Kl Market Outlook 1h2019.pdf

Asia Macro 2019: Praying for Pause & Peace February 2019

Dr Chua Hak Bin Senior Economist +65 6231 5830 [email protected] SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

2019 Macro – Praying for Pause and Peace • Global & Asia Growth: US-China Trade War & Tighter Global Monetary Conditions Threatens Growth Outlook; Trade War Will Broaden to NTBs (eg. export controls) – [1] US-China Trade “Peace” Deal- Bullish China, Singapore & Thailand – [2] Fed “Pause”- Bullish Indonesia, Philippines & India

• Theme #1: Cold War - Trade Disruption & Diversion: China “Eye of the Storm”; Disruption to Supply Chain; Winners from Diversion – Vietnam, Thailand & Malaysia • Theme #2: Fed Pauses Late 2019: 2 More Hikes in 2019, No Hike in 2020; Yield Curve (10Y - 3M) Invert by End-2019 Signaling Recession in 2020; IDR & PHP Will Remain

Under Pressure as US Rates Rise, SGD & THB More Resilient • Theme #3: Deflation Pressure in Asia: Trade War Deflationary for Third Countries – [1] Weak RMB; [2] Divert Excess Capacity; [3] Weaker Capex & Commodity Prices (Oil)

• Wildcard #1: China Hard Landing (export collapse, shadow financing crackdown, high system leverage, limited “Xi put”) • Wildcard #2: Tech Backlash Intensifies (data privacy, tax, cyber-security, tech war) 25/02/2019

2

2019 Macro – Praying for Pause and Peace •

Trade War Disruption & Reconfiguration of Global Supply Chain – Positive Vietnam, Thailand, Cambodia, Malaysia / Maybe Philippines, Indonesia – Negative China & Northeast Asia

•

Fed Pause Late 2019 & “Twin” Deficits – Long Indonesia, Philippines in Second Half when Fed Pauses – Hide Singapore, Thailand in First Half on More Resilient Currencies

•

“Trade War” - Deflationary in Third Countries (RMB Weakens, Dumping & Commodity Price Falls) – Ease Inflation Pressures, Favours Fixed Income – Pricing & Margin Pressure on Competing Suppliers (eg. Steel, Solar Panels)

•

Inverted Yield Curve (10Y-3m) : US “Recession” in 2020 – Emerging Markets Most Vulnerable (Turkey, South Africa, Latin America) – Contagion to Emerging Asia

•

“Wild Cards” [1] China Hard Landing (negative NE Asia, ASEAN “collateral damage”); [2] Tech Backlash (negative Asia electronics, tech, capital goods, tech private equity)

25/02/2019

3

ASEAN-6: GDP Growth Forecast – Slowing in 2019

GDP Growth (%) 2016

2017

2018

2019F

2020F

Indonesia

5.0

5.1

5.2

5.1

5.3

Malaysia

4.2

5.9

4.7

4.9

4.9

Philippines

6.9

6.7

6.2

6.5

6.5

Singapore

2.0

3.6

3.2

2.2

2.1

Thailand

3.3

3.9

4.1

3.8

3.6

Vietnam

6.2

6.8

7.1

6.8

6.5

Note: Numbers in red refer to Maybank’s estimates. Source: CEIC, Maybank KE 4

ASEAN-6: CPI Forecast – Inflation Not an Issue in 2019

CPI Inflation (%) 2016

2017

2018

2019F

2020F

Indonesia

3.5

3.8

3.2

3.4

3.6

Malaysia

2.1

3.7

1.0

2.1

2.4

Philippines

1.8

2.9

5.2

3.0

2.8

Singapore

-0.5

0.6

0.4

1.2

1.0

Thailand

0.2

0.7

1.1

1.1

1.0

Vietnam

2.6

3.5

3.5

2.7

4.1

Source: CEIC, Maybank KE

5

Global Growth Slowing: PMI in Most Countries Rolling Over

Markit Global Manufacturing PMI Has Peaked and Rolling Over

PMI in Asian Countries Are Starting to Soften on Trade War Fears

Source: Markit, CEIC, Maybank KE

Note: Singapore’s PMI number refers to SIPMM’s numbers. Source: Markit, CEIC, SIPMM, Maybank KE

25/02/2019

6

Singapore’s SIPMM Manufacturing PMI and Nikkei PMI Falling, Electronics Contracting

Singapore’s Whole Economy PMI Falls Back to 50 Handle in Jan 2019

Electronics PMI Dipped Below 50 for the Third Consecutive Month in Jan 2019

Source: CEIC, Markit, Maybank KE

Source: CEIC, SIPMM, Maybank KE

25/02/2019

7

Wild Card in 2019: #1 China Hard Landing

China’s Leverage Building Up, Driven by Corporate and Household Debt

Crackdown on Shadow Banking Led to Decline in Financing Starting June 2018

Source: Bloomberg, Maybank KE

Source: Bloomberg, Maybank KE

25/02/2019

8

China’s PMI Numbers Falling, and Weak New Export Orders Imply that Exports Will Start to Slow

Both Caixin & Official Manufacturing PMI Falling

China’s Exports Declined in Dec-18 as Frontloading Ends

Source: CEIC, National Bureau of Statistics, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

9

China - Consumer Sentiments Deteriorating Amid Trade War

China’s Passenger Car Sales Fell by -6% in 2018, the First Decline in Two Decades

Online Retail Sales Slowed in 4Q, Weighed Down by Services

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

10

ASEAN Bank Loans – Rising in 2018 But Will US-China Trade War Puncture Recovery in 2019?

Source: CEIC, Maybank KE

11

Asia ex-Japan: GDP Components by Exports and Domestic Demand Household Consumption

Government Consumption

Gross Fixed Capital Formation

Exports of Goods & Services

Imports of Goods & Services

Singapore

35%

10%

25%

201%

172%

Hong Kong

67%

10%

21%

190%

189%

Vietnam

68%

6%

31%

120%

128%

Thailand

51%

15%

24%

77%

69%

Taiwan

55%

14%

22%

76%

68%

Malaysia

55%

13%

25%

71%

63%

Philippines

69%

11%

31%

60%

70%

Korea

48%

15%

30%

55%

51%

Indonesia

54%

8%

33%

22%

21%

India

56%

11%

31%

20%

22%

China

39%

15%

43%

19%

15%

Real GDP (as % of GDP)

Note: China’s GDP data by expenditure is only available in current prices. Goods and services trade numbers are derived from the Current Account Balance. Source: CEIC, Maybank Kim Eng estimates 12

ASEAN Capex Recovery: GFCF Rose by +6% in 9M18 (vs. +4.7% in 2017)

Investment in Construction Picking Up in Phil & Thai But Continues Decline in Sing

Investment in Machinery & Equipment Eased in Indo & Phil in 4Q18

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

13

US-China Trade War: Ceasefire or Broadening?

25/02/2019

A Chronology of the US-China Trade War – Raising the Stakes

Source: ADB Asian Development Outlook 2018 Update, September 2018 15

Phase 2 & Potential Phase 3 of US Tariffs on China Targeting Higher Share of Consumer Goods

Source: Peterson Institute for International Economics, Maybank KE

16

Trade War: US Exports to China Collapsing, Weighed Down by Top Export Items Hit by China Tariffs US-China Trade Deficit Widening Further in 2018 as US Exports to China Collapse

US Top Export Items to China

US Exports to China Total Exports Other Transport Equipment (Aircraft) Road Vehicles Oil Seeds and Oleaginous Fruits (Soybeans) Electrical Machinery, Apparatus & Appliances

Source: CEIC, US Census Bureau, Maybank KE

25/02/2019

% of total exports

%YoY Growth

11M18

1Q18 2Q18 3Q18 Oct-18Nov-18

100

8.9

8.9

-7.5

-30

-32

14.4

60

-5.3

5.4

65

19

8.1

-9.2

-17

-34

-40

-40

2.9

-27

-14

-92

-96

-99

9.7

11

10.5

8.3

7.7

12.1

Professional Instruments

5.9

12

17

23

-1.4

5.3

Petroleum, Petroleum Products

5.6

100

112

9.0

-91

-94

Source: CEIC, US Census Bureau, Maybank KE

17

President Trump’s Approval Ratings Falling Since Dec 2018 on “Shutdown” Pain

Note: Net approval refers to approval minus disapproval. Last datapoint as of 30 Jan 2019. Source: FiveThirtyEight, Maybank KE 18

President Trump’s Net Approval Rating Has Turned Negative in Most Republican States

Note: Net approval refers to approval minus disapproval. Source: Morning Consult, Maybank KE 19

IMF Scenario Analysis –Full Blown Trade War Will Hit Both US and China Hard in 2019 & 2020 Real GDP in Trade Tensions Scenario (% deviation from control)

Source: IMF World Economic Outlook, Oct 2018 20

China Accounts for Almost Half of US Goods Trade Deficit, But a Lower Share on a Value-Added Basis Decomposition of US Goods Trade Deficit, 2017

Decomposition of US Goods Trade Deficit, Value-Added Basis, 2015

*refers to U.S. trade surplus with “Others”. Source: US Census Bureau, AMRO

Source: AMRO, based on data from China Customs, IMF and WIND

25/02/2019

21

ADB: Trade War Could Cut 0.5%-1% of China’s GDP, But May Be Positive for ASEAN-5 A) Current Scenario (all trade measures implemented as of Sep 2018, at 25% tariff rate)

B) US-China Escalation Scenario (all goods traded between US & China are imposed 25% tariff rate)

Note: Numbers in parenthesis refer to the impact in US$bn. ASEAN-5 includes Indonesia, Malaysia, Philippines, Thailand and Vietnam. Source: ADB Asian Development Outlook 2018 Update, September 2018 22

CNY Likely Allowed to Depreciate Further, Setting Off a Round of Depreciation of Asian Currencies CNY has Rebounded by +3.4% from Its Trough in Oct-18

ASEAN Currencies Weaker on Trade War Fears

Source: Bloomberg, Maybank KE

Source: Bloomberg, Maybank KE

25/02/2019

23

Trade Diversion - China’s Top Source of Imports (2016) for Selected Products Pork ($3.2bn)

Wine ($2.4bn)

Country

Share of imports

1

Germany

21%

2

Spain

3

Aluminium, waste or scrap ($2.2bn)

Country

Share of imports

Country

Share of imports

1

France

42%

1

United States

31%

16%

2

Australia

24%

2

Hong Kong

18%

United States

13%

3

Chile

11%

3

Malaysia

15%

4

Denmark

10%

4

Spain

6.7%

4

Australia

15%

5

Canada

10%

5

Italy

5.6%

5

United Kingdom

7.1%

6

Netherlands

7.4%

6

United States

2.5%

6

Netherlands

2.9%

Cars ($44bn)

Soybeans ($34bn)

Country

Share of imports

1

Germany

27%

2

United States

3

Planes, Helicopters, Spacecraft ($20.4bn)

Country

Share of imports

Country

Share of imports

1

Brazil

46%

1

United States

62%

27%

2

United States

41%

2

France

17%

Japan

17%

3

Argentina

9.5%

3

Germany

16%

4

United Kingdom

14%

4

Uruguay

2.0%

4

Brazil

1.8%

5

Slovakia

3.5%

5

Canada

1.8%

5

Canda

1.7%

Source: Observatory of Economic Complexity, Maybank KE 24

Trade Diversion to ASEAN? US Top Source of Imports for Selected Products in Tariffs on China Computers ($86.5bn) Country

Integrated Circuits ($30.3bn) Share of imports

Country

Semiconductor Devices ($13.6bn)

Share of imports

Country

Share of imports

1

China

60.0%

1

Malaysia

36%

1 China

23%

2

Mexico

21.0%

2

Ireland

8.6%

2 Malaysia

22%

3

Thailand

5.8%

3

China

7.7%

3 South Korea

11%

4

Vietnam

1.7%

4

Vietnam

7.4%

4 Mexico

8.8%

5

Malaysia

1.4%

5

South Korea

5.3%

5 Japan

8.0%

6

Japan

1.2%

6

Philippines

4.8%

6 Thailand

4.8%

7

Philippines

1.0%

7

Japan

4.5%

7 Vietnam

4.0%

8

South Korea

0.8%

8

Israel

2.7%

8 Singapore

3.3%

9

Singapore

0.7%

9

Canada

2.5%

9 Germany

2.7%

0.6%

10

Thailand

2.5%

10 Germany

10 Philippines

2.2%

Source: Observatory of Economic Complexity, Maybank KE

25

Trade Diversion to ASEAN? US Top Source of Imports for Selected Products in Tariffs on China Seats ($23bn) Country

Other Furniture ($21.8bn) Share of imports

Country

Rubber Tires ($13.1bn)

Share of imports

Country

Share of imports

1

China

42%

1

China

45%

1 China

14%

2

Mexico

31%

2

Vietnam

15%

2 Canada

12%

3

Canada

6.7%

3

Canada

12%

3 Korea

11%

4

Vietnam

5.1%

4

Mexico

5.0%

4 Thailand

11%

5

United Kingdom

2.6%

5

Malaysia

3.3%

5 Japan

9.2%

6

Italy

1.5%

6

Italy

3.3%

6 Indonesia

6.5%

7

Germany

1.1%

7

Indonesia

2.3%

7 Mexico

5.6%

8

Indonesia

1.0%

8

India

1.6%

8 Germany

3.0%

9

Japan

1.0%

9

Germany

1.3%

9 Chile

2.3%

0.9%

10

Poland

1.2%

10 Brazil

2.2%

10 France

Source: Observatory of Economic Complexity, Maybank KE

26

Trade Diversion to ASEAN? China’s Top Source of Imports for Selected Products in Tariffs List on US Petroleum Gas ($22.7bn) Country

Ethylene Polymers ($13.4bn)

Share of imports

Country

Coal Briquettes ($11.4bn)

Share of imports

Country

Share of imports

1

Turkmenistan

22%

1

Iran

15%

1 Australia

49%

2

Australia

15%

2

Saudi Arabia

13%

2 Indonesia

17%

3

Qatar

14%

3

South Korea

13%

3 North Korea

9.2%

4

Myanmar

11%

4

United Arab Emirates

9.5%

4 Mongolia

8.5%

5

United Arab Emirates

9.4%

5

Singapore

9.2%

5 Russia

7.2%

6

United States

5.2%

6

Thailand

8.5%

6 Canada

4.7%

7

Indonesia

3.9%

7

United States

5.0%

7 Philippines

2.6%

8

Malaysia

3.6%

8

Qatar

4.3%

8 United States

0.6%

9

Uzbekistan

2.7%

9

Japan

3.2%

9 New Zealand

0.3%

1.9%

10

Kuwait

2.3%

10 Kuwait

10 Vietnam

0.2%

Source: Observatory of Economic Complexity, Maybank KE

27

Almost a Fifth of US Firms in China Surveyed Plans to Relocate Manufacturing Facilities to ASEAN If you have relocated or are considering to relocate China-based manufacturing facilities to other countries because of the tariffs and/or concerns over the future of U.S.-China trade relations, where are you relocating to? (Check all that apply)

Relocating China-based Manufacturing by Industry Consumer products

Southeast Asia

33.3%

Other industrial

Southeast Asia

33.3%

Elsewhere

30.8%

Indian Subcontinent

27.3%

Technology & telecom hardware

Southeast Asia

26.7%

Automotive

Southeast Asia

25.0%

Chemicals

Southeast Asia

23.1%

Retail & distribution Aerospace

Note: Indian subcontinent refers to India, Bangladesh, Pakistan, Sri Lanka. Source: ‘Impact of US and Chinese Tariffs on American Companies in China’ survey by AmCham China & AmCham Shanghai

28

Examples of Firms that Have Plans to Relocate or Increase Production Facilities in ASEAN Company

Sector

Note

Beneficiary

Micron Technology Semiconductors

Announced plans in late Nov 2018 to set up a plant in Batu Kawan, Penang with an initial investment of RM1.5bn. Expected to break ground in first half of 2019

Malaysia

Dyson

Announced plans in Oct to build a plant for manufacturing electric cars in Singapore, which will be ready by 2020

Electronics

Singapore

Manufacturer of Apple’s Invested up to $213.5m in a subsidiary in India since September and acquired India/Vietnam iPhone land use rights (250,000sqm) in Vietnam. Manufacturer of Apple’s Announced that it has shifted parts of production for networking gear to Indonesia/ Pegatron Corp iPhone Indonesia, and also exploring bases in Vietnam and India Vietnam Manufacturer of earbuds Announced intention to shift production from China to Vietnam to evade GoerTek Vietnam for AirPods tariffs and political tensions Manufacturer of Thailand/ chargers and connectors Announced intentions to shift production to ASEAN countries such as Cheng Uei Vietnam/ Precision Industry for iPhones and Android Thailand, Vietnam and the Philippines due to the trade war Philippines smartphones Closed its US plant in early 2017 and switched to consignment production Panasonic Electronics Malaysia and exports from Malaysia Internet of Things Has two Chinese factories but plans to set up production lines in Kuala Kayamatics Malaysia devices Lumpur and Penang in Malaysia Supplies power Made a US$2.1bn offer in July to purchase a Thai affiliate in order to expand Delta Electronics Thailand components to Apple production Makes headphones for Merry Electronics Intends to move some of its production to Thailand from southern China Thailand firms like Bose Already produces in Thailand and the Philippines; has indicated growing Thailand/ New Kinpo Group Electronics interest in its services since trade war Philippines Hon Hai/Foxconn

Source: Compiled by Maybank KE

29

Examples of Firms that Have Plans to Relocate or Increase Production Facilities in ASEAN Company Harley Davidson

Sector Motorcycles

Note

Beneficiary

Shifted part of its processes to Thailand

Thailand

Man Wah Holdings Furniture maker

Purchased a sofa manuracturing and export firm in Vietnam for US$68mn

Vietnam

Phu Thai Corp

Planning a 30% increase in exports in 2018 and 2019, and will invest about $10mn to expand its production lines.

Vietnam

Hung Hing Printing Printing

Expanding to Hanoi, Vietnam with a new printing and packaging facility

Vietnam

Brooks Running Company

Sports shoe manufacturer

Announced in Oct 2018 that they are considering moving some operations to Vietnam

Vietnam

Steven Madden

Produces shoes and accessories

Announced that it has been shifting production of handbags to Cambodia from China, with 15% of its handbags sourced from Cambodia this year

Cambodia

H1 Corp

Bike parts maker

Announced to investors in Aug 2018 that productions are being moved to Vietnam due to the tariffs

Vietnam

Tapestry

Produces luxury goods

Boosted its production base in Vietnam, and reducing its production in China to less than 5%

Vietnam

Vera Bradley

Consumer goods maker Considering to shift manufacturing operations from China to Cambodia & (e.g. handbags & Vietnam luggage)

Furniture maker

Cambodia/ Vietnam

Source: Compiled by Maybank KE

30

Thailand – FDI into Manufacturing Cluster Firming and Expectations for Purchasing Orders Rising Net FDI in Manufacturing in 9M18 Already Double the Total Amount in 2017

Source: CEIC, Bank of Thailand, Maybank KE

25/02/2019

Purchasing Order Expectations for the Next 3 Months Remain High

Source: CEIC, Federation of Thai Industries, Maybank KE

31

FDI into Manufacturing in Vietnam, Malaysia and Philippines Recovering; FDI Skipping Indonesia

Source: CEIC, Maybank KE

32

A “Tech War”: USTR Accuses China of Violating US Intellectual Property Findings

Details

A) China's Unfair Technology Transfer Regime Foreign ownership restrictions (JV requirements and foreign equity limitations ) Administrative licensing and review processes

New energy vehicle sector: US firms cannot enter China unless they partner in a JV with foreign ownership capped at 50% Aviation sector: China pressures JVs and technology transfer in exchange for sales of aircraft & aircraft components to Chinese SOEs that dominate the market Often unclear language in Chinese licensing and business registration forms

Require the discolosure of sensitive technical information in exchange for necessary administrative approvals B) China's Discriminatory Licensing Restrictions Foreign licensing restrictions

Legal framework mandates that all indemnity risks be borne by the foreign technology transferor, and all rights in technology improvements belong to the party making the improvements

C) China's Outbound Investment Regime "Made in China 2025" programme

Includes policies that encourage outbound investment to support the development of strategic industries (IT, integrated circuits, AI)

Impact on Chinese investment in China's active investment in US technology centers such as Silicon Valley, which are directed at the US obtaining access to cutting-edge technology and recruiting talent in to China China unfairly targets US technology with the target of achieving dominance in strategic sectors China's "unreasonable" outbound investment regime

Non-reciprocal treatment of US firms/investments in Chna - US faces restrictive requirements and barriers while Chinese firms invest in the US easily Enables Chinese firms to see higher market share in these industries at the expense of US firms; undermine US firms' ability to sustain innovation; distort pricing in IP-intensive sectors

D) China's Theft of Intellectual Property and Sensitive Commercial Information Unauthorized intrusions into US Evidence that Chinese state-sponsored cyber operators support Beijing's strategic development goals commercial computer networks such as S&T advancement, military modernization, and economic development and cyber theft of IP Source: United States Trade Representative, Maybank KE

33

US-China “Cold War”: US Foreign Investment Risk Provisions Under National Defence Authoritization Act Item

CFIUS scope of power

CFIUS extended formal timeline for review

CFIUS clarification for investment funds Export controls

Countering Chinese influence

Weaker stance on ZTE

Details

Implementation Timeline

CFIUS' jurisdiction expanded to any nonpassive foreign investment in US business that deal with "critical technology", "critical infrastructure" or Up to 18 months personal data of US citizens CFIUS will also review real estate transactions (including leases, sales and Rulemaking concessions) involving air or maritime ports or areas close to sensitive US required government facilities Gives CFIUS authority to initiate its own investigations, rather than waiting for a buyer to seek approval Committee's review period extended from 30 to 45 days, and authorizes CFIUS Immediate effect to extend further by 15 days "in extraordinary circumstances" Indirect investments by foreign persons through investment funds will not be subject to CFIUS' jurisdiction on the condition that the foreign person is a limited partner and the fund is "managed exclusively" by US persons

Up to 18 months

Revamp export controls to govern the types of US technologies that are sent overseas Requires annual report on China to gather information on Chinese government efforts to influence US "media, cultural institutions, business, and academic & Up to 18 months policy communities" Limits funds by the Department of Defense for Chinese language programmes at US universities that host Confucius Institutes Bolster defense ties with India and Taiwan Senate had voted in June to reinstate the initial Commerce penalty on ZTE (banning US firms from selling to ZTE), but the bill was watered down to allow ZTE to buy US parts and sell to US consumers (but not to US government)

Source: Various sources, compiled by Maybank KE 34

Wild Card in 2019: #2 Big Tech Backlash Intensifies Events

Details The EU slapped Google with a record US$5bn antitrust fine in July 2018 for abuse of its Android dominance by requiring handset manufacturers to install its Google Search and Chrome apps.

EU regulations on tech firms

The EU is planning to impose a “link tax” on Google. This would grant publishers copyright over content shared online via Facebook, YouTube and sites that aggregate articles such as Google News. Google would have to compensate publishers if the legislation is passed, and has warned it may have to shut down Google News in EU countries. The EU launched a probe of Amazon's business model in Sep 2018, investigating its dual role as competitor and host to third-party merchants that sell via its websites. The probe was launched even before a complaint was filed. Facebook may face a fine of up to $1.6bn for breaching the General Data Protection Regulation (GDPR) in the EU, after discovering a security bug that allowed hackers to access information to around 50 million accounts. The Irish Data Protection Commission is looking into whether to open a formal investigation following the discovery in Sep 2018. In Oct 2018, the US banned exports to Chinese semiconductor firm Fujian Jinhua, citing "significant risks" that the Chinese firm's new memory chip capacity will threaten US' national interests. The US Department of Justice also issued indictments against Fujian Jinhua and Taiwan-based United Microelectronics for stealing the trade secrets of Micron.

Starting 10 Nov, the US Committee on Foreign Investment (CFIUS) subjected foreign investment (including noncontrolling ones) in 27 industries - mainly tech such as semiconductors, telecommunications, missile technology, aircraft and batteries - to stricter reviews and vetting. The Trump administration is looking to impose stricter export-control rules on high-tech items, publishing a list of new US-China digital technologies that includes artificial intelligence and robotics for public comment in Nov 2018. cold war China's ZTE Corp, a telecommunications equipment maker, was slapped with a 7-year components ban by the US earlier this year. It was allowed to resume purchases of US products after a revised settlement of a $1bn fine. USTR's latest report published on 20 Nov accused China of: 1) Increasing frequency of Chinese cyber-enabled theft of IP and sensitive commercial information 2) Unfair technology transfer regime for US firms in China 3) Using outbound investment to obtain cutting-edge technologies and IP and generate large-scale technology transfers Source: Compiled by Maybank KE 35

China’s Investment to US Collapsing, While Investment to ASEAN Sliding on Belt & Road Backlash China’s Investment to US vs. ASEAN

Source: China Global Investment Tracker, Maybank KE

25/02/2019

ASEAN May Benefit from the Diversion in Investment

Source: China Global Investment Tracker, Maybank KE

36

Restricting Services Trade – Curbs on Chinese Researchers/Students/Travel May Reduce US Surplus Largest US Services Trade Surplus is with China

Rising Service Trade Surplus with China

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

37

Diversion in Tourism – Chinese Visitor Arrivals Rising in ASEAN But Falling in US

Top Ten Destinations for Chinese Tourists – US Ranks Seventh

Chinese Tourists in US Declining Since 4Q17, But Rising Strongly in ASEAN in 5M2018

Visitor Arrivals from China Country

Person th (2018)

CAGR (2011 to 2018)

Hong Kong

51,038

+8.9

Thailand

10,536

+30

Japan

8,380

+35

Vietnam

4,966

+20

South Korea

4,790

+12

*Singapore

3,228

+13

*United States

3,174

+20

Taiwan

2,696

+6.1

*Malaysia

2,282

+11

*Indonesia

2,093

+24

Philippines

1,255

+26

*Refers to 2017 numbers, and CAGR between 2011 and 2017. Source: CEIC, Maybank KE

25/02/2019

Source: CEIC, Maybank KE

38

China Tourism Boom: Losing Altitude

ASEAN’s China Visitor Arrivals Slumping in Late 2018

China Visitor Arrivals Across ASEAN (%YoY) Thailand Vietnam Singapore Cambodia 2016

+10.3

+51.4

+36.0

+19.5

+37.7

+26.7

2017

+12.0

+48.6

+12.7

+45.9

+43.3

+7.4

1Q18

+30.2

+42.9

+9.7

+85.3

+54.5

+40.3

2Q18

+21.3

+29.2

+13.6

+65.7

+27.5

+31.3

3Q18

-8.8

+18.3

+5.0

+63.5

+23.1

+31.2

4Q18

-10.5

+7.9

Oct-18

-19.8

+20.0

+0.8

+73.4

-3.0

Nov-18

-14.6

+9.0

-12.4

+53.4

+23.0

Dec-18

+2.8

-2.0

Jan-19 Note: Data up to Nov-18. Malaysia excluded as latest data available is Sep-18. Source: CEIC, Maybank KE

25/02/2019

Philippi Malaysia nes

+14.2

+25.1

-10.7

Source: CEIC, Maybank KE

39

Number of Chinese Students Heading to US Slowing and Stay Rate for Graduates Falling

Growth of Chinese College and University Students in US Slowing

Stay Rate of Chinese Temporary Visa Holders with Doctorates Declining Since 2013

Source: Open Doors, Statista, Maybank KE

Source: National Science Foundation Survey of Earned Doctorates, Maybank KE

25/02/2019

40

Australia and Japan Seeing Surge in Chinese Students

Australia Seeing Double-Digit Growth in Chinese Students

Chinese Students in Japan Grew by +9% in 2017, Following Declines in 2014/15

Source: Hurun Research Institute, Statista, Maybank KE

Source: Japan Student Services Organization, Maybank KE

25/02/2019

41

Trade War is Deflationary for Third Countries – Inflation Contained Except for the Philippines Headline CPI, %YoY

May-18

Jun-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Jan-19

Indonesia

3.2

3.1

3.2

3.2

2.9

3.2

3.2

3.1

+2.8

Malaysia

1.8

0.8

0.9

0.2

0.3

0.6

0.2

0.2

^Philippines

4.6

5.2

5.7

6.4

6.7

6.7

6.0

5.1

Singapore

0.4

0.6

0.6

0.7

0.7

0.7

0.3

0.5

Thailand

1.5

1.4

1.5

1.6

1.3

1.2

0.9

0.4

+0.3

Vietnam

3.9

4.7

4.5

4.0

4.0

3.9

3.5

3.0

+2.6

Korea

1.5

1.5

1.1

1.4

2.1

2.0

2.0

1.3

+0.8

China

1.8

1.9

2.1

2.3

2.5

2.5

2.2

1.9

India

4.9

4.9

4.2

3.7

3.7

3.4

2.3

2.2

*Hong Kong

2.1

2.4

2.4

2.3

2.7

2.7

2.6

2.5

Taiwan

1.8

1.4

1.8

1.5

1.7

1.2

0.3

0.0

+4.4

^Philippines rebased its CPI numbers to 2012=100 starting Mar 2018. *Hong Kong numbers refer to Composite CPI. Source: CEIC, Maybank KE 42

Fed Rate Hikes & “Twin Deficits”

25/02/2019

A Possible Fed “Pause” in Late 2019 Would be Bullish for Twin Deficit Countries (Indo & Phil)

FOMC Dot Plot in Sep Meeting (2 in 2019, 1 in 2020) vs. Maybank View (2 in 2019, 0 in 2020)

Current Account Deficit Widening in Indonesia and the Philippines

Source: Bloomberg, Maybank KE estimates

Source: CEIC, Maybank KE

25/02/2019

44

“Twin Deficits” Philippines & Indonesia Under Pressure But Recovered on Fed “Pause” Hopes

More Discriminating Currency Sell-off– PHP & IDR Weaker; SGD & THB Resilient

“Tantrums” Yet Again for Indo & Phil

Source: Bloomberg, Maybank KE

Source: Bloomberg, Maybank KE

25/02/2019

45

“Inverted” US Yield Curves Often Accurate Predictor of Recessions: Next Recession 2020?

Note: Last datapoint is as of 6 Feb 2019. Source: Bloomberg, Maybank KE 46

Policy Rate Forecast – Smaller Rate Hikes in 2019 (Indo +50bps, Thai +25bps)

Policy Rate (%) 2016

2017

2018

2019F

2020F

Indonesia

4.75

4.25

6.00

6.50

6.50

Malaysia

3.00

3.00

3.25

3.25

3.25

Philippines

3.00

3.00

4.75

4.75

4.00

Singapore

0.97

1.50

1.89

2.20

2.20

Thailand

1.50

1.50

1.75

2.00

2.00

Vietnam

6.50

6.25

6.25

6.25

6.25

*BSP used new policy interest rate in Jun-16. Source: CEIC, Maybank KE

47

Foreigners Turn Positive on ASEAN Equities in 2019, Still Negative on Bonds (Except Indonesia) Net Foreign Investment Flows in Equities (USD mn) 2012

2013

2014

2015

2016

2017

2018

YTD2019

Indonesia Malaysia

1,712 4,432

-1,806 1,136

3,766 -2,011

-1,580 -5,068

1,259 -637

-2,960 2,455

-3,656 -2,885

1,013 261

Philippines

2,548

678

1,256

-1,194

83

1,095

-1,080

425

Thailand Vietnam India

2,504 160 24,548

-6,211 263 19,754

-1,091 135 16,162

-4,372 95 3,274

2,240 -345 2,903

-796 1,163 8,014

-8,913 1,887 -4,557

263 65 222

Net Foreign Investment Flows in Bonds (USD mn) 2012

2013

2014

2015

2016

2017

2018

YTD2019

Indonesia Malaysia

4,852 8,796

4,583 2,475

10,633 2,564

7,621 4,597

7,653 1,851

12,062 -621

3,463 -4,539

1,838

Philippines

-285

1,218

-372

1,553

812

440

4,620*

29,281 6,862

14,078 -8,489

6,492 26,252

-644 7,560

9,455 -6,459

10,621 22,970

8,855 -6,745

Thailand India

-136 -672

Note: Numbers last updated on 7 Feb 2019. *Philippines data is as of end September. Source: Bloomberg, Maybank KE

48

Singapore: Bear Markets & Recessions – Current Economic Cycle Singapore’s GDP and STI Index Trend Closely

STI Trending Down in Second Half of 2018 as Growth Slows

Source: Bloomberg, CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

49

STI vs. GDP Growth in Past Recessions

Source: CEIC, Maybank KE 50

The Revenge of “Original Sin” – Rise of Foreign Currency Borrowings in Indonesia & Philippines

Indo and Phil Have Seen an Increase in “Original Sin”; No Rise in Thai, Mal or India

Indonesia – “Original Sin” Index Climbing Since 2014

Source: Bloomberg, Maybank KE estimates

Source: Bloomberg, Maybank KE estimates

25/02/2019

51

“Original Sin” Index - No Meaningful Increase in Thailand, Malaysia and India

Source: Bloomberg, Maybank KE estimates

52

Thailand and Indonesia Have Shown Strongest Improvement Since the 2013 Taper Tantrums

Divergent Current Accounts – Ballooning Surplus in Thai, Deteriorating in Phil & Indo

Indo’s Foreign Reserves Recovered to US$120bn in Feb-19 from Low of $115bn in Sep-18

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

53

Foreign Ownership of Malaysia Fell Sharply After Ban on Trading of Non-Deliverable Forwards (NDFs)

Foreign Ownership of Outstanding Government Bonds Still High in Malaysia & Indonesia

FX Reserves Cover to Imports & Short-Term External Debt in GFC, Tantrums and Current Short-term External Debt Cover

Import Cover

Taper Taper GFC – GFC tantrum - Current tantrum Current 2009 2009 2Q13 - 2Q13

Source: CEIC, Maybank KE

25/02/2019

Indonesia

8.2

6.2

7.7

2.7

2.2

2.4

Malaysia

9.4

8.1

5.6

2.0

1.4

1.0

Philippines

12.3

16.0

8.3

11.1

5.3

5.6

Singapore

9.2

8.4

9.3

0.3

0.3

0.3*

Thailand

12.4

8.0

9.9

4.2

2.7

3.1

Vietnam

2.7

2.4

3.1

0.5

0.4

0.4

India

12.1

6.2

8.7

1.0

0.6

0.7

Note: Short term external debt series for Philippines was revised starting from 2013. *Ratio for Singapore may not be meaningful given its role as an international financial center. Source: CEIC, Maybank Kim Eng estimates

54

Indonesia - Current Deficit and Trade Deficit Worsening Current Account Deficit Widened to 3.6% of GDP in 4Q18

Trade Deficit Widened to a Historical High (2% of GDP) in 4Q18

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

55

Indonesia - Fuel Subsidies and Rising Oil Prices is Widening the Trade Deficit Subsidized Diesel and Gasoline Prices Unchanged Despite Rising Global Oil Prices

Oil & Gas Trade Deficit Widening as Imports Outpace Exports

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

56

Indonesia - Booming E-Commerce Sector May Also be Widening the Trade Deficit Imports of Consumer Goods Continue to Accelerate at Double-Digit Pace

Retail Sales Index Rose by +3.7% in 2018, Slower than Imports of Consumer Goods

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

57

Indonesia: Popular Online Items Such as Clothing, Footwear and Cosmetics Surging by Double-Digits

Footwear

^Photographic Apparatus, Equipments & Optics

Furniture

Traveling Goods

USD mn

USD mn

USD mn

USD mn

USD mn

1,439

702

435

379

394

203

2014

1,383

667

408

346

367

162

2015

1,275

582

418

330

347

149

2016

1,342

567

489

341

345

210

2017

1,404

738

611

467

443

322

8M18

1,155

665

486

366

354

268

%YoY

%YoY

%YoY

%YoY

%YoY

%YoY

2013

+20.5

+14.0

+12.4

+3.5

+0.8

+12.2

2014

-3.9

-5.0

-6.1

-8.7

-6.9

-20.1

2015

-7.8

-12.8

2.4

-4.8

-5.2

-8.3

2016

+5.3

-2.6

+17.0

+3.3

-0.8

+41.2

2017

+4.6

+30.1

+24.8

+37.0

+28.4

+53.5

11M18

+23.6

+36.2

+23.2

+20.4

+26.9

+32.2

*Essential Oils and Perfumery Materials

Clothing

USD mn 2013

*Includes essential oils, perfumery, cosmetics, toilet preparations and soap. ^Includes cameras, photographic equipment, optical goods, watches & clocks, etc. Source: CEIC, Maybank KE 58

Balance Sheet & Leverage Ratios in ASEAN-5 (Asian Crisis, Global Financial Crisis & Current)

Indonesia

Malaysia

Philippines

Singapore

Thailand

As % of GDP 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest 72.5*

34.1

28.8

31.4

41.0

51.8

52.4

66.9

43.5

69.1

89.3

114

40.5^

37.4

41.7

Govt debt – Foreign 26.3

14.4

11.3

3.1

2.9

1.5

23.3

30.8

16.3

-

-

-

8.8

3.0

0.9

External Debt

56.1

32.7

34.5

43.6

28.8

66.1

44.2

36.9

22.4

-

508

446

-

26.4

31.4

Household Debt

-

10.9

16.3

-

63.6

84.2

-

2.0

9.5

68.0

63.5

70.8

-

51.7

77.5

Domestic Credit

-

39.4

38.8

156

113

137

-

53.5

65.5

66.6

71.3

137

-

104.5

120

26.2

15.5

15.0

35.3

56.9

51.1

21.0

20.7

11.6

241

139

147

42.9

19.5

33.9

Corporate Debt

-

14.7

21.9

-

58.2

68.4

-

36.8

42.9

-

103

117

99.8

46.4

47.5

Current Account

-2.7

2.4

-2.7

-6.5

15.4

2.6

-3.5

5.4

-3.0

16.3

26

18.5

-6.2

5.5

7.6

Public Debt

Foreign Bank Claims

Note: *Indonesia public/govt debt as at end 1997. **Indonesia foreign govt debt as at end 1996. ^ Thailand public debt as of 3Q97. Malaysia household debt figures as at end of respective year. Indonesia and Philippines household debt estimated using outstanding consumer loans. Thailand household debt includes loans from commercial and state banks, credit card companies, saving corporations and other non-bank institutions. International claims as of 2Q18 and corporate debt as of 1Q18. Source: BIS, CEIC, World Bank, Maybank KE estimates 59

Balance Sheet & Leverage Ratios in Rest of AxJ (Asian Crisis, Global Financial Crisis & Current)

China

Hong Kong

India

Korea

Taiwan

As % of GDP 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest 2Q97 4Q07 Latest Public Debt

20.9

29.3

46.3

-

1.2

0.1

66.3^

71.4

67.4

8.0

27.7

38.2

24.9

32.1

36.2

Govt debt – Foreign

0.4

1.0

0.2

-

-

-

10.9^

4.4

2.8

1.1

1.1

0.4

0.0

0.0

0.0

External Debt

13.7

11.1

14.0

-

343

459

23.7

17.7

20.1

29.8

31.8

27.3

-

23.1

31.8

Household Debt

0.2

19.3

51.3

48.3

50.5

71.0

2.2

9.7

10.2

56.0

76.2

100

52.0

82.7 87.1**

Domestic Credit

96.1

130

218

165

123

245

-

73.0

79.2

-

141

165

160

156

186

6.5

7.8

9.6

209

177

280

7.0

17.0

10.7

19.4

33.4

19.5

12.3

25.8

39.2

Corporate Debt

102

96.8

164

130

132

235

-

-

-

102

88.6

99.1

48.3

51.5

61.5

Current Account

4.9*

8.8

0.4

3.4*

11.5

3.5

-1.4

-1.0

-2.3

-1.9

1.9

4.6

1.5

11.1

12.8

Foreign Bank Claims

Note: *China and Hong Kong CA balance as at 1Q98. **Taiwan household debt as of 4Q16. ^ India debt data as of 1Q97. All international claims and corporate debt as of 4Q17. Taiwan’s household debt includes non-profit institutions serving households. Source: BIS, CEIC, World Bank, Maybank KE estimates

60

Country Slides

25/02/2019

Vietnam – Rising Export Powerhouse and FDI Destination, Beneficiary from “Diversion” Exports of Goods Recorded USD244bn in 2018, Nearly Equal to the Country’s GDP

Largest Foreign Investors Include Japan, South Korea and Singapore

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

62

Singapore – Manufacturing & Trade-Related Services Weakening, Expect Supportive Budget 2019 (Feb) Singapore’s Growth Slowed to +2.2% in 4Q as Services Lost Momentum

Net Employment Outlook for 1Q19 Dips After 3 Quarters of Upbeat Expectations

Source: CEIC, Maybank KE

Source: CEIC, Manpower Group, Maybank KE

25/02/2019

63

Thailand – Private Consumption Robust as Retail Sales Accelerate, But Visitor Arrivals Slowing Retail Sales Surging, Boosted by Auto Sales and Online Sales

Chinese Tourists Declining Following Phuket Boat Accident in July 2018

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

64

Thai Elections: Nomination of Princess as PM for Thai Raksa Dramatically Changes the Political Equation Prayut First Choice for PM in Latest Jan Poll

Name

Party

Pheu Thai Party the Top Choice, But Thai Raksa Chart May be Boosted by Royal PM Candidate

Share

Gen Prayut Chan-o- Palang Pracharath Party’s 26.2% cha PM candidate Pheu Thai (Chief, election 2 Khunying Sudarat 22.4% strategy committee) 1

3 Abhisit Vejjajiva 4 5 6 7 8

Thanathorn Juangroongruangkit Gen Sereepisuth Temiyavej Chadchart Sittipunt Chuan Leekpai Pol Lt Gen Viroj Pao-in

Democrat (Leader)

11.6%

Future Forward (Leader)

9.6%

Seri Ruam Thai (Leader)

7.3%

Pheu Thai Democrat (Former PM)

7.3% 3.3%

Pheu Thai (Leader)

2.3%

9 Anuthin Chanvirakul Bhumjaithai Party leader

1.2%

Deputy Prime 10 Minister Wissanu Krea-ngam

0.7%

-

Source: National Institute for Development Administration (Nida) poll (2-15 Jan), Bangkok Post, Maybank KE 25/02/2019

65

Malaysia – Fiscal Deficit to Narrow from 3.7% of GDP in 2018 to 3.4% of GDP, But Oil Support May Wane Malaysia’s Oil Trade Surplus Diminishing in Oct/Nov as Oil Prices Fall

Return of Dependence on Oil Prices with MYR30bn Special Dividend from PETRONAS

Source: CEIC, Bloomberg, Maybank KE

* Excluding MYR30bn special dividend Source: MOF Budget 2019, Maybank KE

25/02/2019

66

Philippines – Widening Current Account Deficit & Falling FDI May Pressure Peso, Even as Inflation Cools PHP Depreciation Seen During Periods of Current Account Deficit (’00 - ‘03)

Philippines FDI Approvals Remain Weak, But Net FDI Improving

Source: CEIC, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

67

Philippines – Dampening Consumer Sentiments Amid Weaker OFW Remittances Consumer Expectation Survey Point to Deteriorating Sentiments

OFW Remittances Slumped to +3.1% in 11M18 as Remittances from Middle East Plunged

Source: CEIC, BSP, Maybank KE

Source: CEIC, Maybank KE

25/02/2019

68

Indonesia: Polls Suggest Jokowi Leading in All Regions; PDIP & Golkar Ahead of Gerindra & Demokrat

Survei Network’s Latest Polls (14-22 Sep) Shows Widodo Leading in All Regions Region

Base*

Widodo- PrabowoDon't Ma’ruf Sandiaga Know/ Amin Uno Undecided

Jawa

57

53

26

22

Sumatra

21

45

44

11

Kalimantan

6

61

30

9

Sulawesi

8

59

27

14

Maluku & Papua

4

76

12

12

Bali & Nusa Tenggara

5

Total

100

50 53

35 30

15 17

Note: Region’s respondents as % of nationwide respondents. Source: Survei Network, Reformasi, Maybank KE 25/02/2019

Indikator Politik Survey: Party Preference Party

%

PDI-P

23

Golkar

11

Gerindra

11

Demokrat

7

PKB

6

PKS

4

PPP

4

Nasdem

3

Perindo

3

Pan

2

Hanura

1

PBB

0

PKPI

0

PSI

0

Don’t know

25

Note: Parties in red font represent nominating parties for JokowiAmin, parties in blue for Prabowo-Uno. Source: Indikator Politik, Reformasi, Maybank KE

69

MSCI Country Valuation for Asia ex-Japan Countries

PE (x)

EPS growth YoY (%)

PB (x)

DY (%)

2018

2019F

2020F

2018

2019F

2020F

2018

2019F

2020F

2018

2019F

2020F

India

22.1

18.5

15.5

6

20

19

2.9

2.7

2.4

1.4

1.6

1.8

Philippines

17.8

15.9

14.0

13

12

13

2.2

2

1.8

1.5

1.6

1.7

Indonesia

17.4

15.7

14.2

11

11

11

2.8

2.5

2.3

2.4

2.7

3.0

Malaysia

17

16.3

15.2

5

4

7

1.6

1.5

1.5

3.3

3.3

3.5

Hong Kong

16.3

15.0

13.8

1

8

9

1.3

1.2

1.1

3.0

3.2

3.5

Thailand

15.2

14.9

13.8

4

2

8

2

1.8

1.7

2.9

3.0

3.2

Taiwan

13.5

14.0

12.6

-2

-3

12

1.7

1.6

1.5

4.4

4.5

4.9

Asia ex-Japan

13.2

12.6

11.2

4

5

13

1.5

1.4

1.3

2.7

2.9

3.1

China

12.8

11.4

10.0

7

13

14

1.6

1.5

1.3

2.3

2.5

2.8

Singapore

12.5

12.0

11.2

14

4

7

1.2

1.2

1.1

4.5

4.5

4.8

Korea

9.1

10.0

8.9

-1

-9

13

1.0

0.9

0.8

2.4

2.5

2.7

Source: MSCI, Factset, Bloomberg, Maybank KE

70

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

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25/02/2019

71

Darkest Just Before The Dawn MARKET OUTLOOK: MALAYSIA

Analyst Nik Ihsan Raja Abdullah | Chartist | [email protected] MALAYSIA RESEARCH TEAM

President, Malaysian Association of Technical Analysts (MATA) Board of Directors, International Federation of Technical Analysts (IFTA) Full Members, United Kingdom Society of Technical Analysts (UK STA)

Summary • Global growth to ease on tighter monetary and financing conditions, plus the fallout from the US-China • Malaysian economy is going through adjustments post-GE14. • KLCI – 2019 is expected to be another volatile year, we retain our defensive core equity strategy.

Global Composite PMI is easing Global Real GDP (% YoY) vs Global Composite PMI (Index)

Global GDP (% YoY, RHS)

Source: Bloomberg, MKE Economics Research

Global Composite PMI

Oct-Nov 2018

2.9 3Q 2018

51.0 2Q 2018

3.1

1Q 2018

51.5

4Q 2017

3.3

3Q 2017

52.0

2Q 2017

3.5

1Q 2017

52.5

4Q 2016

3.7

3Q 2016

53.0

2Q 2016

3.9

1Q 2016

53.5

4Q 2015

4.1

3Q 2015

54.0

2Q 2015

4.3

1Q 2015

54.5

Tighter monetary and financing Global Central Banks’ Monetary Policy Bias 15 "Tightening" Bias 10

5

0

(5) "Easing" Bias (10)

(15)

(20)

Source: Bloomberg, CEIC, MKE Economics Research

Sep-18

Feb-18

Jul-17

Dec-16

May-16

Oct-15

Mar-15

Aug-14

Jan-14

Jun-13

Nov-12

Apr-12

Sep-11

Feb-11

Jul-10

Dec-09

May-09

Oct-08

Mar-08

Aug-07

Jan-07

(25)

Source: BIS (latest data up to 1Q 2018) Advanced Economies EM Economies

4Q 2017

2Q 2017

4Q 2016

2Q 2016

4Q 2015

2Q 2015

4Q 2014

2Q 2014

4Q 2013

2Q 2013

4Q 2012

2Q 2012

4Q 2011

2Q 2011

4Q 2010

2Q 2010

4Q 2009

2Q 2009

4Q 2008

2Q 2008

4Q 2007

2Q 2007

4Q 2006

2Q 2006

4Q 2005

2Q 2005

4Q 2004

2Q 2004

4Q 2003

2Q 2003

4Q 2002

2Q 2002

4Q 2001

Post-GFC: Build-up of global leverage Global Debt-to-GDP Ratio (%)

300

280

260

240

220

200

180

160

140

120

100

Debt refinancing will be on the rise Emerging Markets High Yield Corporate Debt Maturities (USDb)

140 120 100

80 60

40 20 0

2018 Brazil

2019 2020 2021 China Turkey

Source: Bloomberg

2022 2023 2024 2025 2026 2027 2028 Russia Argentina S. Africa Other

Rising financial market & currency volatility S&P500 Cyclically-Adjusted PE Ratio, US 10-Year Treasury Yield 50

18

45

16

40

14

35

12

30

10

25 8

20

6

15

4

10

S&P500 Cyclically-Adjusted PE Ratio (x) Source: Bloomberg, http://www.econ.yale.edu/~shiller/data.htm

US Treasury 10-Year Yield (% p.a., RHS)

Jan-18

Jan-11

Jan-04

Jan-97

Jan-90

Jan-83

Jan-76

Jan-69

Jan-62

Jan-55

Jan-48

Jan-41

0 Jan-34

0 Jan-27

2

Jan-20

5

Dow Jones Industrial Average Weekly Candlestick

Fallout from trade war Global Trade Volume Index vs Global Composite PMI for New Exports Orders

Global Merchandise Trade Volume Index (% YoY)

Source: Bloomberg, CEIC

Nov-18

Sep-18

Jul-18

May-18

Mar-18

Jan-18

Nov-17

48 Sep-17

(1) Jul-17

49

May-17

0

Mar-17

50

Jan-17

1

Nov-16

51

Sep-16

2

Jul-16

52

May-16

3

Mar-16

53

Jan-16

4

Nov-15

54

Sep-15

5

Jul-15

55

May-15

6

Mar-15

56

Jan-15

7

Global Manufacturing PMI - New Export Orders (RHS)

Trade war impact

Change in 2019 Real GDP Growth (ppt) WORLD

(0.1)

Tariffs already implemented

• US tariffs on imported washing machines, solar panel components, steel, aluminum & retaliatory tariffs by key trading partners (EU, Canada, Mexico, China) • “Tit-for-Tat” tariffs between US & China involving USD250b China products and USD110b US products

US

(0.2)

China

(0.6)

Eurozone

0.0

Japan

0.0

India

0.1

Korea

(0.1)

Malaysia

0.1

Thailand

0.2

Indonesia

0.1

Philippines

0.2 (0.6) (0.5) (0.4) (0.3) (0.2) (0.1) Source: IMF World Economic Outlook (Oct 2018)

0.0

0.1

0.2

0.3

Trade war impact Tariffs already implemented

• US tariffs on imported washing machines, solar panel components, steel, aluminum & retaliatory tariffs by key trading partners (EU, Canada, Mexico, China) • “Tit-for-Tat” tariffs between US & China involving USD250b China products and USD110b US products

Change in 2019 Real GDP Growth (ppt) WORLD

(0.8)

US

(0.9)

China

(1.4)

Eurozone

(0.3)

Potential tariffs to be implemented

Market sentiment; investors, business & consumer confidence

Japan

(0.5)

• Hike in US tariff on USD200b imports from China to 25% in Mar 2019 from 10% in Sep 2018 • US tariffs on additional USD267b imports from China • US tariffs of 25% on all imported autos & auto parts; retaliation by affected trading partners

India

(0.6)

Korea

(0.9)

(0.2)

Malaysia

(0.2)

Thailand

Indonesia

(0.8)

• Economic & earnings growth outlook • Business capex; consumer spending

Source: IMF World Economic Outlook (Oct 2018)

Philippines

(0.4) (1.6)

(1.4)

(1.2)

(1.0)

(0.8)

(0.6)

(0.4)

(0.2)

0.0

Risk of oil glut? 40

2.0

MKE’s 2019 target: USD65/bbl

30 20

1.5 1.0

10

0.5

0

0.0

World Crude Oil Supply-Demand Balance (mbpd)

% Chg in Avg Crude Oil Price (Brent, USD/bbl, LHS)

2018YTD

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

(2.5) 2004

(50) 2003

(2.0)

2002

(40)

2001

(1.5)

2000

(30)

1999

(1.0)

1998

(20)

1997

(0.5)

1996

(10)

Brent Crude Oil Weekly Candlestick Chart

Political and socio-economic uncertainties in Europe

Downside to China’s previously debt-driven growth 120

25

100 80

20

60 40

15

20 0

10

(20)

(40)

5 2006

2007

2008

2009

2010

2011

Total Amount of Social Financing

2012

2013

2014

2015

2016

2017

Real GDP Growth (RHS)

2018 YTD

Hang Seng Index Weekly Chart

Malaysia – A year of transition Real GDP sub 5% Domestic demand is slowing down

Diminishing net external demand

Source: Various (including Budget 2019 Speech & MoF Economic Report 2018/2019)

Deceleration in net external demand growth Moderation in global economic and trade growth

Factors affecting external trade growth

Subdued outlook on the prices of key export commodities

Federal Government’s Oil-Related Revenues 90

45 39.7

80

36.8

40.3

37.0

35.4

35.8 33.7

70 60

Include MYR30b PETRONAS special dividend 31.2

29.1

40

30.9*

30.0

35 30

50

25

21.7

20.9

40

20 14.6

30

15.7

19.5**

15

64.0

56.4

66.3

70.1

66.6

66.1

45.8

31.0

34.6

51.2

81.0

2010

2011

2012

2013

2014

2015

2016

2017

2018E

2019E

63.4 2008

2009

51.7 2007

0

45.5

5

2006

10

31.0

10

2005

20

MYRb (LHS) * Include MYR30b PETRONAS Special Dividend ** Exclude MYR30b PETRONAS Special Dividend Source: Ministry of Finance, Budget 2019

% of Total Revenues

0

Malaysia - Long-Term Foreign Currency Debt Rating Date 07-Dec-18 11-Jan-16 20-Nov-13 24-May-06 16-Dec-04 29-Sep-04 25-Sep-02 24-Jun-02 17-Oct-00 12-Jul-00 03-Dec-98 14-Sep-98 23-Jul-98 04-Jun-98 21-Dec-97 15-Mar-95 20-Jan-95 15-Mar-93 12-Mar-90 18-Nov-86

Moody's Ratings A3 A3 A3 A3 A3 Baa1 Baa1 Baa2 Baa2 Baa3 Baa3 Baa3 Baa2 A2 A2 A1 A2 A2 A3 Baa1

Outlook Stable Stable Positive Stable Stable Positive Stable Positive Stable Positive Stable Negative Stable Negative Stable Stable Positive

Date

Standard & Poor's Ratings Outlook

27-Jul-15 24-Jul-11 15-May-08 31-Jul-07 08-Oct-03 20-Aug-02 04-Mar-02 04-Apr-01 01-Sep-00 10-Nov-99 15-Sep-98 24-Jul-98 17-Apr-98 23-Dec-97 29-Dec-94 13-Sep-90

Sources: International Rating Agencies, Bloomberg

AAAAABBB+ BBB BBB BBB BBB BBBBBB+ AA A+ A-

Stable Stable Stable Positive Stable Stable Positive Stable Positive Stable Negative Negative Stable Stable Stable Stable

Date

Fitch Ratings

Outlook

30-Jun-15 30-Jul-13 10-Nov-08 20-Nov-06 08-Nov-04 07-Aug-02 07-Dec-99 09-Sep-99 26-Apr-99 09-Sep-98 13-Aug-98

AAAAABBB+ BBB BBBBBBBB BBB-

Stable Negative Stable Positive Stable Stable Positive Positive Neutral Negative Neutral

Malaysian equities: Yearly and cumulative foreign net buy/ (sell) (MYR b) 40 33.8

31.4 30

20

26.9

15.9

15.9

17.7 14.7

13.7

10

10.6

7.2 4.1

2.4

1.8

3.4

0

(3.1) (6.9)

(10) Yearly

(20) MYR b

2010

2011

Cumm 2012

(11.9)

(19.7) 2013

2014

2015

2016

2017

2018 YTD

Strategy

EQUITY

Equity: Trade the volatility Hence, defensive strategy, & trade volatility

2018: KLCI -6% (MYR), 8% (USD) Challengi ng global outlook 2019 YE Target: 1,760 Domestic politics and policies

Commodit y price fluctuatio n Rating agencies review

KLCI vs. region in local currencies India

6%

Indonesia

-3%

Malaysia

-6%

Taiwan

-9%

Singapore

-10%

Thailand

-11%

Japan

-12%

Hong Kong

-14%

Korea

-17%

Shanghai ShenZhen -40%

-25% -33% -35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

KLCI vs. region in USD terms India

-3%

Malaysia

-8%

Indonesia

-9%

Japan

-10%

Thailand

-11%

Taiwan

-11%

Singapore

-12%

Hong Kong

-14%

Korea

-21%

Shanghai ShenZhen -40%

-29% -37% -35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Thematics Revisiting trough valuations

M&A and privatisations

More enforcement on illegals

Interest rate cut?

Khazanah & LTH’s divestments

Construction looks east

MYR volatility

“Beneficiaries” of trade war

Revisiting trough valuations

Large caps’ P/B P/B @ 4 Jan 2019

P/B @ GFC low (29 Oct 2008)

1.8 1.6

27 stocks under our coverage where their P/B are already at, or have fallen below their GFC lows.

1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 AMMB Holdings

CIMB

Gamuda

Genting

Source: Bloomberg (data), Maybank KE (compilation)

Genting Malaysia

SP Setia

AirAsia

MISC

YTL Power

Interest rate cut? Base case: No change in OPR at 3.25%. Any changes will impact banks.

REITs and high yield stocks may benefit.

Impact of 25bps cut in interest rates on banks’ earnings AFG

AMMB

BIMB

CIMB

HLBK

MAY

PBK

RHBC

CASA as at end3Q18

37.3%

21.8%

30.4%

33.3%

25.3%

33.3%

25.5%

26.9%

Floating rate loans/total loans *

90.0%

73.9%

90.5%

83.7%

80.0%

71.0%

76.4%

85.3%

Loan/deposit ratio *

95.5%

99.0%

91.0%

95.1%

81.7%

94.6%

93.9%

95.9%

Impact of 25 bps cut in i/r on earnings

(3.9%) (1.3%) (3.4%) (2.4%) (0.7%) (2.1%) (2.0%) (1.8%)

Source: Maybank KE’s estimates (base data from banks, companies)

MKE Universe: Yield >5%

US Dollar Index Monthly Chart

USDMYR Monthly Chart

MYR volatility

Earnings sensitivity analysis to changes in USD/MYR Company

Weak MYR is “+ve” for Gloves and Technology.

Revenue in USD (%)

# COGS in USD (%)

Base assumption for FY19 (USD/MYR)

Impact to NP from 1% chg in USD/MYR (%)

Gloves Top Glove

98

35

4.10

4.8

Kossan

97

45

4.10

3.2

Hartalega

98

55

4.10

2.1

ViTrox Corp

85

30

4.15

1.5

MMS Ventures

40

10

4.15

0.5

Inari Amertron

95

70

4.15

1.8

Globetronics

65

70

4.15

0.7

V.S. Industry

30

50

4.15

0.4

Technology

MYR volatility

Earnings sensitivity analysis to changes in USD/MYR Company

Strong MYR is “+ve” for Auto and Media.

Revenue in USD (%)

# COGS in USD (%)

Base assumption for FY19 (USD/MYR)

Impact to NP from 1% chg in USD/MYR (%)

Automotive UMW Holdings

-

20-25

4.15

3.0

Tan Chong

-

20-25

4.15

7.0

Berjaya Auto

-

-

-

-

MBM Resources

-

10

4.15

2.0

Pecca Group

-

60

4.15

3.0

Perodua

-

5

4.15

0.5

Astro

-

30-35

4.10

4.9

Media Prima

-

5-10

4.00

0.7

Star Media

-

15-20

4.00

1.1

MCIL

-

15-20

4.00

2.1

Media

FBM100 Index companies with enlarged net debt/EBITDA of <5x

M&A and privatisation Company Lotte Chemical Titan Holding GD Express Carrier

Enlarged net debt/EBITDA (x)

Company

Enlarged net debt/EBITDA (x)

Company

Enlarged net debt/EBITDA (x)

(1.5)

Cahya Mata Sarawak

2.1

IHH Healthcare

3.1

(0.9)

Axiata Group

2.2

VS Industry

3.2

Malaysian Pacific Industries

0.2

Boustead Plantations

2.2

Tenaga Nasional

3.5

Sunway Construction Group

0.2

Hibiscus Petroleum

2.4

Unisem (M)

3.6

SKP Resources

0.3

AEON Co (M)

2.5

TIME dotCom

3.6

Kerjaya Prospek Group

0.3

2.5

Sime Darby

3.8

UOA Development

0.3

2.5

Serba Dinamik Holdings

4.2

AirAsia Group

4.3

Petron Malaysia Refining & Marketing Pos Malaysia

Astro Malaysia Holdings Matrix Concepts Holdings

0.4

MISC

2.6

0.8

Telekom Malaysia

2.6

Hengyuan Refining Co

0.9

Maxis

2.7

Petronas Chemicals Group

1.0

Petronas Gas

2.7

Petronas Dagangan

1.4

SP Setia

2.8

FGV Holdings

4.8

DRB-Hicom

1.4

DiGi.Com

2.9

Scientex

4.9

Padini Holdings

1.8

Westports Holdings

3.1

Genting Malaysia Fraser & Neave Holdings Malakoff Corp

4.3 4.3 4.4

Bursa Malaysia Property Index with P/NTA of <1x and net cash over market cap

M&A and privatisation Property company

P/NTA (X)

Sapura Resources Farlim Group Plenitude SHL Consolidated Land & General Amcorp Properties MUI Properties Selangor Properties KSL Holdings Ivory Properties Group

0.2 0.4 0.3 0.7 0.4 0.3 0.7 0.8 0.3 0.2

Net cash (MYRm) A

Mkt cap (MYRm) B

Net cash/mkt Property cap company C=A/B

149.1

90.7

1.6

Ayer Holdings

87.1

63.1

1.4

Amverton

378.9

534.1

0.7

Acme Holdings

355.3

532.7

0.7

Tambun Indah Land

181.1

401.4

0.5

Daiman Development

132.4

301.5

0.4

Mah Sing Group

69.8

166.7

0.4

KEN Holdings

730.1

1,962.1

0.4

Damansara Realty

251.4

707.0

0.4

UOA Development

32.5

102.9

0.3

Y&G Corp Karambunai Corp

P/NTA (X)

0.7 0.6 0.9 0.5 0.5 0.5 0.4 0.5 0.9 0.7 0.6

Net cash (MYRm) A

Mkt cap (MYRm) B

Net cash/mkt cap C=A/B

93.1

344.3

0.3

74.8

321.3

0.2

15.3

66.7

0.2

72.1

325.0

0.2

124.4

623.3

0.2

281.9

2,197.1

0.1

12.7

114.8

0.1

8.0

73.2

0.1

341.9

3,871.8

0.1

15.6

185.4

0.1

34.0

491.0

0.1

GLIC

restructuring

Khazanah’s holdings in listed Malaysian stocks Listed GLCs

Restructuring of GLIC – Khazanah

Khazanah's stake 04-Jan-19

Market cap 04-Jan-19

Khazanah's holding worth

(%)

(MYR'm)

(MYR'm)

Astro Malaysia

20.67%

7,091

1,466

Axiata

36.22%

34,470

12,485

CIMB Group

26.80%

53,848

14,431

IHH Healthcare

42.05%

47,705

20,060

Malaysia Airports

33.21%

13,307

4,419

Telekom

26.21%

9,695

2,541

Tenaga Nasional

28.76%

76,546

22,014

TimedotCom

11.19%

4,891

547

UEM Sunrise

66.06%

3,131

2,068

UEM Edgenta

69.14%

2,279

1,575

Bioalpha Holdings

12.46%

176

22

255,650

82,985

Total

GLIC

restructuring

LTH has divested MYR2.6b equities to Urusharta Jamaah

LTH to transfer underperforming assets to a SPV

Source: The Edge Daily, 3 jan 2019

Beneficiaries of trade war

Trade diversion is happening.

Currently only lower-end production.

Trade diversion is happening

Beneficiaries of enforcement

Amended Customs Act 1967 and Excise Act 1976 hiked fines and jail terms. Legal ‘sin’ industries: NFO, tobacco, alcohol to gain.

More active enforcement against illegal ‘sin’ operators

Construction looks east

Sarawak State Budget Allocations (2015-2019) Development Expenditure Operating Expenditure

(MYR b)

14.0

Record 2019 budget for Sarawak with MYR11.9b allocation (+45% YoY).

12.0 2.8

10.0 8.0 2.1

6.0

2.2

2.5

1.8 9.1

4.0 2.0

4.6

6.0

5.9

5.7

2016

2017

2018

0.0 2015

2019

Sectors - Overweight Automotive •New mass-market models will likely push demand into 1H19. •National Automotive Policy likely to be unveiled by end-1Q19.

Glove producers •Healthy global glove demand. •A balanced demand-supply environment. •Project glove sector’s net profit to grow 13% and 10% in CY19 and CY20 respectively.

O&G • OPEC+’s decision to cut output in 2019 for six months. • PETRONAS’ Activity Outlook for 2019-21 shows activities are picking up.

Sectors - Overweight Property developers (Tactical call) •Should see improvement in property sales in 1H19. •The launch of P2P house financing platforms. •Concerns on record-high unsold stocks and a slower GDP have been largely priced in.

Technology •A transition year before 5G network rollout. •Potential beneficiaries of trade wars.

CONSTRUCTION

Current Price:

Target Price:

3.00

4.10

% Returns

36%

Stock Name:

Cahya Mata Sarawak

Why Should We Invest? • Beneficiary of acceleration in Pan Borneo Sarawak Highway. • Coastal & Second Link Road and State Water Grid Supply may replenish order book. • More upside in store from Sacofa and high ferrosilicon prices.

25/02/2019 14:28

CONSTRUCTION

Current Price:

Target Price:

% Returns

3.91

4.20

8%

Stock Name:

Mega First Corporation

25/02/2019 14:28

Why Should We Invest? • Lao hydro power plant on track for completion by end-2019. • More upside from electricity sales during testing period. • Net profit to nearly double on commissioning of power plant.

REITS

Current Price:

Target Price:

% Returns

1.28

1.55

21%

Stock Name:

YTL REIT

Why Should We Invest? • Resilient rental income from MY and JP, contributing ½ to NPI. • Earnings growth potential from AU hotels post-refurbishment. • More upside from strong pipeline of assets from sponsor.

25/02/2019 14:28

AUTOMOTIVE

Current Price:

Target Price:

% Returns

5.85

7.50

28%

Stock Name:

UMW Holdings

Why Should We Invest? • Toyota’s 2019 sales and margin recovery not priced in. • Mass market new launches to account for 2/3 of sales in 2019. • New models could lift margins.

25/02/2019 14:28

MEDIA

Current Price:

Target Price:

% Returns

1.60

1.95

22%

Stock Name:

Astro

Why Should We Invest? • Valuations are cheap, way below global Pay-TV average. • Dividend yield high at >8% p.a. May even rise to 10% p.a. • AK buying ASTRO shares and a potential privatization target.

25/02/2019 14:28

FINANCIALS

Current Price:

Target Price:

% Returns

5.70

6.70

17%

Stock Name:

CIMB

Why Should We Invest? • MY loans growth above average and NIMs to stabilize. • Improving outlook for Niaga (NIMs, credit costs, IDR/MYR). • Trading at about -1SD to historical PER of 10.5x.

25/02/2019 14:28

FINANCIALS

Current Price:

Target Price:

% Returns

4.16

4.60

10%

Stock Name:

Alliance

Why Should We Invest? • Increasing demand for new product • Refocus on SME to drive loans growth and margins. • Recent MSS and branch rationalization to save cost.

25/02/2019 14:28

UTILITY

Current Price:

Target Price:

% Returns

13.04

15.50

19%

Stock Name:

TNB

Why Should We Invest? • Resilient business • Earnings to revert to growth • Attractive dividend yield

25/02/2019 14:28

Current Price:

Target Price:

% Returns

7.10

9.50

34%

GAMING Stock Name:

Genting

Why Should We Invest? •

• •

25/02/2019 14:28

Trading at 50% discount to SOP/sh (20-year mean: -22%) . Despite GENM’s woes, forecast 3-year earnings CAGR of 8%. More upside in store if GENS wins Japanese casino license.

KLCI: Valuation

Our end-2019 KLCI target is

Market Valuation:

25/02/2019 14:28

1,760

KLCI: Market valuations 20

Philippines

18 Indonesia

Malaysia

Australia

16

Thailand

14

12

Japan

China Taiwan Hong Kong

10

8

25/02/2019 14:28

Korea

FBMKLCI Point & Figure Charting

FBMKLCI Index Major & Long term Trend

FBM Small Cap Index Long Term Chart

Construction

Current Price:

Target Price:

% Returns

0.67

N/A

N/A

Stock Name:

AWC

Why Should We Invest? • Growth driven by three key division. • Recurring income concession business. • Healthy balance sheet

25/02/2019 14:28

Financials

Current Price:

Target Price:

% Returns

1.25

N/A

N/A

Stock Name:

ELK Desa

Why Should We Invest? • Niche market in used car financing. • Lucrative business. • Decent dividend yield.

25/02/2019 14:28

Health Supplement

Current Price:

Target Price:

% Returns

0.24

N/A

N/A

Stock Name:

Bioalpha

Why Should We Invest? • Ride on fast growing China market. • On expansion mode. • Compelling valuation.

25/02/2019 14:28

Construction

Current Price:

Target Price:

% Returns

0.88

N/A

N/A

Stock Name:

Crest Builder

Why Should We Invest? • Strong construction order book. • Strong property pipeline. • Steady concession income.

25/02/2019 14:28

Disclaimer This presentation is for information purposes only and is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this presentation. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies mentioned in this presentation. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this presentation by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this presentation. This presentation may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This presentation copy may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect.

This presentation is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

FCPO Weekly Chart

Global Real GDP Global Real GDP % chg World

% Share of World GDP

1Q 2018

2Q 2018

3Q 2018

4.0

4.1

4Q 2018

2017

2018E

2019E

2020E

3.7

3.8

3.8

3.6

3.3

60.4%

2.3

2.4

2.1

2.2

2.3

2.0

1.7

US

24.3%

2.6

2.9

3.0

2.2

2.9

2.5

2.0

Eurozone

15.8%

2.4

2.2

1.6

2.4

2.0

1.7

1.5

Japan

6.1%

1.2

1.4

0.0

1.9

1.0

1.1

1.1

UK

3.3%

1.3

1.4

1.5

1.8

1.3

1.5

1.4

Major Advanced Econom ies

22.8%

5.8

5.8

5.6

5.7

5.7

5.6

5.4

Brazil

2.6%

1.2

0.9

1.3

1.1

1.3

2.3

2.4

Russia

2.0%

1.3

1.9

1.5

1.5

1.7

1.5

1.7

India

3.3%

7.7

8.2

7.1

6.7

7.4

7.4

7.5

China

15.0%

6.8

6.7

6.5

6.9

6.6

6.3

6.0

BRIC

6.4

3.5%

3.3

3.1

2.2

3.2

2.9

2.6

2.5

South Korea

1.9%

2.8

2.8

2.0

3.1

2.8

2.7

2.7

Taiw an

0.7%

3.2

3.3

2.3

2.9

2.8

2.4

2.2

Hong Kong

0.4%

4.6

3.5

2.9

3.8

3.7

2.8

2.7

Singapore

0.4%

4.5

4.1

2.3

3.6

3.2

2.2

2.1

ASEAN-6 (incl. Singapore)

3.3%

5.4

5.2

4.7

5.1

5.0

4.8

4.8

ASEAN-5

2.9%

5.5

5.3

5.0

5.3

5.2

5.1

5.2

Indonesia

1.3%

5.1

5.3

5.2

5.1

5.2

5.1

5.3

Thailand

0.6%

4.8

4.6

3.3

3.9

4.1

3.8

3.6

Malaysia

0.4%

5.4

4.5

4.4

5.9

4.7

4.9

4.9

Philippines

0.4%

6.6

6.2

6.1

6.7

6.3

6.5

6.5

Vietnam

0.3%

7.5

6.8

6.9

6.8

6.9

6.5

6.5

Asian NIEs

2.2

7.3

Source: MKE Economics Research (World quarterly GDP growth; 2018-2019 annual GDP growth forecasts for World, China & ASEAN); IMF & Bloomberg (actual annual and quarterly 2017-2018 GDP growth); Consensus (2018-2019 annual GDP growth forecasts for others)

Malaysia - Real GDP % chg

% Share of GDP

MAYBANK 2017

1Q 2018

2Q 2018

3Q 2018

Real GDP Services Manufacturing Agriculture Mining Construction

100.0 56.1 23.4 7.8 8.0 4.7

5.9 6.2 6.0 7.2 1.0 6.7

5.4 6.5 5.3 2.8 0.1 4.9

4.5 6.5 4.9 (2.5) (2.2) 4.7

4.4 7.2 5.0 (1.4) (4.6) 4.6

Jan-Sep 2018 4.7 6.8 5.1 (0.4) (2.2) 4.8

Domestic Demand Private Consumption Public Consumption Gross Fixed Capital Formation Private Investment Public Investment Net External Demand Exports of Goods & Services Imports of Goods & Services

91.8 55.1 11.7 25.0 18.6 6.4 8.2 69.8 61.6

6.5 7.0 5.4 6.2 9.3 0.1 (1.9) 9.4 10.9

4.1 6.9 0.4 0.1 0.5 (1.0) 62.4 3.7 (2.0)

5.6 8.0 3.1 2.2 6.1 (9.8) 1.7 2.0 2.1

6.9 9.0 5.2 3.2 6.9 (5.5) (7.5) (0.8) 0.1

5.6 8.0 3.0 1.8 4.5 (5.3) 14.8 1.6 0.1

OFFICIAL

2018E

2019E

2018E

2019E

4.7 6.7 5.0 (0.5) (2.0) 4.5

4.9 6.3 4.9 1.0 1.8 4.3

4.8 6.3 4.9 (0.2) (0.6) 4.5

4.9 5.9 4.7 3.1 0.7 4.7

5.5 8.1 2.7 1.5 4.5 (5.0) 14.6 1.4 (0.2)

4.8 6.5 2.0 2.4 5.3 (4.5) 6.6 2.0 1.4

5.0 7.2 1.0 2.6 4.5 (1.5) 7.7 2.0 1.4

4.8 6.8 1.8 1.9 5.0 (5.4) 0.7 1.6 1.8

Sources: Dept. of Statistics, MOF Economic Report 2018/2019, MKE Economics Research

Malaysia: Other Indicators ACTUAL 2017 2018 / 2018 YTD Gross Exports (% chg) 18.9 6.9 (Jan-Nov) Gross Imports (% chg) 19.9 5.3 (Jan-Nov) Trade Balance (MYRb) 97.2 109.6 (Jan-Nov) Current Account Balance (MYRb) 40.3 22.7 (Jan-Sep) Current Account Balance (% of GDP) 3.0 2.5 (Jan-Sep) Fiscal Balance (% of GDP) (3.0) (3.3) (Jan-Sep) Inflation Rate (CPI, %) 3.7 1.1 (Jan-Nov) Overnight Policy Rate (% p.a., end-period) 3.00 3.25 Exchange Rate (MYR/USD, end-period) 4.05 4.13 Unemployment Rate (%) 3.4 3.3 (Jan-Oct) Crude Oil (USD/bbl, Brent average) 54 71.2 Crude Palm Oil (MYR/tonne, average) 2,792 2,235 * Based on Medium Term Fiscal Framework (2019-2021) assumption

MAYBANK 2018E 2019E

OFFICIAL 2018E 2019E

5.8 4.0 118.4 33.8 2.4 (3.7) 1.0 3.25 4.18 3.3 73 2,250

4.4 4.0 106.6 38.6 2.7 (3.7) 1.5-2.5 3.3 70 2,300

5.3 4.5 127.7 36.5 2.4 (3.4) 2.1 3.25 4.10 3.4 65 2,350

3.9 4.1 109.4 34.0 2.2 (3.4) 2.5-3.5 3.3 60-70 * 2,400

Sources: Bloomberg, Dept. of Statistics, BNM Annual Report 2017, MoF Economic Report 2018/2019, MKE Economics Research

Global: Benchmark Interest Rates (% p.a.) Global: Benchmark Interest Rates (% p.a.) Country Major US Eurozone Japan UK Asia Pacific Australia China India S. Korea HK Taiw an Singapore Indonesia Malaysia Thailand Philippines Vietnam

Benchmark Interest Rate

Current

end 1Q19E

end 2Q19E

end 3Q19E

end 4Q19E

Fed Funds Target Rate ECB Deposit Facility Rate BOJ Policy Rate Balance BOE Bank Rate

2.375 (0.40) (0.10) 0.75

2.375 (0.40) (0.10) 0.75

2.375-2.625 (0.35) (0.10) 1.00

2.625-2.875 (0.30) (0.10) 1.00

2.875 (0.15) (0.10) 1.25

1.00 0.00 0.00 0.25

0.50 0.25 0.00 0.50

Cash Rate Target PBOC 7-Daye Repo Rate Repo Rate Target Overnight Rate 3-Mth HIBOR Discount Rate 3-Mth SIBOR 7-Day Reverse Repo Overnight Policy Rate Repurchase Rate Overnight Rate Refinancing Rate

1.50 2.55 6.25 1.75 1.83 1.375 1.88 6.00 3.25 1.75 4.75 6.25

1.50 2.55 6.25 1.75 2.63 1.375 1.95 6.25 3.25 1.75 4.75 6.25

1.50 2.55 6.25 1.75 2.80 1.375 2.03 6.50 3.25 1.75 4.75 6.25

1.50 2.55 6.25 1.75 2.90 1.375 2.10 6.50 3.25 2.00 4.75 6.25

1.50 2.55 6.25 2.00 3.00 1.375 2.20 6.50 3.25 2.00 4.75 6.25

0.00 0.05 0.50 0.25 1.15 0.00 0.69 1.75 0.25 0.25 1.75 0.00

0.00 0.00 0.00 0.25 0.67 0.00 0.31 0.50 0.00 0.25 0.00 0.00

Source: Bloomberg, US Federal Reserve “dots plot” (forecasts for US), Maybank KE (forecasts for ASEAN), Consensus (forecasts for others)

Chg in 2018 Chg in 2019E

USD Index and Currencies vs USD End-2018

15-Jan-19

End-1Q 2019E

End-2Q 2019E

End-3Q 2019E

End-4Q 2019E

DXY (Dollar Index) Japanese Yen Euro Pounds Sterling Australian Dollar

96 110 1.15 1.28 0.70

96 109 1.14 1.29 0.72

99 113 1.11 1.28 0.71

96 108 1.14 1.32 0.73

95 106 1.16 1.34 0.74

95 105 1.14 1.36 0.73

Renminbi Indian Rupee HK Dollar Taiw an Dollar Korean Won

6.88 69.77 7.83 30.55 1,111

6.76 71.02 7.84 30.82 1,121

7.05 67.00 7.80 31.00 1,140

6.95 66.00 7.79 30.80 1,120

6.92 66.00 7.78 30.60 1,110

7.00 68.00 7.78 30.80 1,130

Singapore Dollar Malaysian Ringgit Indonesian Rupiah Thai Baht Philippines Peso Vietnamese Dong

1.363 4.13 14,390 32.33 52.56 23,175

1.357 4.11 14,090 31.92 52.03 23,190

1.400 4.20 13,400 33.80 54.20 23,500

1.390 4.12 12,900 33.50 54.00 23,200

1.380 4.12 12,700 33.00 53.80 23,100

1.390 4.10 12,900 33.50 54.00 23,300

Source: Bloomberg, Maybank FX Research

Malaysia Oil & Gas The State Of Oil In 2019

LIAW THONG JUNG I RESTRICTED

+603 2297 8688 I [email protected]

EXECUTIVE SUMMARY

!

The BIG Picture

!

Malaysia Oil & Gas Services In Perspective

!

Stock Picks

Strictly Private & Confidential RESTRICTED

Page 1

The BIG Picture

Strictly Private & Confidential RESTRICTED

Page 2

The State Of Oil in 2019 Offshore global capex (USD'b) 300 250 30 200 62

75

86

77

! !

87

113 125 133 104 87 96 84 76 69

70 77 84

87 97 105 107 2022

50

56

16

60

2019

100

10

93

33

Ultra deepwater (125-1500m) Deepwater (125-1500m) 52 Shelf (up to 125m) 46 35 30 32 83 26 26 74 23 23 63 58 56 46 40 44 52

2010

150

23

33

!

On course for a cyclical recovery The market cycle is entering a new growth cycle Capex growth from 2019

2025

Bull/ bear oil index

Crude oil price (USD/bbl – LHS) vs. currency

RESTRICTED

Page 3

Jan-…

Jul-17

Brent (USD/bbl, RHS)

Jan-…

20

4.50 Jan-…

Bull-Bear Index

4.30

40

Jul-16

25

4.10

Jan-…

(60)

60

Jul-15

35

Jul-14

(40)

3.90

Jan-…

45

Jan-…

(20)

3.70

80

Jul-13

55

3.50

Jan-…

0

100

Jul-12

65

2.90 3.30

Jul-11

20

USDMYR (RHS)

3.10

Jan-…

75

9-Sep-16 14-Oct-16 18-Nov-16 23-Dec-16 27-Jan-17 3-Mar-17 7-Apr-17 12-May-17 16-Jun-17 21-Jul-17 25-Aug-17 29-Sep-17 3-Nov-17 8-Dec-17 12-Jan-18 16-Feb-18 23-Mar-18 27-Apr-18 1-Jun-18 6-Jul-18 10-Aug-18 14-Sep-18 19-Oct-18 23-Nov-18 28-Dec-18 1-Feb-19

40

USDMYR (Avg, RHS)

120

Jan-…

85

Jul-10

60

Brent

140

Jan-…

95

Jul-09

80

4.70 Jul-18

2024

2023

2021

2020

2018

2017

2016

2015

2014

2013

2012

2011

0

Break-even price by basin

RESTRICTED

Page 4

Sensitivity To Crude Oil Price

Exploration (1-2 yrs)

Construction , Installation and Field Development (3-5 yrs)

Capex • • • • •

Field asset owners Drilling barge Jackups/ semi subs Seismic survey AHTS/ AHT/ PSV

• • • • • • •

Opex AHTS/ AHT PSV/ MPSV Pipelay Heavy lift Fabricators Pipe coats T&I

• • • • • • • •

AHTS/ AHTS/ PSV AWB/SSAV Liftboats FPSO/ FSO/ MOPU Tank terminals Maintenance ops Supply base ops Tender rigs

Scale of sensitivity to crude oil price

RESTRICTED

Decommissioning & Abandonment (1 yr)

Production (5 - 30+ yrs)

Page 5

• • • • • • •

AHTS AHT AWB Heavy lift MPSV DSV Liftboat/service rig

Crude Oil price Outlook For 2019

Expects crude oil price (dated Brent) of USD65/bbl for 2019 While oil market is improving, volatility would continue to persist USD26/bbl spread for 2018 – a big gap

! ! !

Crude oil price (USD/bb)

Volatility index

WTI

120

12.0

Brent

110

10.0

100

Volatility Index (Crude Oil) Crude Oil (USD/bbl, RHS) 14 per. Mov. Avg. (Volatility Index (Crude Oil))

160 140 120

90

8.0

100

80 6.0

70

80

60

60

4.0

50

40

40

2.0

20

30 0.0

0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Jan-19

Oct-18

Jul-18

Apr-18

Jan-18

Jul-17

Oct-17

Apr-17

Jan-17

Jul-16

Oct-16

Apr-16

Jan-16

Jul-15

Oct-15

Apr-15

Jan-15

Jul-14

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Oct-14

Apr-14

Jan-14

20

Page 6

3 Key Factors Shaping 2019’s oil price direction Crude oil price (USD/bbl – LHS) vs. currency 120

!

110

1# Policy direction and compliance/ execution from OPEC+ - A continuation of the supply cut policy since 2017 (-1.8m bpd) - Commitment to cut output by 1.2m bpd from Jan-Jun 2019 - 0.8m bpd from OPEC to 31.7m bpd, 0.4m bpd from Russia - 3 countries exempted (Libya, Venezuela, Iran) from cut - DISCIPLINE & Compliance is KEY

100 90 80 70 60 50 40 30

WTI

OPEC’s compliance rate (000' bpd) 33,500

Jan-19

Jul-18

Oct-18

Apr-18

Jan-18

Jul-17

Oct-17

Apr-17

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

Jul-15

Oct-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

20

Brent

OPEC’s output adjustment by country for 2017 and 2019 (%) 106

33,000

105

32,500

104

32,000 31,500 31,000

103 102 101 100

30,500

99

30,000

98

29,500

97

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Page 7

3 Key Factors Shaping 2019’s oil price direction

!

2# Geopolitical risk - Venezuela, Libya - Iran sanction

Crude oil price reaction to the risk 140 130

"Arab Springs"

Iran-Western Nuclear Conflict

Iran Oil Trade Sanction

120 110 100 90

Armed Conflicts in MENA (Syria, Iraq, Libya)

80 70

Eurozone Crisis Relapse; US Fiscal Cliff

Eurozone Crisis

60 50 40

China Slowdown USD Rally; Global Oil Supply Glut

30

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Page 8

Brent Spot

Jun-18

Sep-18 Dec-18

Jun-17

Sep-17 Dec-17 Mar-18

Jun-16

Sep-16 Dec-16 Mar-17

Jun-15

Sep-15 Dec-15 Mar-16

Jun-14

Sep-14 Dec-14 Mar-15

Jun-13 WTI Spot

Sep-13 Dec-13 Mar-14

Sep-12 Dec-12 Mar-13

Jun-12

Jun-11

Sep-11 Dec-11 Mar-12

Dec-10 Mar-11

20

3 Key Factors Shaping 2019’s oil price direction 3# Global demand growth

Global demand-supply

Global demand-supply net

Russia & US’s crude oil production (m bpd) 11.60

19.00 18.00

11.40

Russia

11.20 11.00

16.00

10.80

15.00

Page 9

2017

2016

2015

2014

2013

2012

2011

Nov-83 May-85 Nov-86 May-88 Nov-89 May-91 Nov-92 May-94 Nov-95 May-97 Nov-98 May-00 Nov-01 May-03 Nov-04 May-06 Nov-07 May-09 Nov-10 May-12 Nov-13 May-15 Nov-16 May-18

Jan-19

Nov-18

Sep-18

Jul-18

May-18

Mar-18

Jan-18

Nov-17

Sep-17

Jul-17

May-17

Mar-17

Jan-17

Nov-16

Sep-16

Jul-16

10.60 May-16

14.00 Mar-16

2010

600,000 575,000 550,000 525,000 500,000 475,000 450,000 425,000 400,000 375,000 350,000 325,000 300,000 275,000 250,000

17.00

RESTRICTED

2009

US crude oil inventory

20.00

US

Supply (% chg)

Jan-Oct 2018

Demand (% chg)

2008

1997

2017

2016

2015

2014

2013

2012

Supply (mbpd)

Jan-Oct 2018

Demand (mbpd)

2007

93 93

2006

91

2005

91

2004

90

2011

2010

2009

2008

2007

2006

2002

2001

89

89

7 6 5 4 3 2 1 0 (1) (2) (3) (4) (5)

79

2005

76 77 76

2000

1999

1998

1997

1995

68

74 75 74

70 76 77 77 70 72 74 74 75 1996

72

72

85 86 86 85 83 84

2004

80

79

2003

84

85

87

97 97 97 99 99100 97 96

2003

85 83 84

88

76

87

94

2002

92

92

2001

92

2000

96

1999

100

1998

!

Malaysia Oil & Gas Services In Perspective

Strictly Private & Confidential RESTRICTED

Page 10

Malaysia’s Oil & Gas Activities On the Rise PETRONAS’ yearly capex (MYR'b)

Overseas (LHS)

Malaysia (LHS)

(%)

Growth (RHS)

75

80.00 60.00

60 24

45 13

18 30

14 15

28

11

31

11

22

20

39

32

25 35

40.00 10

40

20.00

37 -

8

18

17.8

(20.00)

9M18

2017

2016

2015

(40.00)

2014

2013

2012

2011

2010

2009

10 Breakdown of oil-related Govt revenue

2008

0

12

10

2007

4 10

2004

! Encouraged that majority of domestic O&G activities across the service value chain, will be on the rise ! This is premised on the PAO 2019-21 vs. 2018-20 issue a year ago

8

2006

15

14

2005

PETRONAS Activity Outlook (PAO) 2019-21 indicates this:

14

30

PAO 2019-21 vs. 2018-20: What has changed? Petronas Dividend

Page 11

Income From Exploration Of Oil & Gas in MTJA

70 18.1

60 50

54.0 26.0

19.0 2019E

2018E

2017

16.0 16.0

11.4

Budge…

8.4 11.8

2016

2015

2014

2013

2012

30.0 30.0 30.0 30.0 26.3 27.0 29.0 26.0 2011

24.0

16.8

11.6

2010

18.0

2007

11.0

24.2 27.2 18.7 27.7 33.9 29.8 27.0

2009

14.6

2005

0

20.7

20.5

2008

40

10

RESTRICTED

Crude Oil Export Duty

80

20

! Dividends: MYR54b (inclusive of one-off MYR30b; 2018: MYR26b) ! Capex: Dividend commitment will not affect capex plans ! Renewable energy: A new set-up

Petroleum Royalty

90

30

PETRONAS’ outlook and commitment

Petroleum Income Tax (PIT)

2006

! The respective: (i) offshore fabrication (i.e. units, size and tonnage), (ii) linepipes (i.e. length in km), (iii) offshore installation (i.e. no. of campaigns) and (iv) HUC/MCMs (i.e. no. of man-hours) segments will also see increase workflows in 2019-21.

Breakdown of oil-related Government revenues MYR b

! PETRONAS’ (i) drilling (JUs, TADRs, HWUs) and (ii) OSVs (AHTS, SSVs & PSVs) activities offshore Malaysia reflect a rise in asset utilization across the board

Offshore Fabrication Our views: ! 2017-18 was a year of order intake disappointment – on depleting backlog, weak replenishment and lower values ! For 2019, the offshore fabrication market is seeing a progressive rise in projects. This is also partly due to the delay in the execution of several projects that would be carried forward to 2019-21 ! On a deduction basis, MMHE will likely be the key winner in this space over Sapura Energy due to the latter’s high order backlog. SAPE’s fabrication yard is at 80% capacity vs. MMHE’s 35% ! The capacity to take up more jobs favours MMHE over SAPE, on the domestic front. Also, MMHE leads in securing: (i) PETRONAS’ multi-billion MYR Kasawari CPP job amd (ii) the Limbayong FPSO conversion works ! Overseas opportunities are also on the rise. Both are qualified and signed on for Saudi Aramco’s Long-Term Offshore Agreement (LTOA) works. It offers USD3b p.a. tender opportunity.

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Page 12

Offshore Drilling Our views: ! The JUs market has bottomed and is entering a new cycle – recovering, albeit protracted and phased ! Market consolidation has taken shape – re-capitalised, re-based costs and opex ! Enquiries and tenders have improved. Utilization level is rising ! While utilisation is set to rise, DCRs are unlikely to change much over the next 2 years due to overcapacity issues globally ! PETRONAS raised the prospect for drilling activities for the: i. jack-up (JUs) rigs segment to Positive (from Steady previously) and ii. hydraulic work-over (HWUs) rigs segment to Steady (from Modest previously) for its 201921 outlook ! PETRONAS will use 16-19 JUs p.a. over the next 2 years (vs. 9-10 units in 2018). That denotes a 100% rise in requirement, a positive ! PETRONAS will use 2-6 HWUs p.a. over the next 2 years (vs. 1-2 units in 2018). That too denotes a >100% rise in requirement, a positive RESTRICTED

Page 13

Offshore Support Vessel (OSV) Our views: ! Cost cutbacks have taken place. OSV players are operationally lean now to compete at USD40-50/bbl oil price level ! The OSVs daily charter rates (DCRs) and utilization have bottomed. While the latter has risen, the former is still unchanged due to the oversupply situation ! DCR will stay around USD0.70-1.00/bhp over the next 2 years ! Under the PAO, the rise in utilisation for: (i) AHTS (+59%-61%), (ii) PSVs & SSVs (+71%-81%) and (iii) FCBs (+32%-33%) vessels is not unexpected, for it runs in tangent with PETRONAS’ recent roll-out of its Integrated Logistics Control Tower (ILCT) project ! OSV players are currently in the CDRC scheme. The need to restructure/ refinance their debts will take the shine off the improving prospect in this space

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Page 14

Floating offshore facilities (Floaters) Our views: ! Booming! No. of awards are rising. 10-13 new awards up for grabs for 2019. ! Capex size of USD400-1.5b each. Majority of tenders will come from Brazil (Marlim 1 & 2, Buzious, Parque, Mero, Buzios V and Neon/ Kangaroo) ! Companies with strong balance sheet will benefit – Yinson is our KEY pick for this

Global FPSO orders (historical & prospects

! The invitation to bid (ITB) for the Limbayong FPSO has started. PETRONAS is in the market for an FPSO capable of handling 180mmscfd of gas and 60k bpd of liquids (including 40k bpd of oil). The vessel with nameplate storage of capacity of 600k barrels of crude would also be able to handle 75k bpd of water

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Page 15

Others Linepipes

Offshore installation (by no. of campaign)

Underwater services (by no. of campaign)

HUCs & MCMs (by no. of man-hours: m)

RESTRICTED

Page 16

Stock Picks

Strictly Private & Confidential RESTRICTED

Page 17

Maybank-IB: Top 5 O&G BUYs (by alphabetical orders)

DIALOG (DLG MK)

MMHE

SAPURA ENERGY

VELESTO ENERGY

YINSON

(MMHE MK)

(SAPE MK)

(VEB MK)

(YNS MK)

POSITIVE on the Malaysia O&G sector: • Positioning for a new cycle • Selective on stock picks • Balance sheet strength is a KEY criteria

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Page 18

Dialog Group (DLG MK; TP: MYR3.58; SP: MYR3.25) A Pengerang growth story !

!

!

!

Solid business model with strong foundation. We like Dialog for its secular growth story with the scalability aspects of its terminal operations via its Pengerang/ Langsat and potential overseas ventures. It has a very much focused management, well run with strong financials to boot. Pengerang operations offer scalability multiplier effect. Its Pengerang operations are a disrupter to its regional peers, in terms of capacity, demand and pricing and will grow in influence. Dialog’s midterm growth will be fuelled by the operational commencement of its: (i) SPV2 (PETRONAS’ dedicated tank terminal; 2.1m cu m capacity) and (ii) SPV4 Phase 1A (independent terminal; 1m cu m capacity) operations in 2HFY19. More to come post-RAPID. It is also planning beyond FY20, for it is reclaiming land (300 acres; MYR2.5b investment) for its next project (SPV5). Dialog has the potential to quadruple the capacity of its tank terminal ops, based on its remaining untapped land bank (500 acres). Prudent financials to match its aspirations. Dialog is FCF positive, reflective of its cash-generating business with a relatively low net gearing level. Our 3-year (FY18-20) core net profit CAGR forecast of 12% is realisable, based on its development pipeline. Our MYR3.58 TP only captures ¼ of Pengerang’s potential. FYE Jun (MYR m)

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

RESTRICTED

FY17A

FY18A

FY19E

FY20E

FY21E

3,393 415 328 6.1 20.8 2.7 31.5 3.3 1.4 13.4 6.6 25.1 net cash -

3,111 570 426 7.6 24.0 3.2 40.9 5.0 1.0 15.4 7.0 31.3 9.6 -

3,669 577 476 8.4 11.8 3.6 38.5 4.8 1.1 13.0 7.4 33.6 24.1 473 0.7

3,787 620 549 9.7 15.2 4.2 33.4 4.4 1.3 13.8 8.3 31.1 20.7 542 1.2

3,812 632 578 10.3 5.4 4.4 31.7 4.1 1.4 13.4 8.3 30.5 18.3 592 (2.2)

Company Description The largest tank terminal operators in Malaysia with EPCC works

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation

3.56/2.56 7.2 67.0 5,642 MYR18.3B USD4.5B

Major shareholders: Azam Utama Sdn. Bhd.

8.3%

Employees Provident Fund Wide Synergy Sdn. Bhd.

7.9% 7.8%

3.60

300

3.40

280

3.20

260

3.00

240

2.80

220

2.60

200

2.40

180

2.20

160

2.00

140

1.80

120

1.60

100

1.40 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

80

Dialog Group - (LHS, MYR) Dialog Group / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

4

1

21

Relative to index (%)

3

1

32

Source: FactSet

Page 19

Malaysia Marine & Heavy Engineering (MMHE; TP: MYR1.00; SP: MYR0.75) A value stock under the radar !

Securing big orders a major re-rating catalyst. The market, in our view has yet to fully appreciate MMHE’s intrinsic qualities; debt-free, cash-rich (MYR0.34/shr) and undervalued (0.5x PBV) with improving prospects.

!

A rise in PETRONAS jobs over the next three years. Set to capitalize on the cyclical recovery in the fabrication, marine repairs and conversion works. The multi-billion MYR CPP Kasawari (>7.5k MT) and Limbayong FPSO jobs are touted to be awarded this year, with MMHE in the lead on these.

!

!

Embarking on its global footprint. The recent signing of the Long-Term Offshore Agreement (LTOA) with Saudi Aramco for 6+6 years is a significant breakthrough to advancing its regional aspiration and moderating its heavy reliance on domestic exposure. This single-handedly offers an exposure to a constant USD3b p.a tenders opportunity. BUY with a MYR1.00 TP. Our TP is based on 0.9x EV/ 5-year order backlog of MYR1.1b. It has proven to have steadfastly withstood the cyclical downturn, emerging to be resilient. Positively too, MMHE could surprise with a prospective dividend payment

FYE Dec (MYR m)

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

RESTRICTED

FY17A

FY18A

FY19E

FY20E

FY21E

956 (1) (61) (3.8) nm 3.0 nm 0.5 3.6 1.3 (1.8) nm net cash -

974 5 (69) (4.3) nm 0.0 nm 0.4 0.0 (4.9) (2.1) 67.8 net cash -

1,130 80 1 0.1 nm 0.0 nm 0.5 0.0 0.0 0.0 7.9 net cash 15 (94.5)

1,387 112 31 2.0 3,787.3 0.0 38.4 0.5 0.0 1.3 0.9 5.1 net cash 36 (12.0)

1,614 132 50 3.1 60.2 0.0 24.0 0.5 0.0 2.0 1.4 3.7 net cash 53 (4.7)

Company Description MMHE is involved in the offshore fabrication and marine repair services operations

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation Major shareholders: MISC Bhd.

66.5%

Technip SA Lembaga Tabung Haji

8.5% 6.3%

1.10

120

1.00

110

0.90

100

0.80

90

0.70

80

0.60

70

0.50

60

0.40 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

50

MMHE - (LHS, MYR)

MMHE / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

9

18

(12)

Relative to index (%)

8

18

(5)

Source: FactSet

Page 20

0.84/0.50 0.1 24.2 1,600 MYR1.2B USD295M

Sapura Energy (SAPE; TP: MYR0.55; SP: MYR0.75) A cyclical recovery play !

Risk-reward is turning for the better. Business is recovering. Orders are rising. Financials are improving. The sale of its 50% energy biz to OMV is a done deal and together with its rights issues, SAPE has de-geared, de-risked and has strategic shareholders (OMV & PNB) at the same time.

!

Business is picking up, financials are improving. SAPE’s operations across the segments are showing signs of recovery. New jobs secured in FY19 have increased by 3.3x YoY from a year ago. Its overall tenders and prospects are also on the rise, up 30% YoY, reflective of the growing opportunities. That put SAPE in a stronger position to leverage on the cyclical recovery come FY20.

!

!

Focus is on FY21. We expect SAPE to break-even in FY20. Focus should be on the turnaround in FY21. Operationally, expect the E&C division to lead earnings recovery, on higher revenue/ margins in FY20-21. As for the drilling division, we expect a turnaround in FY21 with reduced YoY losses in FY20. Do not rule out a corporate exercise relating to this business. BUY with a MYR0.55 TP. Our TP is SOP-based. Our earnings forecasts and TP have reflected: (i) the sale of 50% of its energy operations and (ii) its rights issue exercise. From a risk-reward perspective, SAPE is turning for the better, an opportune time to leverage on the sector recovery.

Company Description Sapura Energy operates as an investment holding company, which provides integrated oil and gas services and solutions.

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation

0.85/0.27 7.8 71.1 15,979 MYR5.2B USD1.3B

Major shareholders: Sapura Holdings Sdn. Bhd.

16.7%

Employees Provident Fund Permodalan Nasional Bhd.

13.8% 11.3%

2.20

110

2.00

100

1.80

90

FYE Jan (MYR m)

FY17A

FY18A

FY19E

FY20E

FY21E

1.60

80

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

7,651 3,913 447 7.5 (55.5) 0.0 22.9 0.8 0.0 1.6 1.2 6.5 115.7 -

5,895 1,443 (381) (6.4) nm 1.0 nm 0.5 1.3 (22.2) (1.1) 13.3 155.5 -

5,778 1,019 (619) (10.3) nm 0.0 nm 0.2 0.0 19.4 (2.0) 14.6 112.8 (398) 608.5

5,789 1,180 3 0.0 nm 0.0 nm 0.3 0.0 0.0 0.0 9.7 35.6 166 (98.3)

7,419 1,418 346 2.2 11,979.9 0.0 15.0 0.3 0.0 1.9 1.1 7.8 32.5 346 0.0

1.40

70

1.20

60

1.00

50

0.80

40

0.60

30

0.40

20

0.20 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

10

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Page 21

Sapura Energy - (LHS, MYR) Sapura Energy / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

14

(10)

(53)

Relative to index (%)

13

(10)

(49)

Source: FactSet

Velesto Energy (VEB; TP: MYR0.33; SP: MYR0.26) Drilling for growth !

A better 2019, on higher drilling utilisation. We remain positive on Velesto; for its secular growth off its trough, leaner financials and undemanding valuations. Velesto, in our view, is most adept to benefit from PETRONAS’ increasing offshore drilling activities in Malaysia.

!

PETRONAS requires 16-18 JUs in 2019. PETRONAS has revised up its jack-up rigs (JUs) requirement for 2019. It will use 16-18 JUs p.a. in 2019 (vs. 7-10 units earlier on). That denotes a 129% YoY increase in requirement, a positive. Velesto is one of the 2 Malaysia owned/ flagged operators.

!

!

Return to profitability in 2019. We expect Velesto to average an 82% utilisation in 2019 vs. e.71% in 2018. We expect Velesto to return to the black, at the core earnings level. We posit its P&L break-even to be at an estimated 77% utilisation. While this denotes positivity, DCRs are likely to be unchanged, at USD68k-70k. BUY with a MYR0.33 TP. Our TP is based on 1x EV/ replacement value. Velesto’s plan to pre-pay part of its debts in FY19 could see some cost savings. With an improving outlook over the next 12months, any short-term weakness in share price is an opportunity to accumulate.

FYE Dec (MYR m)

FY16A

FY17A

FY18E

FY19E

FY20E

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

321 79 (310) (14.3) nm 0.0 nm 0.8 0.0 (42.1) (4.4) 64.2 142.3 -

586 234 (140) (1.7) nm 0.0 nm 0.9 0.0 (45.7) (2.5) 15.7 43.6 -

563 248 (27) (0.3) nm 0.0 nm 0.8 0.0 (1.0) (0.6) 11.8 29.2 (32) 15.1

642 303 25 0.3 nm 0.0 84.5 0.8 0.0 0.9 0.6 8.8 19.7 na na

664 319 44 0.5 74.7 0.0 48.3 0.8 0.0 1.6 1.0 7.6 10.1 36 24.5

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Company Description Velesto is Malaysia's largest JU drilling rig operator by fleet size.

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation

0.34/0.18 0.6 82.4 8,216 MYR2.1B USD525M

Major shareholders: Bumiputra Investment Foundation Lembaga Tabung Haji Permodalan Nasional Bhd.

14.7% 4.6% 3.3%

0.700

140

0.600

120

0.500

100

0.400

80

0.300

60

0.200

40

0.100 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

20

Velesto Energy - (LHS, MYR) Velesto Energy / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

18

(2)

(21)

Relative to index (%)

17

(2)

(14)

Source: FactSet

Page 22

Yinson Holdings (YNS; TP: MYR4.60; SP: MYR4.21) Well entrenched to ride on the FPSO boom !

Top 6 FPSO independent operators in the world, in terms of fleet size. Arguably one of the most profitable, in terms of ROE. Has an experienced, lean management team with strong execution capabilities – proven track record in consistently delivering projects on time, on budget.

!

Securing contractual closure on FPSO FEP is an immediate catalyst. The delays has not gone unnoticed, for the Heads of Terms (HOT) agreement was announced back in Jun 2018. Based on our scenario analysis, this job alone would single-handedly contribute 30-52sen/ MYR1.00-1.28/shr in TP on a firm/ extended charter basis.

!

!

Prospecting for job wins in 2019. The tender pipeline for FPSOs globally remain strong over the next 12 month, with Yinson prospecting for: (i) 5 key bids (three in Brazil and one each in Ghana and Malaysia with capex size of USD1b-USD1.5b each). Winning any of these will be a major catalyst to its long term development, growth and credibility.

Company Description Yinson is the Top 6 FPSO operator in the world by fleet size. OSV and non-O&G (transport & trading) operations are complementary businesses.

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation

4.91/3.69 0.7 53.1 1,093 MYR4.6B USD1.1B

Major shareholders: LIM HAN WENG

16.0%

Employees Provident Fund Kumpulan Wang Persaraan

13.6% 12.7%

Maintain BUY with a MYR4.60 TP. Our SOP-based TP is conservative. It excludes the FPSO FEP and new job wins prospects. 5.00

190

4.80

180

FYE Jan (MYR m)

FY17A

FY18A

FY19E

FY20E

FY21E

4.60

170

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

764 284 219 20.6 26.8 16.8 15.1 1.4 5.4 8.5 3.9 21.4 114.7 -

910 645 342 31.4 52.6 10.0 13.4 1.7 2.4 11.6 5.3 10.8 90.1 -

1,113 771 265 24.3 (22.7) 10.0 17.4 1.7 2.4 9.8 4.0 8.7 74.0 270 (1.7)

907 693 193 17.6 (27.4) 10.0 23.9 1.6 2.4 6.8 2.8 9.4 62.7 243 (20.9)

1,207 836 243 22.3 26.4 10.0 18.9 1.5 2.4 8.3 3.2 7.4 47.7 372 (34.6)

4.40

160

4.20

150

4.00

140

3.80

130

3.60

120

3.40

110

3.20

100

3.00 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

90

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Yinson Holdings - (LHS, MYR) Yinson Holdings / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

4

(5)

0

Relative to index (%)

3

(5)

9

Source: FactSet

Page 23

Maybank-IB: Oil & Gas Equity Research coverage

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Page 24

THANK YOU

Strictly Private & Confidential RESTRICTED

Page 25

DISCLAIMER DISCLAIMER This presentation is for information purposes only and is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this presentation. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies mentioned in this presentation. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this presentation by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this presentation. This presentation may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This presentation copy may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This presentation is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

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Page 26

2019 Malaysia Automotive vs Technology - The battle of MYR beneficiaries

Analyst Ivan Yap| +603 2297 8612 | [email protected]

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What happened in 2018?

Strictly Private & Confidential RESTRICTED

Page 1

KLCI -5.9% in 2018 And, -7.6% in USD terms … ended near year-low 1,900

1,850

7/3: BNM maintains OPR

1,800

1,750

25/1: BNM raises OPR 25bps to 3.25%

1,700

5/2: Ex-PM Najib announces 21/3: US Fed new cap mkt ups FF by 25bps to measures 1.50%-1.75% 14/2: M'sia range 4Q17 GDP +5.9% YoY

9/5: M'sia 2/4: GE14 USDMYR at a Change in year low of Govt 3.862 7/4: M'sian Parliament dissolves

28/3: BNM Annual Report 2017

10/5: BNM maintains OPR

17/5: M'sia 1Q18 GDP +5.4% YoY

22/6: Nor Shamsiah Mohd Yunus to be new BNM Governor from 1 Jul

16/7: Parliament convenes (for 20 days)

14/8: Fitch affirms "A-" rating for M'sia

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

7/10: GOM terminates KVMRT2 U/G

1/9: SST returns 5/9: BNM holds OPR at 3.25%

17 -21/8: PM Mahathir's 26/9: US Fed trip to China ups FF by 25bps to 17/8: M'sia 2.00%-2.25% 2Q18 GDP range +4.5% YoY

29/6: S&P reaffirms M'sia's rating, 6/7: 1,663.9 stable low outlook

1,650

1,600 Jan-18

2/7: Zeti Akhtar Aziz takes over as 13/6: US Fed PNB Chairman ups FF by 25bps to 1.75%-2.00% 2/7: Full Cabinet of 28 ministers, 24 14/6: ECB deputies says to end sworn in QE bond purchases in 5/7: MoF Dec 2018 suspends ECRL, MPP & TSGP 1/6: GST zero-rated

19/4: 1,895.2, all-time high

Aug-18

21-30/9: PM Mahathir's visit to UK & US

9/10: GOM Conf 13/10: DSAI wins PD byelection 15/10: Parliament convenes 18/10: 11MP Mid-Term Review 26/10: GOM re-awards KVMRT2 U/G to MMCGamuda

Page 2

8/11: Moody's lowers PETRONAS' outlook to NEGATIVE

7/12: Moody's retains "A3", stable outlook rating for M'sia

16/11: M'sia 3Q18 GDP +4.4% YoY

24/12: Brent at a year low of 27/11: GENM USD49.73/ sues Fox and bbl Disney

28/11: USDMYR at a year high of 4.201 18/12: 1,635.3, year low

Sep-18

Oct-18

Note: KLCI -5.7% in 2014, -3.9% in 2015, -3.0% in 2016, +9.4% in 2017; -5.9% in 2018; KLCI’s record high close was 1,895.2 on 19 Apr 2018 Source: Maybank KE RESTRICTED

2/11: Budget 2019

Nov-18

Dec-18

Source: Maybank KE

Share price performance - Automotive and parts players (as at end 20 Feb 2019) 2017

70%

2018

YTD 2019

2018: Among the dealers & distributors, it was rather uninspiring with exception to C&C Bintang and Sime Darby Bhd.

59%

60% 50%

40% 30% 20%

23% 9%

10%

2%

0% -10%

-2%

-6% -10%

-20%

5%

2%

-6%

20% 9%

5% 8%

3%

20%

-2%

8%

-4%

-5%

10%

4%

3% -2%

-7%

-21%

-30%

-27% -30%

-40%

KLCI

USDMYR

JPY100/MYR

C&C Bintang

UMWH

Sime Darby

TCM

Bermaz

MBMR

DRBH

Assembler, distributor & dealers

2017

100%

2018

YTD 2019 76%

80% 60% 40% 20%

28% 10%

4%

0%

8% 4% 2%

6%

0%

-1% -8%-13%

-20% -40%

9%

0%

-11%

-20%

-25%

2% -12% -20%

-12%

-3%

-37%

-60% APM Auto

EP Manufacturing

Sapura Inds

ABM Fujiya

GPA Holdings

Oceancash

Automotive parts

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Page 3

Solid Auto

-53% PECCA Group

YTD 2019: Faster than expected recovery in sales post GST zero rating period (Jun-Aug 2018), alongside MYR strength and sales boost from recent mass market launches lifted most auto players (including parts).

Share price performance – Technology (hardware) (as at end 20 Feb 2019) 2017 120%

2018

YTD 2019

105%

98%

90%

100%

70%

80% 55%

60%

40% 20%

9%

2%

2%

21%

17%

11%

2%

0% -6%

-20%

-10%

-2%

-10% -6% -21%

-40%

-34%

-38%

-60%

-61%

-80% KLCI

USD/MYR

Inari

Globetronics

Unisem

MPI

KESM

(Outsourced assembly and test)

2017 450%

2018

350% 300% 250%

235%

225%

212%

200%

155%

150% 100% 50% 0%

1%

11%

0%

58% 24%

90% 6%

33%

-3%

-50%

-50%

-100% ViTrox

Mi Equipment

Elsoft

MMSV

22% -9% Pentamaster

11%

16%

9%

41% 36% 21%

-20%

-58% Aemulus

(Automation equipment)

RESTRICTED

YTD 2019: Halt in trade tension amid negotiation between US and China lifted valuation 2018: Most automation equipment player were able to hold on to their 2017 gains except MMSV, Aemulus and Visdynamics which reported poor results.

YTD 2019

385%

400%

2018: After a strong year in 2017, share prices of OSATs retraced on poorer earnings outlook marred by (i) trade tension between US and China and (ii) weak sales of smart devices, especially Apple.

Page 4

QES

Visdynamics

Genetec

YTD 2019: Confidence in equipment players were likely boosted by sentiment of 5G network deployment. Typically, equipment players are leading indicator for OSAT and EMS players.

Share price performance – Technology (hardware) (as at end 20 Feb 2019) 2017 300%

2018

YTD 2019

2018: Key EMS players were hit by steep increase in foreign worker levy, impacting profits margins significantly.

252%

250% 200% 150%

113%

37%

50%

99%

86%

77%

100%

30%

11% 8%

11%

15%

5%

16%

15%

9%

0% -50% -100%

-70%

-54%

VSI

SKP

ATA IMS

-5% -22%-26%

-23%

EG Industries

Uchi Tech

-72% Salutica

(Electronics Manufacturing Services)

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Page 5

-24%

-1% -22% -38%

PIE Industrial

IQ Group

-2%

Formosa Prosonic

YTD 2019: General gains were fuelled by the halt in trade war and rebound in consumer sentiment for electronic goods in the region.

Outlook & Lookouts

Strictly Private & Confidential RESTRICTED

Page 6

Key lookouts for the Automotive sector 2019 could be a year of TIV growth

2019 National Automotive Policy

MYR direction

Third National Car Project

Monthly sales and production trends

RESTRICTED

•Standardization of EEV incentives for all manufacturers? •Further duty reduction on higher production localization? •End-of-life vehicle policy?

•Further boost supported by inflows?

•Boost to related supply chain? •Change in tax and duty structure? •Policies to ensure demand sustainability?

•Possible upside to our and consensus TIV forecast for 2019; our current projection is 590k unit (-1% YoY) vs Jan 2019 sales which grew 9% YoY. •Sales trend of key launches (i.e. Proton X70, Perodua Aruz, Toyota Vios and the upcoming Toyota Yaris)

Page 7

2019 National Automotive Policy (by end 1Q19) Standardization of EEV incentives for all manufacturers? •

2014 NAP introduced a customized incentive for manufacturers of Energy Efficient Vehicles (EEVs), defined by fuel efficiency. Standardization of this incentive for all EEV manufacturers will level the playing field for all.

Further duty reduction on higher production localization? •

Higher localization of components in Malaysia promotes employment and activities in the local supply chain. Staggered duty reduction based on a proper component localization tiering system could lower car prices and boost demand in the near-term. Loss of government revenue from duties could be compensated with higher volumes

End-of-life vehicle policy? •

Out of ~14m passenger cars on the road, we estimate that about a quarter is more than 10 years of age. Announcement of a ELV policy with implementation at a later period (3-5 years from now) will boost sentiment of the sector with ensured sustainability of demand.

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Page 8

MYR direction MYR expected path

USDMYR vs. USDMYR 30D implied volatility

3.79

MYRCNY

1.67

1.68

1.67

1.65

GBPMYR

5.27

5.28

5.33

5.52

SGDMYR

2.98

2.99

2.99

3.01

DXY Index

96.87

95.88

94.64

94.86

10

3.800

5

3.300

0

2.800

Source: Maybank FX Research

Jan-19

3.75

Jul-18

3.70

Jan-18

3.68

Jul-17

JPYMYR

4.300

Jan-17

4.71

Jul-16

4.62

Jan-16

4.60

Jul-15

4.62

Jan-15

EURMYR

USDMYR (LHS) 15

Jul-14

4.06

Jan-14

3.98

Jul-13

4.00

Jan-13

4.05

4.800

USDMYR 30D volatility (LHS)

Jul-12

USDMYR

20

Jan-12

End-4Q19E

Jul-11

End-3Q19E

Jan-11

End-2Q19E

Jul-10

End-1Q19E

Jan-10

Forecast

Source: Bloomberg (data), Maybank KE (compilation)

Mildly constructive on MYR Our FX Research Team sees increasing risks to USD strength in 2019. Slowdown in US economy, expectation for pause in US Fed tightening, and rising focus on US’ twin deficits to soften the USD in 1H19. USDMYR to remain at 4.20 levels if the US-CN trade war, EM concerns, and domestic factors get enhanced in 2019. Post-2019, maintain our lower USDMYR forecast on new government’s improved governance, transparency and accounting.

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Page 9

MYR direction MYRUSD vs. Brent crude oil price

Daily foreign net buy/(sell) (MYR m, LHS)

120 90

0.270

60

0.255

45

0.240

30

0.225

15

0.210

0

300

900

200

600

100

300

0

0

(100)

(300)

2-Jan

Source: Bloomberg, Maybank KE (chart)

1200

13-Feb

75

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19

0.285

Cumulative foreign net buy/(sell) (MYR m, RHS)

400

6-Feb

0.300

105

30-Jan

Brent (USD/bbl, RHS)

23-Jan

0.315

16-Jan

MYRUSD (pts, LHS)

9-Jan

0.330

Daily foreign net buy/sell flows

Source: Bursa Malaysia, Maybank KE (chart)

Other possible factors to further boost MYR’s strength •

Stabilising to improving crude oil outlook

•

Further foreign inflow on equities

•

Possible repatriation by Petronas and Khazanah •

Petronas has announced a special dividend of MYR30b under the 2019 budget, bringing total dividend commitment to MYR54b. (Source: https://www.nst.com.my/business/2018/11/427728/petronas-pay-additional-rm30-billion-special-dividend-govt)

•

Khazanah’s reported move to reduce its global presence may boost the MYR. (Source: https://www.nst.com.my/business/2019/02/460408/khazanah-boost-local-market)

•

Samurai bond subscription of up to JPY200b (~MYR7.3b) to be announced in Mar 2019. (Source: https://www.nst.com.my/business/2018/11/427728/petronas-pay-additional-rm30-billion-special-dividend-govt)

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Page 10

MAA monthly statistics Auto production (TIP), January 2019

Auto sales, January 2019

TIV Passenger Commercial

Jan 19 (Units) 48,450 44,264 4,186

% chg MoM 0.5 4.3 (27.4)

% chg YoY 8.7 10.7 (8.9)

YTD (Units) 48,450 44,264 4,186

% chg YoY 8.7 10.7 (8.9)

National Non-national

26,986 21,464

12.4 (11.3)

20.1 (2.9)

26,986 21,464

20.1 (2.9)

Marque Proton Perodua Toyota* Honda Nissan Mazda Hyundai Mercedes BMW Volkswagen

6,862 20,124 3,184 7,515 2,008 1,605 270 1,063 800 586

22.6 9.4 (27.3) (6.3) (30.0) 10.6 45.9 (5.6) (21.3) 143.2

43.5 13.7 (11.2) (7.6) 0.0 23.5 (23.9) (12.7) (4.8) 37.6

6,862 20,124 3,184 7,515 2,008 1,605 270 1,063 800 586

43.5 13.7 (11.2) (7.6) 0.0 23.5 (23.9) (12.7) (4.8) 37.6

Jan 19 (%)

ppt chg YoY 1.7 (1.7)

YTD (%) 91.4 8.6

ppt chg YoY 1.7 (1.7)

Passenger Commercial

91.4 8.6

ppt chg MoM 3.3 (3.3)

National Non-national

55.7 44.3

5.9 (5.9)

5.3 (5.3)

55.7 44.3

5.3 (5.3)

Marque Proton Perodua Toyota* Honda Nissan Mazda Hyundai Mercedes BMW Volkswagen

14.2 41.5 6.6 15.5 4.1 3.3 0.6 2.2 1.7 1.2

2.5 3.3 (2.5) (1.1) (1.8) 0.3 0.2 (0.1) (0.5) 0.7

3.4 1.8 (1.5) (2.7) (0.4) 0.4 (0.2) (0.5) (0.2) 0.3

14.2 41.5 6.6 15.5 4.1 3.3 0.6 2.2 1.7 1.2

3.4 1.8 (1.5) (2.7) (0.4) 0.4 (0.2) (0.5) (0.2) 0.3

Mkt share

Production (units) % chg YTD YoY (Units)

% chg YoY

Jan 19 (%)

ppt chg MoM

Market share (%) ppt chg YoY

YTD (%)

ppt chg YoY

54,818 51,137 3,681

(19.6) (20.8) 0.3

93.3 6.7

2.7 (10.6)

(1.3) 1.3

93.3 6.7

(1.3) 1.3

(33.0) 1.4

27,925 26,893

(33.0) 1.4

50.9 49.1

(3.2) 3.2

(10.2) 10.2

50.9 49.1

(10.2) 10.2

26.5 (40.9) (16.6) (4.1) 50.3 (29.3) 231.9 16.5 8.8 (13.2) 13.5 (17.5)

6,143 21,782 4,259 9,746 1,835 2,164 229 1,146 2,722 383 504 924

26.5 (40.9) (16.6) (4.1) 50.3 (29.3) 231.9 16.5 8.8 (13.2) 13.5 (13.2)

11.2 39.7 7.8 17.8 3.3 3.9 0.4 2.1 5.0 0.7 0.9 1.7

1.6 (4.8) 5.5 1.9 (1.1) 0.3 0.0 0.2 3.5 (0.2) (0.3) (0.6)

4.1 (14.3) 0.3 2.9 1.6 (0.5) 0.3 0.6 1.3 0.1 0.3 0.0

11.2 39.7 7.8 17.8 3.3 3.9 0.4 2.1 5.0 0.7 0.9 1.7

4.1 (14.3) 0.3 2.9 1.6 (0.5) 0.3 0.6 1.3 0.1 0.3 0.0

Jan 19 (Units)

% chg MoM

TIP Passenger Commercial

54,818 51,137 3,681

29.3 33.1 (7.5)

(19.6) (20.8) 0.3

National Non-national

27,925 26,893

21.6 38.3

Marque Proton Perodua Toyota Honda Nissan Mazda Hyundai Mercedes Benz BMW Volkswagen Hino Isuzu

6,143 21,782 4,259 9,746 1,835 2,164 229 1,146 2,722 383 504 924

51.0 15.3 337.3 44.4 (3.0) 41.2 38.8 45.2 339.7 (2.0) (1.2) (4.4)

Source: MAA, Maybank Kim Eng

Source: MAA Note: *Including Lexus sales

RESTRICTED

Upside bias to our 2019 TIV forecast. Jan 2019 kick-started the year on a strong note, as TIV grew 9% YoY to 48.5k units even without a full month contribution from the newly launched Perodua Aruz and Toyota Vios. Sustained YoY growth in the next two months will present opportunities for us to lift our 2019 TIV forecast – unchanged for now at 590k units (-1% YoY). National marques in the limelight. Leading the pack in terms of TIV growth were the national marques, Proton (+1.3k units MoM) and Perodua (+1.7k units MoM), benefitting from their respective new SUV launches, X70 and Aruz. On the flipside, Toyota lost most grounds in the month. Deliveries of its new B-segment Vios in the second half of Jan 2019 were still not at optimal level. Page 11

Key lookouts for the Technology (hardware) sector 2019 could be a year of TIV growth

News on 5G deployment

Trade tension

•Unrest caused by the trade tension between US and China has dampened investment/consumer sentiment; demand for big-ticket item has slowed in recent times. •Resolution between US and China could revive the sentiment for the electronics sector.

MYR direction

•Further strength in MYR against USD supported by inflows will negatively hit Tech hardware players in Malaysia who are mainly net USD exporters.

Global semiconductor sales and equipment billing trend

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•Resistance by key European markets to adopt Huawei’s 5G infrastructure and protocol hinders mass adoption; Asian markets are more receptive. •Samsung’s recent 5G S10 model is exclusive only to Verizon for now. Limited deployment ties in with insufficient telco infrastructure.

•Semiconductor equipment billing trends are leading indicator to semiconductor sales outlook.

Page 12

Global semiconductor sales (GSS) monthly statistics Semiconductor equipment billing

In 2018, GSS hit a high of USD470b with China and US leading the pack in terms of market share gain. We believe that part of this ramp up is related to capex spending related to mass deploy 5G network in the next two years.

USD m 3,000.0 2,500.0 2,000.0 1,500.0

1,000.0

Snapshot of monthly GSS

500.0

Dec 18

% chg

% chg

YTD

(USD m)

MoM

YoY

(USD m)

YoY

38,219

(7.0)

0.6

470,344

16.1

8,396

(12.4)

(6.2)

104,268

21.6

Europe

3,466

(4.9)

2.8

42,893

13.7

China

12,707

(8.1)

5.8

158,526

22.2

Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

0.0

Source: SEMI

Region America

GSS forecast by segment USD b 500.0

GSS

% chg

Integrated Circuits

Sensors

Japan

3,315

(2.2)

2.3

39,940

10.5

Optoelectronics

Discrete Semiconductors

Asia Pacific

10,335

(3.1)

(0.7)

124,716

7.8

Market

Dec 18 ppt chg ppt chg

YTD

ppt chg

(%)

MoM

YoY

(%)

YoY

America

22.0

(1.3)

(1.6)

22.2

1.0

Europe

9.1

0.2

0.2

9.1

(0.2)

250.0

China

33.2

(0.4)

1.6

33.7

1.7

200.0

Japan

8.7

0.4

0.1

8.5

(0.4)

150.0

Asia Pacific

27.0

1.1

(0.4)

26.5

(2.0)

100.0

Source: CEIC

450.0

share

400.0

Region

350.0 300.0

2015A

2016A

2017A

2018E

2019E

Source: WSTS RESTRICTED

Page 13

Outlook & Lookouts - Market earnings

Strictly Private & Confidential RESTRICTED

Page 14

+6.5% 2019E core earnings growth for our universe And, +5.6% for the KLCI

Maybank KE Research Universe core earnings growth (YoY %) 20

Key risks to our earnings growth forecasts for the market are: i. negative government policies, ii. iii.

lower-than-expected crude oil and CPO prices, margins pressure (from higher minimum wage, fuel and utility costs).

15 10 5 0 (5) 2011

KLCI: Earnings breakdown by sector – CY19

Telcos 6%

Transport 3%

Utilities 15%

Gloves 2%

Building materialsOil & Gas 1% 1%

REITs 3%

2015

2016

2017

Transport 5%

Telcos Utilities 7% 11%

Consumer 3%

2018E

2019E

Petrochem 7%

Banking & Finance 38%

Plantation 4%

Banking & Financials 49%

Source: Maybank KE RESTRICTED

2014

Property - Developer 3%

Plantations 6% Petrochemical 5% Gaming 6%

2013

Research Universe: Earnings breakdown by sector – CY19

Automobiles 2%

Property 1%

2012

Page 15

Oil & Gas 1%

Media 1% Gloves Healthcare 2% Gaming Construction, Infra Automotive 1% 7% 3% 3%

Consumer 3%

+6.5% 2019E core earnings growth for our universe Big-cap sectors supporting market earnings growth : Banks (+6.4%) Healthcare (+6.2%) Plantation (+14.1%). Gaming – Casino to retrace (-12.2%) due to the casino duty rate hike from 1 Jan 2019 (amongst others). Utilities to see a small recovery (+4.0%) after retracing in 2018. Telco to see another year of core earnings decline (-4.3%).

Maybank KE Research Universe core earnings growth, PERs, P/B, ROE (13 Feb 2019) Earnings Growth (%) Sector

P/B (x)

ROE (%)

CY17A 14.4

CY18E 6.6

CY19E 6.4

CY17A 14.5

CY18E 13.6

CY19E 12.8

CY17A 1.6

CY18E 1.5

Non-banking Finance

10.7

5.7

1.3

14.0

13.3

13.1

2.1

2.2

14.9

16.6

Building material

NM

NM

NM

NM

NM

84.5

0.6

0.6

(0.4)

(4.7)

Consumer

(8.2)

4.6

5.7

35.2

33.7

31.9

8.7

8.5

24.6

25.2

Healthcare

(23.6)

39.4

6.2

70.6

50.7

47.7

2.3

2.3

3.2

4.5

Automotive

(8.2)

29.7

14.3

19.1

14.8

12.9

0.6

0.8

3.1

5.3

3.7

3.9

4.1

11.6

11.2

10.7

1.1

1.0

9.1

9.0 15.1

Banking & Finance

Construction, Infra

CY17A 11.0

CY18E 11.0

Gaming – NFO

0.1

5.7

(2.3)

13.3

12.6

12.8

1.9

1.9

14.5

Gaming – Casino

16.1

11.1

(12.2)

13.0

11.7

13.3

0.8

0.9

6.6

7.4

Gloves

19.3

19.9

12.6

37.4

31.2

27.7

7.7

6.8

20.6

21.8

Media

(25.6)

(13.3)

35.6

15.0

17.3

12.8

2.4

3.1

15.8

18.1

Oil & Gas

(47.7)

(15.0)

405.6

137.3

161.6

32.0

1.0

1.1

0.7

0.7

Petrochemical

15.4

4.1

4.1

14.8

14.2

13.6

2.2

2.0

15.1

14.0

Plantation

36.3

(32.0)

14.1

25.0

36.8

32.2

2.4

2.1

9.5

5.7

Property – Developer

5.7

(0.1)

(7.9)

(1.1)

13.0

14.1

14.2

1.0

0.8

7.4

Property – REIT

4.2

2.8

3.0

19.1

18.6

18.1

1.2

1.2

6.2

6.2

Technology

31.7

6.4

10.7

20.2

19.0

17.1

5.0

4.1

24.9

21.4

Telcos

(4.1)

(4.7)

(4.3)

22.4

23.5

24.6

3.4

3.1

15.0

13.1

Transport – Aviation

22.7

(14.5)

23.9

15.0

17.6

14.2

1.5

1.5

10.0

8.7

Transport – Shipping

4.8

(33.4)

26.2

14.9

22.4

17.7

0.8

0.9

5.4

3.9

Transport – Ports

9.6

(21.0)

13.5

19.4

24.6

21.7

6.3

5.8

32.7

23.5

(5.4)

(16.1)

4.0

12.6

15.0

14.4

1.5

1.4

11.6

9.2

Diversified

1.2

(19.0)

(5.3)

12.3

15.2

16.1

1.0

1.0

8.4

6.3

Stocks under cvrg

6.4

(1.9)

6.5

17.5

17.9

16.8

1.7

1.6

9.6

9.1

Utilities

Source: Maybank KE

RESTRICTED

PE (x)

Page 16

Strategy & Thematics

Strictly Private & Confidential RESTRICTED

Page 17

Impact from MYR’s volatility MYRUSD vs. Brent crude oil price

Weak MYR is “+ve” for Gloves and Technology

0.330

120 MYRUSD (pts, LHS)

0.315

Brent (USD/bbl, RHS)

0.300

Maybank FX Research estimates every 1% change in crude oil price could impact USDMYR by 0.2%.

105 90

0.285

75

0.270

60

Gloves & Technology

0.255

45

Auto & Media

0.240

30

0.225

15

0.210

0

Sectors most sensitive: POSITIVE in a WEAK-er MYR environment

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19

POSITIVE in a STRONG-er MYR environment.

Source: Bloomberg, Maybank KE (chart)

Earnings sensitivity analysis to changes in USD/MYR Company

Revenue in USD (%)

# COGS in USD (%)

Base assumption for FY19 (USD/MYR)

Earnings sensitivity analysis to changes in USD/MYR Impact to NP from 1% chg in USD/MYR (%)

Gloves Top Glove Kossan Hartalega

98 97 98

35 45 55

4.10 4.10 4.10

4.8 3.2 2.1

Technology ViTrox Corp MMS Ventures Inari Amertron Globetronics V.S. Industry

85 40 95 65 30

30 10 70 70 50

4.15 4.15 4.15 4.15 4.15

1.5 0.5 1.8 0.7 0.4

RESTRICTED

(USD/MYR)

20-25 20-25 10 60 5

4.15 4.15 4.15 4.15 4.15

3.0 7.0 2.0 3.0 0.5

30-35 5-10 15-20 15-20

4.10 4.00 4.00 4.00

4.9 0.7 1.1 2.1

# COGS in USD (%)

Automotive UMW Holdings Tan Chong Berjaya Auto MBM Resources Pecca Group Perodua

-

Media Astro Media Prima Star Media MCIL

-

Page 18

Base assumption for FY19

Impact to NP from 1% chg in USD/MYR (%)

Revenue in USD (%)

Company

“Beneficiaries” of trade war Technology sector with capacity The first wave of trade diversion has already occurred but only for lower-end semiconductor components production. If US-CN trade war escalates, expect larger waves of higher-end semiconductor components production to be diverted. This may trigger a surge in capex and benefit local equipment suppliers, OSATs and EMS players. We could also see more activities in the M&A space in transition to mass 5G deployment. Eg. joint takeover of Unisem (UNI MK, Not Rated) by Unisem’s Chairman and Huatian Electronics. Within our coverage, likely beneficiaries are: VITRO, MMSV (automation equipment) INRI, GTB (OSAT players) VSI (EMS player).

RESTRICTED

Page 19

Sectors summary & Top BUYs

Strictly Private & Confidential RESTRICTED

Page 20

Automotive (POSITIVE) TIV breakdown by marques

Total Industry Volume (TIV): Dominated by passenger vehicles (89% of 2018 TIV). SUV segment (12% of 2018 TIV) registered strong growth of 15% YoY in 2018 even without Proton X70 and Perodua Aruz. TIV in Jan 2019 is ~48.5k units (+9% YoY vs our -1% YoY expectation for 2019); we see upside for Proton, Perodua (Jan 2019 sales: +14% YoY) and Toyota sales.

USD/MYR forex

2018

2017

2016

157 167 167 116 118 142 148 157 159 141 139 116 102 72 71 65

2015

0

2014

100

2013

200

2012

300

2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E

200,000

Honda Proton

44 33 35 52 77 95 32 39 92 89 107 93 92 110 102 104 96 102 82 91 82 52 65 70 67 80 40 189 180 189 196 140 167 122 167 124 196 213 155 162 207 205 227

2010

300,000

400

2009

400,000

500

2008

500,000

Nissan Perodua

600

2007

600,000

Others Toyota

units ('000) 700

2006

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0%

2005

GDP Growth % (RHS)

2004

Yearly TIV (LHS)

2003

units 700,000

USDMYR and JPYMYR

Sales breakdown:

Auto players are net USD & JPY importers:

New attractive launches (i.e. Proton X70, Perodua Aruz, Toyota Vios) will drive market share gain amid modest TIV growth. environment. UMWH is the best proxy being the beneficiary of both Perodua and Toyota. Recent news: (i)

Perodua delivered 1,025 units of Aruz in one day (31 Jan 2019), with 8k order backlog.

2019 TIV may see 3-5% YoY growth, supported by attractive new launches and possibly lower excise duty for CKD models from the upcoming National Automotive Policy, as per recent news flow.

(ii)

Proton delivered 1k units of X70 in one day before CNY.

End-of-life vehicle policy will be a huge boost to sentiment, if announced. ~25% of 14m passenger cars on-the-road are >10 years old.

Honda (34% owned by DRB Hicom) and Nissan (under TCM) lacks new model launches in 2019 and will likely lose market share.

RESTRICTED

JPY100/MYR forex

4.7 4.5 4.3 4.1 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Annual TIV vs GDP growth

(iii) Toyota expected to sell >30k units of Vios in 2019.

Page 21

MYR’s recent strength against USD will benefit Toyota (51% owned by UMWH), Nissan (TCM), Honda (34% owned by DRB Hicom). MYR’s recent weakness against JPY will impact Mazda (Bermaz), Hino (42% owned by MBM Resources). Perodua (largest marque in Malaysia with 38% market share in 2018), 38% owned by UMWH and 22.6% owned by MBM Resources, has localisation rates of 90-95% for all its models. Imported components are mainly in USD.

UMW Holdings (BUY; TP: MYR7.50; SP: MYR5.87) Company Description

Toyota cycle is here! Fresh new Toyota offerings (i.e. Camry, Vios, Yaris) against its competitors’ aging model line-up will grow topline while margins are set to expand on (i) cost savings from UMWT’s dealership rationalisation, (ii) better cost efficiencies from new Toyota plant and (iii) USD/MYR forex reset for its new Toyota models (expected to account for 60% of 2019 sales). Higher Perodua volume in 2019, lifted by newly launched SUV, Aruz, will boost UMWH’s auto earnings. Meanwhile, turnaround in UMWH’s aerospace engineering ops (parked under M&E division) will see the overall group reporting a 34% earnings growth.

UMW Holdings operates 3 core division: Auto (Toyota franchise in Msia), Industrial & Heavy Equipment and Manufacturing & Engineering.

Statistics 52w high/low (MYR)

RESTRICTED

FY17A

FY18E

FY19E

FY20E

11,067 536 297 25.4 (26.6) 0.0 20.5 2.0 0.0 1.1 2.2 16.4 38.1 -

11,724 963 429 36.7 44.6 18.4 16.0 2.1 3.1 13.5 4.1 10.5 42.7 429 (0.0)

13,073 1,259 572 49.0 33.5 24.5 12.0 1.9 4.2 16.5 5.1 8.0 32.9 492 16.3

14,457 1,370 645 55.2 12.6 27.6 10.6 1.7 4.7 16.7 5.3 7.3 23.0 563 14.5

Permodalan Nasional Bhd.

50.4%

Employees Provident Fund Bumiputra Investment Foundation

11.6% 7.3%

7.00

140

6.50

130

6.00

120

5.50

110

5.00

100

4.50

90

4.00 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

80

UMW - (LHS, MYR)

Absolute (%) Relative to index (%) Source: FactSet

Page 22

MYR6.9B USD1.7B

Price Performance

FY16A

1,168

Market capitalisation

At 12x CY19 PER currently, valuations are relatively undemanding vs Sime Darby Bhd (SIME MK, HOLD), its closest local peer automotive conglomerate, at 16x CY19 PER. Our MYR7.50 TP implies a CY19 PER of 16.2x.

10,437 85 404 34.6 (2.0) 0.0 12.2 1.0 0.0 (9.3) 2.3 136.3 65.5 -

81.2

Issued shares (m)

Major shareholders:

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

3.8

Free float (%)

Earnings consistency will see UMWH resuming dividends; prior to its lossmaking years (FY15-16), UMWH’s DPR averaged ~70% despite a 50% dividend policy. With PNB as its largest shareholder, we believe that UMWH will likely resume its dividend policy; a first interim dividend of 5sen was declared in Jun 2018. At 50% DPR, we expect yields to be at 4% in 2019.

FYE Dec (MYR m)

6.69/4.20

3m avg turnover (USDm)

UMW / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

2

19

(12)

(0)

17

(5)

Technology - Hardware (NEUTRAL) GSS breakdown by region USD m

2,500.0 2,000.0 1,500.0

1,000.0 500.0 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

0.0

Monthly semiconductor equipment billing: Despite strong double-digit YoY growth in 1H18 equipment billing, 2018 closed only with a 9% YoY gain due to a slower 2H18. Nonetheless, after 6 consecutive months of MoM decline, billing has finally rebounded 8% MoM in Dec 2018. On the ground, our checks suggest that >50% of local semiconductor equipment players are receiving more enquiries and purchase order, compared to the same time last year. To position for 5G telco infrastructure, Vitrox offers the biggest exposure in Malaysia space; ~13-15% of revenue.

Asia Pacific

Japan

China

America

USD/MYR forex 4.6

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0

4.2 3.8 3.4 3.0 2.6

Global semiconductor sales (GSS): 2018 GSS closed 16% higher YoY, driven by 30+% YoY growth in memory IC segment. Leading the pack, is China (+22% YoY; 34% market share) and America (+22% YoY; 22% market share). Into 2019, WSTS projects a mild 2.6% YoY growth in GSS, led by the Asia Pacific region. Key segments of growth is expected to be seen in Optoelectronics (+7% YoY) and Sensor (+5% YoY) products. On the ground, local listed OSATs are seeing softer sentiment since end-4Q18, driven mainly by poor smartphone sales – especially those related to Apple.

The Philippines and Thailand has announced that they will work with Huawei in 5G deployment. Huawei targets Thailand next. RESTRICTED

Europe

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

USD m 3,000.0

USDMYR trend

Page 23

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Monthly semiconductor equipment billing trend

Tech – Hardware players are net USD exporters: MYR’s recent strength against USD negatively impact most tech hardware players in 2 ways: ASPs and net cash holdings in USD. Our sensitivity analysis suggest that Inari and ViTrox are most sensitive; 1% change in USDMYR will impact earnings by 1.5-1.8% on an annual basis. Alongside seasonally weaker earnings, USD/MYR volatility ties with our belief that 1H19 will offer many trading opportunities in tech names.

Inari Amertron (BUY; TP: MYR1.88; SP: MYR1.61) Company Description

A year of consolidation Despite optimism from the upcoming 5G deployment, Inari is going through a transition period whereby quarterly earnings trend will not follow the norm. Earnings weakness in 1H19 due to (i) weak RF volumes from key clients and (ii) consolidation cost in Inari’s Philippines ops resulted in a double-digit contraction to the tune of 28% YoY in 1H19 earnings. Nonetheless, we expect YoY recovery in 2H19, fuelled by new components outsourcing from OSRAM (i.e. 2D/3D FR, mini LED), to narrow down overall 2019 weakness. Looking ahead, with the introduction of 5G smartphones, we believe that RF content will expand multi-fold. We expect Apple to introduce 5G iPhones only in Sep 2020. Meanwhile, Samsung and Huawei could possibly introduce 5G smartphones in their upcoming launches. Also, earnings weakness at OSRAM may push it to employ further outsourcing of high volume manufacturing to OSATs such as Inari.

Inari Amertron is the biggest semiconductor player in M’sia and one of Broadcom’s top OSAT providers in the thriving wireless division.

Statistics 52w high/low (MYR) 3m avg turnover (USDm) Free float (%) Issued shares (m) Market capitalisation

2.53/1.23 4.7 68.3 3,167 MYR5.1B USD1.3B

Major shareholders: Insas Bhd.

19.0%

Kumpulan Wang Persaraan Employees Provident Fund

13.4% 7.0%

Price Performance

Trading opportunities in share price in 1H19 could offer windows for longer-term exposure for the 5G upcycle. At 15x FY20 earnings currently, we still see a 17% upside to our MYR1.88 TP, pegged at 17x CY20 PER. FYE Jun (MYR m)

Revenue EBITDA Core net profit Core EPS (sen) Core EPS growth (%) Net DPS (sen) Core P/E (x) P/BV (x) Net dividend yield (%) ROAE (%) ROAA (%) EV/EBITDA (x) Net gearing (%) (incl perps) Consensus net profit MKE vs. Consensus (%)

RESTRICTED

FY17A

FY18A

FY19E

FY20E

FY21E

1,177 304 218 7.0 34.6 5.5 20.2 5.0 3.9 29.2 21.0 13.2 net cash -

1,376 371 281 8.4 20.0 6.8 27.1 7.2 3.0 25.7 22.2 19.1 net cash -

1,387 351 239 7.1 (15.0) 6.0 22.7 4.9 3.7 22.0 17.6 14.1 net cash 254 (5.9)

1,769 466 334 9.9 39.9 8.4 16.2 4.6 5.2 29.2 23.5 10.7 net cash 301 10.9

2,217 559 411 12.2 23.0 10.4 13.2 4.3 6.4 33.7 27.0 8.9 net cash 363 13.2

Page 24

2.60

230

2.40

210

2.20

190

2.00

170

1.80

150

1.60

130

1.40

110

1.20 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18

90

Inari Amertron - (LHS, MYR)

Inari Amertron / Kuala Lumpur Composite Index - (RHS, %)

-1M

-3M

-12M

Absolute (%)

16

(7)

(30)

Relative to index (%)

14

(9)

(25)

Source: FactSet

MKE Top BUYs CIMB MK

TNB MK

MY loans growth above average and NIMs to stabilize.

Stronger 4Q18 earnings. Pass-through mechanism is now semi-automatic.

Improving outlook for Niaga (NIMs, credit costs, IDR/MYR).

Regulatory concerns potentially overblown.

Trading at about -1SD to historical PER of 10.5x.

Growing demand for Alliance One Account and Alliance@Work. Focus on SMEs to drive loans growth and margins. Recent MSS and branch rationalization to save cost.

Price

Trading at 50% discount to SOP/sh (20-year mean: -22%) .

Valuations are cheap, way below global Pay-TV average.

Toyota’s 2019 sales and margin recovery not priced in.

Despite GENM’s woes, forecast 3year earnings CAGR of 8%.

Dividend yield high at >7% p.a. with upside potential

Mass market new launches to account for 2/3 of sales in 2019.

More upside in store if GENS wins Japanese casino license.

AK buying ASTRO shares and a potential privatization target.

New models could lift margins.

CMS MK

ABMB MK

TP

EPS (sen)

MFCB MK

YTLREIT MK

Beneficiary of acceleration in Pan Borneo Sarawak Highway. Coastal & Second Link Road and State Water Grid Supply may replenish order book. More upside in store from Sacofa and high ferrosilicon prices.

PE (x)

EPS Growth (%)

Resilient rental income from MY and JP, contributing ½ to NPI.

Lao hydro power plant on track for completion by end-2019.

Earnings growth potential from AU hotels post-refurbishment.

More upside from electricity sales during testing period.

More upside from strong pipeline of assets from sponsor.

Net profit to nearly double on commissioning of power plant.

Net yield

ROE

P/B

Px chg

(%)

(%)

(x)

(%)

13 Feb

MYR

CY18E

CY19E

CY18E

CY19E

CY18E

CY19E

CY19E

CY19E

CY19E

YTD

Tenaga

13.06

15.50

94.6

98.7

13.8

13.2

(23.4)

4.3

3.8

8.9

1.2

(4.0)

CIMB

5.78

6.70

50.1

55.6

11.5

10.4

3.7

11.0

5.4

9.7

1.0

1.2

Genting

7.06

9.50

57.4

55.1

12.3

12.8

4.0

(4.0)

2.3

6.4

0.7

15.7

Astro Malaysia

1.58

1.95

10.9

13.7

14.5

11.5

(16.1)

26.0

7.8

97.5

10.0

21.5

UMW Hldgs

5.85

7.50

36.7

49.0

15.9

11.9

44.5

33.5

4.2

15.7

2.0

6.9

Alliance Bank

4.18

4.60

35.5

38.1

11.8

11.0

3.5

7.3

4.1

9.9

1.1

4.0

CMS

3.01

4.10

26.3

28.8

11.4

10.5

7.3

9.5

3.8

11.4

1.2

11.9

YTL REIT

1.28

1.55

9.3

9.9

13.8

12.9

9.4

6.5

6.1

6.3

0.8

8.5

Mega First Corp

3.86

4.20

35.0

26.5

11.0

14.6

2.0

(24.3)

0.5

7.0

1.0

24.5

RESTRICTED

UMWH MK

ASTRO MK

GENT MK

Page 25

Sector peer comparison

Strictly Private & Confidential RESTRICTED

Page 26

Our coverage in Automotive and Technology (Hardware) (as at end 21 Feb 2019)

RESTRICTED

Page 27

DISCLAIMER DISCLAIMER This presentation is for information purposes only and is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this presentation. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies mentioned in this presentation. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this presentation by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this presentation. This presentation may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This presentation copy may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This presentation is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

RESTRICTED

Page 28

Your “Futures” Lies Here KL Market Outlook 1H2019 Terence Ho Head, Retail Futures Sales, Futures, Retail Brokerage 23 February 2019

Disclaimer

WARNING: TRADING IN FUTURES IS HIGHLY LEVERAGED AND CARRIES A HIGH DEGREE OF RISK WHICH MIGHT NOT BE SUITABLE FOR THE GENERAL PUBLIC. INVESTORS SHOULD CONSIDER WHETHER SUCH TRADING IS APPRORIATE IN LIGHT OF THEIR EXPERIENCE, OBJECTIVES, FINANCIAL RESOURCES AND OTHER RELEVANT FACTORS BEFORE COMMENCEMENT.

Disclaimer: The materials, information and functions provided in this report shall not under any circumstances be considered or constitute offer or solicitation to sell, buy, give, take, issue, allot or transfer, or as the giving of any advice in respect of shares, stocks, bonds, notes, interests, unit trusts, mutual funds or other securities, investments, loans, advances, credits or deposits in any jurisdiction

2

Futures Market 101

• What is Markets The areas of economic activity in which buyer and sellers come together and the forces of supply and demand affects prices. • and Why Futures Markets? Futures offer a standardized, fast, cost-effective way to trade financial and commodity markets. Traders worldwide use futures to easily reduce risk or seek profits on changing market environment.

Economics and Markets Traditional – Goods and services are traded without money aka Barter System Command – Government controlled production and pricing Market – Supply and demand, market economy

Mixed - Combination of command and market Hence: The need of having a Futures Market

Are We Impacted By The Big Boys?

Quick Glance of Financial Markets Bond Market Derivatives Market

Stock Market Financial Markets Overview

Foreign Exchange

OTC Other Markets

Markets

Products

Derivatives Market

Securitization, Hybrid Security, Credit derivative, Futures Exchange

Bond Market

Fixed Income, Corporate/Government/Municipal Bond, Bond valuation, High-yield debt

Stock Market

Stock, Preferred Stocks, Common Stocks, Registered Share, Stock Exchange

Foreign Exchange

Exchange Rate, Currency

Other Markets

Money market, Reinsurance Market, Commodity Market

OTC

Spot market, Forwards, Swaps, Options

Dojima Rice Market 1730 & CBOT 1848

Futures Evolution Recognized Exchange and Standardized Specifications Segregated Account guaranteed by Clearing House Have an Underlying Product – Fundamental backed

Availability of Technical Tools Ease of entry and exit Controllable Risk Appetite Leverage power

Derivatives Type and Purpose

Our own Futures Exchange since 1980

Your Futures is Here

How To Trade Fundamental Analysis Understands pattern in company’s financial performance. Tries to predict future performance using financial statements

Technical Analysis Understands patterns in the particular asset class trading price. Assume historical patterns in the particular asset class would repeat itself.

Predictive Methodologies Is predominantly for long-term investment.

Generally used for short-term trading.

Depends on financial statements, brokerage analysis and news reporting

Depends only on the instruments price charts and market volumes

Strategy Rule Based or Risk Based

Define your strategy from a start No Idea caused Traders to be in Limbo state at all times Failing to pull trigger on trade Analysis Paralysis No Diagnosis No Prognosis No Profit

Forecasting Market Trend (TREX OHLC) OPEN

HIGH

LOW

LAST / CLOSE

STATUS

BULLISH BEARISH SIDEWAYS CONSOLIDATION EXPANSION

TREX Concepts

Trading Psychology aka Money in The Pocket Strategies

Trading key – adapting from Wise Sun Tzu 5,000 years ago famous quote “Know your-self and know your markets (enemies), “100 trades (battles) = 100 victories.” It simply means you must know the markets well. As in any games “Practice Makes Perfect. Identify your trading style – Speculator, Spreader, Day-Trader and etc. Capital allocation – Never use with scarce money. Always have a trading game plan, execute the plan diligently.

What is right Keep it (Let the Profit Run), what is wrong Cut-Loss (Reduce The Pain). Do not 2nd guess with emotions.

The Acid Test-Are You Ready Keep your own Trader Journal

Painstakingly update daily OHLC to develop Trader Sense Define your character to incorporate into your trading methods i.e. Hope, Fear and Greed Set aside trading capital and do not mixed with daily expenses. Cast aside emotions during trading. Only follow your trading plan. No trading plan means you are gambling even for 1 minute. Trade with a Stop Order at all times and trail it for emotional control.

Fundamental or Technical it works IF YOU KNOW HOW TO USE IT. Remember NO MARGIN CALLS !

Follow Through (The Basic TREX Plan) Typical daily routine before market opens: a)

Have your PIVOT Points Ready

b)

Identified the Short, Medium and Long Term Trend

c)

Run a game plan in the mind a day before next market day During Market Opens

a)

Setup Trades -> Area of your attack

b)

Trade -> See if the trade Follow-Through as plan

c)

Put in Stop Order to prevent emotional shakeup during market hours.

d)

OCO Orders -> if trading conditions changed.

e)

Maintain composure irregardless market in favor or against. Remember No Margin Calls ! After Market Closed

a) Review your trades against the charts / Emotions / Fundamental b) Review your trading capital on R2R (Risk To Ruin)

Traders Daily Regime 1. Preparation Update Pivot Calculator (Download from Apps Store)

Indicators to determine Key Action

Pre-Simulation on Market Conditions

2. Action Time Actual Market (Setting-up Trades)

Trading In Progress (Time Frames)

Exit Strategies (This will determine P&L)

3. Recap to become expert Review Actual Trades

Am I emotional ?

Trade Journal to avoid repetition of same mistake

Reading FBMKLCI Daily

Reading FBMKLCI Weekly

FBMKLCI Weekly (Gridline)

FBMKLCI Weekly (Zoom)

FCPO Weekly

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