Legal Entity (Investment Bank / Asset Management)

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1 Legal Entity (Investment Bank / Asset Management) 1

2 18 October 2018 Malaysia Macro MALAYSIAN TIMBER 2018 CONFERENCE Global Economic Scenarios Alan Tan Tel: Legal Entity (Investment Bank / Asset Management) PP 18616/11/2014(034068) 2

3 Ten-year economic cycle, global GDP growth trends Global GDP growth by IMF %yoy 6 AFC 5.4 Global GDP growth GFC Source: IMF 3

4 Ten-year economic cycle, Malaysia GDP growth trends If History Repeats Itself Is the Next Global Economic Crisis Around the Corner? % yoy 10.0 AFC 8.9 GFC Source: World Bank 4

5 Global growth forecast comparison, IMF cuts global GDP growth outlook IMF World Bank ADB Forecasts *Change Forecasts *Change Forecasts *Change Global Advanced economies US Euro Area Japan Developing economies China India Asean Indonesia Malaysia Philippines Singapore Thailand Source: IMF (October 2018 WEO), World Bank (June 2018 GEP), ADB (September 2018 update) 5

6 Global growth forecast Latest downward revision by OECD Global GDP growth was cut by 0.1ppt for 2018 & 0.2ppt for 2019 %yoy Mar-18 Nov-16 Mar-17 Jun-17 Nov-17 Mar-18 May-18 Sep-18 Nov-17 Mar-18 May-18 Sep Faster-than-expected monetary policy normalisation in advanced economies or a deepening of trade tensions could lead to further financial market pressures on emerging-market economies. Source: OECD 6

7 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Global economy remains healthy The last GDP growth downgrade was in July 2016 %yoy 2017F 2018F 2019F Source: IMF Y2016 Y2017 Y2018 7

8 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 Jul-08 Mar-09 Nov-09 Jul-10 Mar-11 Nov-11 Jul-12 Mar-13 Nov-13 Jul-14 Mar-15 Nov-15 Jul-16 Mar-17 Nov-17 Jul-18 Slowdown in global trade activity and output 3MMA Index 129 World trade (LHS) World exports (RHS) World imports (RHS) 3MMA %yoy 6 3MMA %yoy 15 World production growth Advanced economies Emerging economies Source: CPB Netherland 8

9 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 OECD Composite Leading Index (CLI) has slowed Index 103 Total Euro Area UK US Japan China Source: OECD, Bloomberg 9

10 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Sign of slowdown also reflected in global manufacturing PMI, despite sustained above threshold level of 50 Index 62 Global US China Eurozone Japan ASEAN Source: IHS Markit, Bloomberg 10

11 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Japan s economy remaining steady Tankan survey moderated in 3Q18 but unlikely to fall sharply %yoy All enterprise Manufacturing Non manufacturing Source: CEIC, Bloomberg 11

12 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Euro area consumer confidence holding up Consumer confidence index 10 GFC European debt crisis Brexit Source: Bloomberg 12

13 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Dec-17 Aug-18 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Dec-17 Aug-18 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18 US economy continues to stay the course The unemployment rate remained low '000 Change in nonfarm payrolls Unemployment rate ,000 % which reflected in steady consumer confidence index Index Conference Board Consumer confidence U. of Mich Consumer sentiment (RHS) But, exports grew slower in August which may affect the production growth in coming months %yoy Imports Exports MMA %yoy Industrial production Factory orders Manufacturing production Source: OECD, Bloomberg 13

14 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 US NFIB Small Business Optimism Index soared to in August, a new record in the survey s 45-year history % Source: National Federation of Independent Business 14

15 Latest economic projection by the US Fed GDP growth was revised higher Central tendency Variable Longer run Change in real GDP 3.0 to to to to to 2.0 Projection in September FOMC June projection 2.7 to to to 2.0 n.a. 1.8 to 2.0 Unemployment rate to to to to 4.6 June projection 3.6 to to to 3.7 n.a. 4.6 to 4.6 PCE inflation 2.0 to to to to June projection 2.0 to to to 2.2 n.a. 2.0 Source: US Fed 15

16 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Fed Funds Rate closer to US neutral rate Future direction of monetary policy will be dependent on US economic condition % US Neutral Rate Source: US Federal Reserves 16

17 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 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 PBOC lowers RRR for the fourth time in 2018 to boost domestic economy Slowdown in China s manufacturing PMIs in September RRR for large and small banks were raised by 1ppt Index Caixin Manufacturing PMI % RRR for Large Banks RRR for Small Banks 53 NBS Manufacturing PMI Source: Bloomberg Source: PBOC 17

18 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 PBOC set lowest daily yuan fixing rate since May 2017 Yuan per USD October : Source: Bloomberg 18

19 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 Argentine peso is the weakest EM currency Argentine Peso depreciated by 50% between 1 Jan 21 st Sep Ringgit only weakened by 2.0% in the same period Mexican Peso Thai Baht Qatari Riyal UAE Dirham Colombian Peso Egyptian Pound Peruvian Sol Malaysian Ringgit Greek Drachma Czech Koruna New Taiwan Dollar South Korea Won Polish Zloty Chinese Yuan Hungarian Forint Chilean Peso Philippines Peso Indonesia Pakistani Rupee Indian Rupee Russian Ruble South African Rand Brazilian Real Turkish Lira Argentine Peso Source: Bloomberg % Change USD/TRY; USD/MYR Source: Bloomberg USD/TRY USD/MYR USD/ARS (RHS) USD/ARS

20 Turkey Philippines Indonesia Chile Mexico Colombia Peru India South Africa Pakistan Argentina Brazil Egypt Taiwan Thailand South Korea Czech Republic UAE Hungary Russia Malaysia Greece Poland China Qatar Argentina Egypt Turkey Philippines India Mexico South Africa Pakistan UAE Indonesia Brazil Colombia Hungary Russia Czech Republic Chile China Poland Taiwan Korea Malaysia Thailand Peru Greece Qatar Taiwan Czech Republic Thailand Malaysia Peru UAE Korea China Russia Philippines Poland Hungary Brazil Egypt India Colombia Mexico Chile Indonesia South Africa Qatar Turkey Argentina Pakistan Greece Malaysia s fundamentals remaining intact with current account surplus Malaysia among EM countries not running a twin deficit in 2017 % of GDP Budget balance Current account balance Twin deficit Malaysia s foreign reserves remain healthy in 1Q18 % of GDP Inflation in Malaysia was stable in 2Q18 % yoy Source: IMF, CEIC 20

21 Comparison of strength of EM countries Malaysia s Fitch rating was maintained at A- Source: Bloomberg Country Fitch Rating Outlook Note: *2017 Foreign Reserves % of GDP Current Account Deficit % GDP (2017) Budget Deficit Foreign Reserves % GDP (2017) % GDP (1Q18) CPI, 2Q18 (% yoy) UAE AA Stable * 3.4 Korea AA- Stable Qatar AA- Stable Taiwan AA- Stable Czech Republic A+ Positive China A+ Stable Chile A Stable Malaysia A- Stable Poland A- Stable Mexico BBB+ Stable Peru BBB+ Stable Thailand BBB+ Stable Colombia BBB Stable Indonesia BBB Stable Philippines BBB Stable Hungary BBB- Positive Russia BBB- Positive India BBB- Stable South Africa BB+ Stable Turkey BB Negative Brazil BB- Stable Egypt B Positive Greece B Positive Argentina B Stable Pakistan B Negative *

22 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Jan - Nov 2016 Dec 16 - June 17 Dec 16 - Sep 17 Dec 16 - Dec 17 Dec 16 - Mar 18 Dec 16 - Jun 18 Ringgit likely to remain weak against US Dollar by end-2018 Ringgit against US Dollar performance USDMYR Net FX exports conversion US$bn Net FX exports conversion ratio 60% abt 55% (US$12.1bn) % 40% 30% abt 41% (US$9.2bn) % 10% Source: Bloomberg, BNM 0% f 22

23 But, Malaysia has shown the ability to manage episodes of financial shocks NR portfolio flows (US$bn) Change in reserves (US$bn) Change in MYR/USD (%) (22 May - 28 Aug 13) (29 Aug Sep 15) (9 Nov 16-4 Jan 17) (Since April) Taper tantrum Oil price decline US election Current Source: BNM 23

24 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Jul-17 Feb-18 Sep-18 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E 4Q2018 Outlook: Favourable oil price outlook Dd/Ss dynamics are supportive of firm oil prices (MMb/d) Excess Production (RHS) Global Supply (LHS) Global Demand (LHS) (MMb/d) Supportive of the current account surplus RM should strengthen with firmer oil prices Current Account Surplus (LHS) US$/RM (RHS) Brent Crude Oil (LHS) US$/RM (RHS) Source: CEIC, Bloomberg Source: Bloomberg 24

25 Trade war 25

26 Trade War Tensions between US-China Rising imports from China USD bn US exports to China US imports from China US trade deficit with China US$ bn Source: CEIC 26

27 Rapid escalation of US-China trade dispute from mid-june The trade tensions between the US and China escalated on 15 June 2018, when the US announced that the Government would impose a 25% tariff on 818 Chinese imports worth US$34bn with effect from 6 July President Trump had earlier announced a tariff of 25% on US$50bn worth of Chinese imports, where tariffs on an additional US$16bn worth of Chinese imports will need to undergo public review. China retaliated immediately, declaring a 25% tariff on US$34bn of US imports, which will also take effect on 6 July China plans to impose additional tariffs of 25% on chemical products, medical equipment and energy, with a value of US$16bn imported from the US starting August 23. President Trump has not backed down since, having requested the United States Trade Representative (USTR) to identify US$200bn worth of Chinese imports for additional tariffs of 10%, or as high as 25%. On July 20, President Trump said he s ready to go for US$500bn, where the immediate impact of such an action would be felt on port operators, shipping companies and the people who work for them. Source: Various medias 27

28 Second phase of tariffs take effect on September 24 On Sept.7, Trump said he s willing to slap tariffs on an additional US$267bn in Chinese goods, on top of duties of US$200bn in imports is already considering. On Sept. 17, President Trump finalised the list of US$200bn imports from China which will be subjected to a 10% tariff. Also announced was the eventual increase in the tariff to 25% on January The next day on Sept. 18, China finalised its tariffs on US$60bn of imports from the US ranging from 5% to 10%, down from 5% to 25%, previously. Tariffs imposed are mainly on intermediate inputs and capital equipment. Both US and China tariffs announced on Sept 17 and 18 were taken into effect on Sept. 24. As trade tariff escalate, on Sept. 21, China decided to cancel trade talks which were supposed to take place the following week. In a bid to protect its consumers amid rising US tariffs, China announced on Sept. 26 that it would cut import tariffs on some non-us goods such as electrical equipment, machinery, and textiles effective Nov. 1. Source: Various medias 28

29 Developments of US-China trade war USD bn % tariffs* % tariffs 25% tariffs 25% tariffs % tariffs 25% tariffs Note: * = Assumed tariff level Source: Bloomberg Tariffs in Place Tariffs from Sept. 24 Tariffs from Jan Tariffs on Further Amount (Threatened Over Uncertain Horizon) 29

30 US tariffs on China s imports An increase in US tariffs on Chinese consumer goods in US$200bn & US$267bn lists Intermediate Capital goods Transport equipment Consumer goods Other Phase 1: US$50bn list 55% 42% 4% 1% <1% Phase 2: US$200bn list 50% 25% 24% 1% Potential Phase 3: US$267bn list 15% 44% 40% 1% China s tariffs on US$60 billion of imports shift into covering intermediate inputs and capital equipment Intermediate goods Capital goods Consumer goods Other Response to phase 1: US$50bn lists 63% 7% 28% 2% Response to phase 2: US$60bn lists 67% 26% 7% <1% Potential response to phase 3: US$53bn 52% 33% 5% 10% Source: PIIE 30

31 China s GDP to decline more with trade war According to ADB, under current trade war scenario, both GDPs of China and US are negatively impacted but China will be experience a larger impact. If escalated, China s GDP to fall further by 1ppt and US GDP will decline by 0.26ppt. % of GDP 0.0% Current scenario China Bilateral escalation scenario % of GDP 0.0% Current scenario US Bilateral escalation scenario -0.2% -0.1% -0.4% -0.6% -0.51% -0.48% -0.1% -0.12% -0.2% -0.8% -0.16% -1.0% -0.2% -0.20% -1.2% -1.08% -1.03% -0.3% -0.26% -1.4% Source: ADB Direct and indirect effects Direct, indirect and trade redirection effects -0.3% Direct and indirect effects Direct, indirect and trade redirection effects Note: Direct effects hit the products and countries that are subject to the tariffs; Indirect effects work through local and international supply chains; Trade redirection toward other products in proportion with their shares in the global market 31

32 Trade war to have smaller impact on developing Asia With trade redirection, the region s GDP will expand by 0.06ppt under the current scenario and 0.22ppt if trade war escalates. % of GDP 0.25% 0.20% Developing Asia excluding China Current scenario Bilateral escalation scenario 0.22% Asean-5 to likely benefit as they produce and export goods similar to those made by China % of GDP 0.6% 0.4% Current scenario Bilateral escalation scenario 0.41% 0.34% 0.15% 0.2% 0.0% 0.11% 0.11% 0.09% 0.02% 0.10% 0.05% 0.06% -0.2% -0.4% 0.00% -0.6% -0.48% -0.05% -0.05% -0.8% -0.10% -0.09% -1.0% -1.03% -0.15% Direct and indirect effects Direct, indirect and trade redirection effects -1.2% China Asean-5 Newly industrialised economies Rest of developing Asia Source: ADB 32

33 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 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 China holding of US Treasuries China lessens its holdings to US$1171bn as trade tensions continue USD bn 1350 China holding of US Treasuries China holding of US Treasuries % of total holdings (RHS) 1300 % Source: CEIC 33

34 Direct impact from current trade war actions are limited for Malaysia due to low product coverage, but downside risks remain % Breakdown of exports affected by new trade tariffs Aluminium & steels USD50 billion tariffs Products affected by new tariffs comprise a small portion of US & China s exports - Current trade action affects <4% of the countries total exports USD200 billion tariffs Others Greater downside risks arising from potential expansion of US tariffs products: - E.g: Blanket tariffs on automobiles Nevertheless, impact of current trade tension to Malaysia is expected to remain limited China's total exports US total exports - Diversified market for Malaysian exports - Highly varied export product range Source: USTR, MOFCOM, Global Trade Atlas, BNM 34

35 Macro results of a trade war, tariffs on goods between US and the OECD Simulation results for all-out trade war, main macroeconomic effects (%) US China EU28 Netherlands Japan Korea Canada Mexico 5% on all goods between US and the OECD GDP (%) Export volume (%) Import volume (%) Terms of trade (%) % on all goods between US and the OECD GDP (%) Export volume (%) Import volume (%) Terms of trade (%) % on all goods between US and the OECD GDP (%) Export volume (%) Import volume (%) Terms of trade (%) Source: CPB Netherlands, WorldScan 35

36 Implication from US tariff on China s economy Impact on China s exports and GDP under different US tariff levels Tariff levels 2.9%( existing) 15% 30% 45% Exports to the US in 2017 (USDbn) 506 Tariff impact on exports (USDbn) Tariff impact on exports (% of exports to the US) Tariff impact on GDP (USDbn) Tariff impact on GDP without multiplier effects (% of GDP) Tariff impact on GDP with multiplier effects (% of GDP) Source: USITC, Tariff Analysis Online, Daiwa estimates 36

37 Malaysia: Macro Background 37

38 Macro background for 2019 Budget proposal GDP by Expenditure Components 1H16 2H H17 2H H F Total Consumption Private consumption Public consumption Total Investment Private investment Public investment Domestic Demand Net exports Exports Imports GDP (2010 real prices) Source: CEIC, Affin Hwang esttimates 38

39 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Domestic demand remains the driver of Malaysia economy Budget is likely to focus on supporting domestic demand %yoy Real GDP (LHS) Domestic Demand (RHS) Net Exports (RHS) ppt to GDP growth Source: DOSM 39

40 Affin Hwang GDP forecasts for 2018 and 2019 GDP by Expenditure Components F 2019F F 2019F F 2019F %yoy % of GDP % contribution point to GDP growth Total Consumption Private consumption expenditure Public consumption expenditure Total Investment Private investment expenditure Public investment expenditure Domestic Demand Net exports Exports Imports GDP (2010 real prices) GDP By Kind of Economic Activity Agriculture, Forestry and Fishing Mining and Quarrying Manufacturing Construction Services GDP (2010 real prices) Source: Affin Hwang estimates 40

41 Malaysia: Economic fundamentals stays healthy Macroeconomic and financial indicators Indicator Unit Asia financial crisis Global financial crisis Latest Real GDP growth % (1H18) Inflation rate % (8M18) Fiscal balance % of GDP (1H18) Public debt % of GDP (2017) External debt % of GDP (2017) Short-term external debt % of total external debt (2017) Current account balance % of GDP (1H18) International Reserves US$bn (Aug-18) Gross national savings % of GNI (1H18) Total loan growth % (July-18) Non performing loans ratio % (May-2018) Source: CEIC 41

42 Concern: Rating downgrade but unlikely Malaysia s sovereign ratings comparison Malaysia Moody's S&P Fitch Date Ratings Outlook Date Ratings Outlook Date Ratings Outlook 24-Sep-02 Baa1 Stable 1-Sep-00 BBB Positive 7-Aug-02 BBB+ Stable 29-Sep-04 Baa1 Stable 4-Apr-01 BBB Stable 8-Nov-04 A- Stable 16-Dec-04 A3 Stable 4-Mar-02 BBB Positive 20-Nov-06 A- Stable 24-May-06 A3 Stable 20-Aug-02 BBB+ Stable 22-Jan-08 A- Stable 20-Nov-13 A3 Positive 8-Oct-03 A- Positive 30-Jul-13 A- Negative 11-Jan-16 A3 Stable 15-May-08 A- Stable 30-Jun-15 A- Stable Source: Rating Agencies 42

43 F F Fiscal position remains a focus Fiscal balance RM million Fiscal balance Fiscal balance (% of GDP) 10, ,000-20,000-30,000-40,000-50,000-60,000 % of GDP Operating surplus to remain firm RM bn Operating surplus (RHS) Total revenue Operating expenditure (Opex) RM bn Source: Ministry of Finance 43

44 Equity Rating Structure and Disclaimer Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD SELL Total return is expected to be between -5% and +10% over a 12-month period Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) ( the Company ) based on sources believed to be reliable and is not to be taken in substitution for the exercise of your judgment. You should obtain independent financial, legal, tax or such other professional advice, when making your independent appraisal, assessment, review and evaluation of the company/entity covered in this report, and the extent of the risk involved in doing so, before investing or participating in any of the securities or investment strategies or transactions discussed in this report. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (expressed or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, estimates, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel and the same are subject to change without notice. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest. Under no circumstances shall the Company, be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company its directors, its employees and their respective associates may have positions or financial interest in the securities mentioned therein. The Company, its directors, its employees and their respective associates may further act as market maker, may have assumed an underwriting commitment, deal with such securities, may also perform or seek to perform investment banking services, advisory and other services relating to the subject company/entity, and may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. The Company, its directors, its employees and their respective associates, may provide, or have provided in the past 12 months investment banking, corporate finance or other services and may receive, or may have received compensation for the services provided from the subject company/entity covered in this report. No part of the research analyst s compensation or benefit was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Employees of the Company may serve as a board member of the subject company/entity covered in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. This report, or any portion thereof may not be reprinted, sold or redistributed without the written consent of the Company. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) A Participating Organisation of Bursa Malaysia Securities Bhd 22nd Floor, Menara Boustead, 69, Jalan Raja Chulan, Kuala Lumpur, Malaysia. T : F : research@affinhwang.com 44