Index (RHS) the economy, resulting in people putting off the purchasing of big ticket 1.1 130 items. According to management, its sales target this year hovers between 1.0 121 MYR500m and MYR550m. 0.9 112 0.8 103  Earnings revised downwards. We slash our FY20F-22F earnings by 25%, 0.7 94 0.6 86

26%, and 19%. The changes we made include reducing order 0.5 77

replenishment assumptions, scaling back work progress by 10% due to 0.4 68 work suspensions during the Movement Control Order, and adjusting down 0.3 59

our FY20-21 property sales assumptions by 10-30%. Our TP is derived from 0.2 50

Jul-19 Jul-19

Apr-19 Apr-19 Oct-19 Oct-19

Jun-19 Jun-19 Jan-20 Jan-20

Feb-20 Mar-20 Mar-20

Dec-19 Nov-19 Nov-19 Dec-19

Aug-19 Sep-19

pegging 12x target P/E – close to -1SD of KLCON Index’s 5-year mean – Aug-19 May-19 May-19 to FY20 construction EPS plus a 60% RNAV discount (-1SD of the historical Source: Bloomberg mean) to value MRCB’s property division.  Key downside risks include a prolonged slowdown in the property market, longer-than-expected delays in the commencement of public sector infrastructure projects, and the inability to secure new orders.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total turnover (MYRm) 1,871 1,319 1,309 1,375 1,444 Recurring net profit (MYRm) 75 24 66 73 83 Recurring net profit growth (%) (59.5) (68.5) 180.1 9.2 14.7 Recurring P/E (x) 11.64 36.98 13.20 12.09 10.54 P/B (x) 0.2 0.2 0.2 0.2 0.2 P/CF (x) 0.37 7.47 1.61 4.16 8.95 Dividend Yield (%) 4.5 4.5 5.7 6.5 6.5 EV/EBITDA (x) 11.20 22.83 13.20 13.27 12.84 Return on average equity (%) 1.6 0.5 1.4 1.5 1.8 Net debt to equity (%) 19.2 24.6 20.2 22.5 27.2

Source: Company data, RHB

See important disclosures at the end of this report 24 Market Dateline / PP 19489/05/2019 (035080)

Malaysian Resources Corp Malaysia Company Update

31 March 2020 Property | Real Estate

Financial Exhibits

Asia Financial summary (MYR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Malaysia Recurring EPS 0.03 0.01 0.03 0.03 0.04 Property DPS 0.02 0.02 0.02 0.03 0.03 Malaysian Resources Corp BVPS 2.12 2.10 2.08 2.07 2.05 MRC MK Return on average equity (%) 1.6 0.5 1.4 1.5 1.8 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 11.64 36.98 13.20 12.09 10.54 60% discount to RNAV, given the slowdown in the P/B (x) 0.2 0.2 0.2 0.2 0.2 economy and property market. FCF Yield (%) 217.0 (20.8) 35.4 0.0 (12.9) Dividend Yield (%) 4.5 4.5 5.7 6.5 6.5 Key drivers EV/EBITDA (x) 11.20 22.83 13.20 13.27 12.84 i. New property sales; EV/EBIT (x) 14.48 22.83 19.57 19.99 18.74 ii. Asset disposals; iii. New construction contracts. Income statement (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Key risks Total turnover 1,871 1,319 1,309 1,375 1,444 Gross profit 373 (9) 236 247 260 Key downside risks include: i. A prolonged slowdown in the property market; EBITDA 165 92 142 150 171 ii. Longer-than-expected delays in the Depreciation and amortisation (37) 0 (46) (50) (54) commencement of public sector infrastructure Operating profit 128 92 96 99 117 projects; Net interest (23) (46) (13) (8) (12) iii. The inability to secure new orders. Pre-tax profit 123 53 90 98 113

Taxation (46) (34) (23) (25) (28) Company Profile Reported net profit 75 24 66 73 83 MRCB is engaged in construction (niche strength in environmental projects), property development and Recurring net profit 75 24 66 73 83 investment, and toll road operations. It is known for its transit-oriented developments, eg KL Sentral, Bukit Jalil Cash flow (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F City, Kwasa Damansara, and Penang Sentral. Change in working capital 2,247 105 439 94 (33) Cash flow from operations 2,343 117 547 211 98 Capex (438) (300) (236) (211) (211) Cash flow from investing activities 1,012 (300) (236) (211) (211) Dividends paid (45) (77) (77) (20) (22) Cash flow from financing activities (1,918) 23 (77) (20) (22) Cash at beginning of period 724 552 398 719 716 Net change in cash 1,437 (160) 233 (20) (135) Ending balance cash 2,161 392 632 699 581

Balance sheet (MYRm) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total cash and equivalents 552 398 719 716 600 Tangible fixed assets 1,979 2,279 2,469 2,630 2,787 Total investments 34 34 34 34 34 Total assets 8,342 8,136 7,840 7,934 8,041 Short-term debt 726 726 726 726 726 Total long-term debt 766 866 966 1,066 1,166 Total liabilities 3,442 3,294 3,028 3,158 3,290 Total equity 4,900 4,842 4,812 4,776 4,750 Total liabilities & equity 8,342 8,136 7,840 7,934 8,041

Key metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Revenue growth (%) (29.2) (29.5) (0.8) 5.0 5.0 Recurrent EPS growth (%) (59.5) (68.5) 180.1 9.2 14.7 Gross margin (%) 19.9 (0.7) 18.0 18.0 18.0 Operating EBITDA margin (%) 8.8 7.0 10.9 10.9 11.9 Net profit margin (%) 4.0 1.8 5.1 5.3 5.8 Dividend payout ratio (%) 102.4 325.2 30.0 30.0 30.0 Capex/sales (%) 23.4 22.7 18.0 15.3 14.6 Interest cover (x) 2.91 2.02 3.24 3.35 3.54

Source: Company data, RHB

See important disclosures at the end of this report 25 Market Dateline / PP 19489/05/2019 (035080)

Malaysian Resources Corp Malaysia Company Update

31 March 2020 Property | Real Estate

Figure 1: MRCB SOP valuation FV based on Items RHB's TP (MYRm) BV (MYRm) Equity value/surplus (MYRm) Construction (12x 1-year forward earnings) 197.0 Surplus RNAV for property and investments 702.0 31% MQ REIT 289.0 264.0 25.0

Kwasa Damansara PDP for infra works (DCF) 61.9

Shareholders’ funds (excluding construction) 4,762.09

Total RNAV 5,748.1 Share base 4,803.97 RNAV per share 1.20 Discount 60% TP (MYR) 0.48 Source: Company data, RHB

Recommendation Chart

Date Recommendation Target Price Price Price Close 2019-11-22 Buy 0.87 0.75 1.6

Recommendations & Target Price 2019-08-27 Buy 0.97 0.72

na

1.08 1.08 1.10 0.87 1.20 1.20 0.97 1.4 1.34 2019-05-31 Buy 1.10 0.93 2019-02-27 Buy 1.08 0.80 1.2 1.34 2018-11-23 Buy 1.08 0.70 1.0 2018-11-13 Buy 1.20 0.75 0.8 2018-09-03 Buy 1.20 0.69 2018-04-06 Buy na 0.98 0.6 2018-03-27 Buy na 0.99 0.4 Source: RHB, Bloomberg 0.2 Buy Neutral Sell Trading Buy Take Profit Not Rated Apr-15 Jul-16 Oct-17 Jan-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 26 Market Dateline / PP 19489/05/2019 (035080)

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PT RHB Sekuritas Indonesia** did not receive compensation or benefit (including RHB from time to time and therefore may not be subject to any applicable restrictions gift and special cost arrangement e.g. company/issuer-sponsored and paid trip) in under Financial Industry Regulatory Authority (“FINRA”) rules on communications with relation to the production of this report: a subject company, public appearances and personal trading. Investing in any non- Notes: U.S. securities or related financial instruments discussed in this research report may *The overall disclosure is limited to information pertaining to PT RHB Sekuritas present certain risks. The securities of non-U.S. issuers may not be registered with, or Indonesia only. be subject to the regulations of, the U.S. Securities and Exchange Commission. **The disclosure is limited to Research staff of PT RHB Sekuritas Indonesia only. Information on non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory Singapore requirements comparable to those in the United States. The financial instruments Save as disclosed in the following link (RHB Research conflict disclosures – Mar 2020) discussed in this report may not be suitable for all investors. Transactions in foreign and to the best of our knowledge, RHB Securities Singapore Pte Ltd hereby declares markets may be subject to regulations that differ from or offer less protection than that: those in the United States. 1. RHB Securities Singapore Pte Ltd, its subsidiaries and/or associated companies do not make a market in any issuer covered in this report. DISCLOSURE OF CONFLICTS OF INTEREST 2. RHB Securities Singapore Pte Ltd, its subsidiaries and/or its associated companies and its analysts do not have a financial interest (including a RHB Investment Bank Berhad, its subsidiaries (including its regional offices) and shareholding of 1% or more) in the issuer covered in this report. associated companies, (“RHBIB Group”) form a diversified financial group, 3. RHB Securities, its staff or connected persons do not serve on the board or trustee undertaking various investment banking activities which include, amongst others, positions of the issuer covered in this report. underwriting, securities trading, market making and corporate finance advisory. 4. RHB Securities Singapore Pte Ltd, its subsidiaries and/or its associated companies do not have and have not within the last 12 months had any corporate As a result of the same, in the ordinary course of its business, any member of the finance advisory relationship with the issuer covered in this report or any other RHBIB Group, may, from time to time, have business relationships with or hold relationship that may create a potential conflict of interest. positions in the securities (including capital market products) or perform and/or solicit 5. RHB Securities Singapore Pte Ltd, or person associated or connected to it do not investment, advisory or other services from any of the subject company(ies) covered have any interest in the acquisition or disposal of, the securities, specified in this research report. securities based derivatives contracts or units in a collective investment scheme covered in this report. While the RHBIB Group will ensure that there are sufficient information barriers and 6. RHB Securities Singapore Pte Ltd and its analysts do not receive any internal controls in place where necessary, to prevent/manage any conflicts of interest compensation or benefit in connection with the production of this research report to ensure the independence of this report, investors should also be aware that such or recommendation. conflict of interest may exist in view of the investment banking activities undertaken by the RHBIB Group as mentioned above and should exercise their own judgement Analyst Certification before making any investment decisions. The analyst(s) who prepared this report, and their associates hereby, certify that:

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(1) they do not have any financial interest in the securities or other capital market products of the subject companies mentioned in this report, except for:

Analyst Company - -

(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

KUALA LUMPUR JAKARTA RHB Investment Bank Bhd PT RHB Sekuritas Indonesia Level 3A, Tower One, RHB Centre Revenue Tower, 11th Floor, District 8 Jalan Tun Razak - SCBD Kuala Lumpur 50400 Jl. Jendral Sudirman Kav 52-53 Malaysia Jakarta 12190 Tel : +603 9280 8888 Indonesia Fax : +603 9200 2216 Tel : +6221 509 39 888 Fax : +6221 509 39 777

HONG KONG BANGKOK RHB Securities Hong Kong Ltd. RHB Securities (Thailand) PCL 12th Floor, World-Wide House 10th Floor, Sathorn Square Office 19 Des Voeux Road Tower Central 98, North Sathorn Road, Silom Hong Kong Bangrak, Bangkok 10500 Tel : +852 2525 1118 Thailand Fax : +852 2810 0908 Tel: +66 2088 9999 Fax :+66 2088 9799

SINGAPORE RHB Securities Singapore Pte Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +65 6533 1818 Fax : +65 6532 6211

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