Property Market Outlook

Rajan Paramesran Vice President, Ratings

Investor Briefing 22 March 2011

MALAYSIAN RATING CORPORATION BERHAD

Clarity and Integrity www.marc.com.my

Disclaimer
The material contained in this presentation may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose without the consent of Malaysian Rating Corporation Berhad (MARC). The views expressed in this presentation should be construed solely as statements of opinion and not statements of fact. MARC makes no representation or warranty, express or implied, as to the accuracy, completeness or reliability of the material and comments made during the presentation and accepts no liability arising from any use of this presentation or its contents. This presentation is not to be relied upon in substitution of the exercise of independent judgment.

2011 Investor Briefing

Property Market & Construction Outlook

Performance Drivers

Strong performance of residential sector in recent years driven by:

Low interest rate environment Attractive mortgage financing Ample liquidity in the banking system Government policies

Will these factors hold in the near term?

2011 Investor Briefing

Property Market & Construction Outlook

Interest Rate Environment

OPR expected to increase by 25 bps to 50 bps by year end. Average BLR could increase from 6.3% pa to 6.8% pa. Average Lending Rate, however, will remain accommodative, supported by mortgage financing schemes. Additionally, fixed deposit rates remain relatively low, providing incentive to switch funds to property assets.

2011 Investor Briefing

Property Market & Construction Outlook

Average BLR versus Average Lending Rate

14.0 12.0 10.0

Percentage
12.3 12.1 11.6

12.8 12.1 12.0 12.3 10.2 10.8 10.8 10.0 9.7 9.0 8.7 9.0 9.3 8.2 8.2 7.5 7.5 7.0 7.0 6.8 8.0 6.8 6.8 9.7 10.3 9.7 9.3 9.2 10.6 10.1 10.6 9.5 7.8 7.7 7.1 6.5 6.4 6.4 7.0 6.8 7.0 7.0 6.5 6.3 6.6 6.3 6.8 6.8 6.5 5.6 12.1

8.0 6.0 4.0

8.5 8.5 8.5

8.7

6.0 6.0

4.4 3.7

2.0 0.0

Source: BNM

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average BLR Average Lending Rate
2011 Investor Briefing Property Market & Construction Outlook
5

Loans to Residential Sector

90 80

30%

25% 70 60 20%

RM billion

50 15% 40 30 20 5% 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0% 10%

Loans approved for purchase of residential property Loans approved for purchase of non-residential property Approved residential property loans as a percentage of total loans approved

Source: BNM

2011 Investor Briefing

Property Market & Construction Outlook

Low Fixed Deposit Returns

Amount of individual fixed deposits (up to 1 year)
300 10.0% 9.0% 250 8.0% 7.0% 200 6.0% RM billion 150 5.0% 4.0% 100 3.0% 2.0% 50 1.0% 0 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 0.0%

Source: BNM

Fixed Deposits

Fixed Deposit Rate

Inflation Rate

2011 Investor Briefing

Property Market & Construction Outlook

Other Factors

In general, government policy has been supportive of the housing sector:

Loan-to-value reduction to 70% only imposed on third property mortgage onwards and is not seen as restrictive.

Imposition of 5% tax on gains is not seen as prohibitive.

Incentives for first-time buyers and low-income workers.

For government servants, maximum loan eligibility increased from RM360,000 to RM450,000 effective January 1.

2011 Investor Briefing

Property Market & Construction Outlook

Buying sentiment weakening?

Declining rental yields May limit price gains compared to 2010. Slower launches in the 3rd and 4th quarter 2010 signaling cautious sentiments taking hold. Concerns that additional measures could be imposed LTV could be lowered further or introduced for other category of purchasers. Higher stamp duties imposed. Outlook for residential sector to moderate in 2011

2011 Investor Briefing

Property Market & Construction Outlook

Klang Valley Office Sector

Source: National Property Information Centre (Napic) 4Q2010

2011 Investor Briefing

Property Market & Construction Outlook

10

Klang Valley Retail Sector

Source: National Property Information Centre (Napic) 4Q2010

2011 Investor Briefing

Property Market & Construction Outlook

11

Office and Retail Sectors

Outlook challenging due to:

Incoming supply outweighing demand. Downward pressure on occupancy and rentals. Reliant on strong GDP growth, KL rebranding efforts. Retail sector depends on tourism arrivals, consumer sentiments.

2011 Investor Briefing

Property Market & Construction Outlook

12

Financial Performance of Property Industry

2011 Investor Briefing

Property Market & Construction Outlook

13

Key Indicators

Median operating profit has increased to 17% in 2010 (2009: 14.8%)

Modest leverage Important for sustainability of operations through the business cycles.

Interest coverage measures remained relatively stable and healthy

2011 Investor Briefing

Property Market & Construction Outlook

14

Selected MARC-Rated Property Companies

* Bank Guaranteed **Danajamin Guaranteed

2011 Investor Briefing

Property Market & Construction Outlook

15

Construction Industry Outlook

Rajan Paramesran Vice President, Ratings

Investor Briefing 22 March 2011

MALAYSIAN RATING CORPORATION BERHAD

Clarity and Integrity www.marc.com.my

GDP versus Construction Growth

10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-2.0% -4.0% GDP Growth Construction Growth

2011 Investor Briefing

Property Market & Construction Outlook

17

Performance in 2010

Volatile performance, weakened in 2Q and 3Q 2010 before rebounding in 4Q2010. Underscores government stimulus efforts. Projects tended to be of lower margin.

2011 Investor Briefing

Property Market & Construction Outlook

18

Return of Large-Scale Projects

10th Malaysia Plan and the Economic Transformation Programme (ETP) have unveiled large-scale ambitious infrastructure projects. Expected to set the stage for construction sector rebound.

2011 Investor Briefing

Property Market & Construction Outlook

19

Key Concerns

Implementation timeline dependent on government schedule.

Rising construction costs building material costs cement, steel. labour costs levies, mandatory health insurance.

2011 Investor Briefing

Property Market & Construction Outlook

20

Building Material Prices

Building Material Price Index (July 2002=100) 350 300 250 200 150 100

Cement Ready Mix Concrete

Source: CEIC

Steel Reinforcement Steel and Metal Sections

2011 Investor Briefing

Property Market & Construction Outlook

21

Financial Performance of Construction Industry

2011 Investor Briefing

Property Market & Construction Outlook

22

MARC-Rated Construction Companies

Companies IJM Corporation Berhad WCT Berhad Prinsiptek Corporation Berhad

Rating MARC-1 / AA / stable AA- / stable MARC-2ID / stable

2011 Investor Briefing

Property Market & Construction Outlook

23

MARC-Rated Construction Companies

Large construction companies have other business ventures that have been able to offset weaker construction margins.

Diversified business profile coupled with strong cash positions have helped larger players to sustain ratings.

Smaller companies have seen their liquidity position deteriorate.

2011 Investor Briefing

Property Market & Construction Outlook

24

2011 Investor Briefing

Property Market & Construction Outlook

25