Sublime. Key Take Away GDP Numbers Detail 1Q16 4Q15 1Q15 Real GDP (y-o-y) Real GDP (q-o-q) Domestic Demand Growth

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M&A Securities Economic Report: Malaysian 1Q16 GDP PP14767/09/2012(030761) Sublime Friday, May 13, 2016 Key Take Away GDP Numbers Detail 1Q16 4Q15 1Q15 Real GDP (y-o-y) 4.2 4.5 5.7 Real GDP (q-o-q) 1.0 1.2 1.4 Domestic Demand Growth 3.6 4.0 8.0 Growth: Y-o-Y - Supply Side Manufacturing 4.5 5.0 5.6 - Supply Side Services 5.1 5.0 6.4 - Demand Side Private Consumption 5.3 4.9 9.0 - Demand Side Private Investment 2.2 4.9 11.6 - Demand Side Net Export -0.5 4.0-0.6 RM/USD - average 3.90 4.29 3.70 Source: BNM, MOF, M&A Securities Malaysia Economic Forecast (2012-2015F) 2013 2014F 2015 2016F BNM 4.0%-4.5% MoF 4.0%-4.5% MIER 4.7% 4.7% 6.0% 5.0% World Bank 4.5% Bloomberg Consensus 4.4% M&A Securities 4.5% Source: Various, M&A Securities * In March during the release of 2015 BNM Annual Report Overall of 1Q16 GDP Analysis and Economic Outlook Considering the challenging external environment, Malaysia s 1Q16 GDP of 4.2% (4Q15 GDP: 4.5%; 1Q15 GDP: 5.7%) can be considered sublime. This is no small feat achievement and it is within our expectation and also that of the central bank s. Going forward, Malaysia will have to continue focusing on elevating the performance of its drivers including private investment, services and manufacturing. Now that Ringgit has somewhat stabilized, we expect business risk to gradually receding, pushing for greater risk taking. We expect the performance of Ringgit to be steadier in 2H16. In a nutshell, the worse is almost over. Note that services and manufacturing continued to drive Malaysia s economy in 1Q16 after belting 1Q16 growth of 5.1% and 4.5%, more than picked up the slack by agriculture and mining. The latter produced 1Q16 growth -3.8% and 0.3% while construction sector hammered a slight deceleration in growth of 7.9% against 1Q15 blazing pace of 9.6% but better than 4Q15 performance of 7.4%. Indeed, the steady progress of large ticket projects for infrastructure has lent a hand in the sector s performance. Rosnani_r@mna.com.my 1

On the demand side, 1Q16 GDP performance would be better if not for the lower-than-expected performance coughed by private investment (1Q16 growth: 2.2%; 4Q15 growth: 4.9%; 1Q15 growth 11.6%). The solid performance by private consumption had picked the slacked left by private investment after delivering a steady growth of 5.3%, higher than 4Q15 of 4.9% but markedly lower than 1Q15 of 9.0%. Public investment continued its downhill performance after making a negative growth of 4.5% in 1Q16, in line with the government s target to maintain fiscal deficit to 3.1%. This is much lower than 4Q15 said sector performance of 0.4% and 1Q15 of 0.6%. Given the tight government revenue following the fall in oil price, we think that the government will continue to tighten its belt for the sake of fundamentals. Although 1Q16 GDP can be considered low by our historical standards but this is much better than advanced economies performance including that of the regional countries. Our performance has been consistent and steady and if there is an aberration, it s mainly temporary due to the challenges face by our major trading partners, chiefly China, Japan and Eurozone. At the moment, the hope is for oil price to move northbound convincingly although at the current oil price (WTI) of USD45 per barrel, it is essentially higher than the government s expectation of USD35 per barrel for the year. Unfortunately, we don t think that commodity prices will rebound sharply so soon as most indicators (i.e. oil, crude palm oil) are all facing supply glut due to sapping demand. Nonetheless, the stability of global commodity prices is more important now. Malaysia Economic Statistics By Expenditure (constant 2015 prices) 2015 2016 Share 1Q 4Q Year 1Q 2015 (%) Annual Change (%) Aggr demand (excl. stocks) 91.6 8.0 4.0 5.1 3.6 Private Sector 69.2 - Consumption 52.4 9.0 4.9 6.0 5.3 - Investment 16.9 11.6 4.9 6.4 2.2 Public Sector 22.4 - Consumption 13.5 4.1 3.3 4.4 3.8 - Investment 8.9 0.6 0.4-1.0-4.5 Net Exports 8.6 - Export 73-0.6 4.0 0.6-0.5 - Import 64.4 0.9 4.0 1.2 1.3 Real GDP 100 5.7 4.5 5.0 4.2 Real GDP (Q-o-Q) - 1.4 1.2-1.0 Source: BNM, M&A Securities 2

Malaysia Economic Statistics By Economic Activity (constant 2015 prices) 2015 2016 Share 1Q 4Q Year 1Q 2015 (%) Annual Change (%) Agriculture 8.8-4.1 1.5 1.2-3.8 Mining 8.9 9.7-1.3 4.7 0.3 Manufacturing 23 5.6 5.0 4.9 4.5 Construction 4.4 9.6 7.4 8.2 7.9 Services 53.5 6.4 5.0 5.1 5.1 Real GDP 100 5.7 4.5 5.0 4.2 Real GDP (Q-o-Q) - 1.4 1.2-1.0 ¹Numbers do not add up due to rounding and exclusion of import duties component Source: Department of statistics, Malaysia, MOF Supply Side Analysis 1Q16 Key sectors namely manufacturing and services hammered commendable performance in 1Q16 after delivering steady growth of 4.5% and 5.1% despite challenging external and business environment not to mention tight credit market where loans approval were noticeably lower. The stability of Ringgit performance also helped the manufacturing side where planning is now more conducive. Mining sector growth was a minute 0.3% against 1Q15 impressive numbers of 9.7% as the supply glut issue along with weather related factors may have taken a toll on production. Until and unless these issue are settled, the sector s performance may be in limbo, in our view. As for construction sector, driven by steady progress of infrastructure projects, it coughed a solid 1Q16 growth of 7.9%, higher than 4Q15 of 7.4% but markedly lower than 1Q15 of 9.6%. We expect this sector will continue to perform well in 2016 driven by the full implementation of big ticket projects. Demand Side Analysis 1Q16 Private sector was noticeably and yet again the anchor of the economy in 1Q16 with 4.5% growth against public sector minute growth 0.4%. Private consumption, boosted by full employment and steady wages elevation was the propeller after delivering a growth of 5.3%. Nonetheless, this growth was much lower than 4Q15 and 1Q15 growth of 4.9% and 9.0% respectively. On private investment, its markedly low growth of 2.2% against 4Q15 and 1Q15 of 4.9% and 11.6% was a surprise, no thanks to elevated business cautiousness and a dip in mining sector upstream investment. The government, true to its word to keep fiscal deficit at 3.1%, delivered a negative public investment growth of 4.5%, a big plunge against 4Q15 and 1Q15 numbers of 0.4% and 0.6% respectively. On export side, looking at the rising growth risk faced by our major trading partners, we are not surprised over the negative net export growth of 0.5% vs. 4Q15 net export growth of 4.0%. 3

To summarize, although the drop in private investment and manufacturing performance had dragged our overall growth in 1Q16 but this is to be expected given the challenging external environment and markedly volatile currency and commodity markets. Monetary Outlook 2016 At the moment, with 1Q16 GDP touching 4.2% and the US has yet to start its interest rate chess game, we don t see any compelling reason for ORP to be adjusted, more so when the level of inflation remains contain and household debt had touched 89%. In sum, the current interest rate environment is conducive for the economy. MPC Meeting No. 3rd 4th 5th 6th Source: BNM, M&A Securities BNM MPC Meeting Schedule (2016) Schedule of Monetary Policy Committee Meetings for 2016 Dates 19 May (Thursday) 13 July (Wednesday) 7 September (Wednesday) 23 November (Wednesday) US Federal Reserve FOMC Meeting Schedule (2016) US Federal Reserve FOMC Policy Meetings for 2016 FOMC Meeting No. Dates 4th 14-15 June (Tuesday & Wednesday) 5th 26-27 July (Tuesday & Wednesday) 6 th 20-21 September (Tuesday & Wednesday) 7th 1-2 November(Tuesday & Wednesday) 8th 13-14 December Source: FOMC, M&A Securities Inflation Outlook 2016 1Q16 inflation averaged 3.4% and we believe 2H16 inflation may gain traction, pushing full year 2016 average inflation to touch 3%-4% against 2015 of 2.1%. There is a greater upside risk for global commodity prices to head northbound in 2H16, especially oil, basing on greater draw down of US inventory level. Of which, if the US inventory level do come down steadily, this will be the catalyst for oil price to make a nice and steady rebound. All in, we expect oil price to average above USD50 per barrel, putting a steady pressure on Malaysia s inflation rate in 2H16. Ringgit Outlook 2016 Ringgit so far has averaged at RM4.02 per Dollar against 2015 average of RM3.80 per Dollar. Although we do hope Ringgit do touch our fair value of RM3.75 per Dollar but looking at its potential catalyst, we think it s quite tough for Ringgit to race to our fair value given 1) fast dissipating issues surrounding the government after 1MDB case is now fully settled meaning the settlement of 1MDB case is fully priced-in by the market by now 2) impending interest rate adjustment by the US 3) sticky oil price and 4) small chance for BNM to adjust OPR this year. Hence, we think that Ringgit is likely to range bound between RM3.80-RM4.00 per Dollar in 2H16. 4

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Y-o-Y 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 What to Expect Equity Market in 2H16 With the likely recovery of oil price in 2H16, we think that the sentiment in local equity market is likely to improve beginning August onwards. Re-rating catalyst so far is only oil price and we think that there is a fair chance for it to surpass USD50 per barrel. In line with that, Ringgit will also gain traction, pulling up the equity market as well. This is in line with our end of year FBMKLCI target of 1,790 that is pegged to a PER of 17.1x. Malaysia Annual GDP Growth Malaysia Quarterly GDP Growth (2006-2015) (4Q13-1Q16) 8.0% 6.0% 4.0% 2.0% 0.0% 6.3% 5.6% 4.8% 7.4% 5.6% 6.0% 5.1% 4.7% 5.0% 4.30% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 6.20% 6.40% 5.60% 5.80% 5.60% 5.10% 4.90% 4.70% 4.50% 4.20% -2.0% -4.0% -1.7% 1.0% 0.0% Source: BNM, MOF, M&A Securities Malaysia: Inflation Trend (January 2015 March 2016) 4.50 4.00 3.50 3.00 2.50 2.00 1.8 2.1 2.5 3.3 3.1 2.6 2.5 2.6 2.7 3.5 4.2 2.6 1.50 1.00 1.0 0.9 0.50 0.00 0.1 5

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Y-o-Y Y-o-Y Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 Nov-05 Feb-06 Apr-06 Nov-08 Jan-09 Feb-09 Mac-10 May-10 Jul-10 May-11 July-14 RM per USD Basis Points Ringgit per Dollar (January YTD 2016) BNM Quantum of Policy Adjustment (November 2005-July 2014) 4.60 4.40 40 20 30 25 25 25 25 25 25 25 4.20 4.00 3.80 3.60 3.40 3.20 3.00 0-20 -40-60 -80-100 -25-50 -75 Source: BNM, Bloomberg, MOF, M&A Securities Malaysia Export (January 2015 March 2016) 20 15 10 5 0-5 -10-15 12 10 8 6 4 2 0-2 -4-6 -8-10 Export (LHS) Import (RHS) Source: Bloomberg, M&A Securities 6

M&A Securities STOCK RECOMMENDATIONS BUY Share price is expected to be +10% over the next 12 months. TRADING BUY Share price is expected to be +10% within 3-months due to positive newsflow. HOLD Share price is expected to be between -10% and +10% over the next 12 months. SELL Share price is expected to be -10% over the next 12 months. SECTOR RECOMMENDATIONS OVERWEIGHT The sector is expected to outperform the FBM KLCI over the next 12 months. NEUTRAL The sector is expected to perform in line with the FBM KLCI over the next 12 months. UNDERWEIGHT The sector is expected to underperform the FBM KLCI over the next 12 months. DISCLOSURES AND DISCLAIMER This report has been prepared by M&A SECURITIES SDN BHD. Readers should be fully aware that this report is for informational purposes only and no representation or warranty, expressed or implied is made as to the accuracy, completeness or reliability of the information or opinion contained herein. The recommendation and opinion are based on information obtained or derived from sources believed to be reliable. This report contains financial forecast/projection based on our assumptions which may defer from the actual financial results announced by the companies under coverage. All opinions, estimates and assumptions are subject to change without notice. Analysts will initiate, update and cease coverage solely at the discretion of M&A SECURITIES SDN BHD. Investors are to be cautioned that value of any securities invested may fluctuate from time to time. We advise investors to seek financial, legal and other advice for investing based on the recommendation of our report as we have not taken into account each investors specific investment objectives, risk tolerance and financial position. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. M&A SECURITIES SDN BHD can accept no liability for any consequential loss or damage whether direct or indirect. Investment should be made at investors own risks. M&A SECURITIES SDN BHD and INSAS GROUP of companies, their respective directors, officers, employees and connected parties may have interest in any of the securities mentioned and may benefit from the information herein. M&A SECURITIES SDN BHD and INSAS GROUP of companies and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. This report may not be reproduced, distributed or published in any form or for any purpose. M & A Securities Sdn Bhd (15017-H) (A wholly-owned subsidiary of INSAS BERHAD) A Participating Organisation of Bursa Malaysia Securities Berhad Principal Office Level 1,2,3 No.45-47 & 43-46 The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Tel: +603 2282 1820 Fax: +603 2283 1893 7