Investment Highlights

• We initiate coverage on MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM25) with a HOLD recommendation. We value the ETF at RM1.18, based on our fair values (for stocks under our coverage) and consensus fair values (for stocks not under our coverage).

• The ETF tracks the performance of the DJ Islamic 25 Index, designed to measure the largest and most liquid Malaysiadomiciled companies that comply with Islamic investment guidelines. The top five holdings of the ETF (as at 19 June 2020) are Top Glove (8.5%), Hartalega (8.4%), Petronas Chemicals (7.4%), IHH Healthcare (7.1%) and Sime Darby Plantation (6.3%).

• The DJ Islamic 25 Index is heavily weighted towards consumer goods (27.2% weighting as at 29 May 2020), healthcare (25.1%), oil & gas (16.5%) and telecommunications (14.1%) (Exhibit 4). These four sectors commanded a combined weighting of close to 83% at the market close in May 2020.

• Despite the dented consumer confidence in the aftermath of the Covid-19 pandemic, sales of consumer goods will be supported by the inelastic demand for consumer staple items (particularly, food items). For consumer discretionary items, we see a bright spot in automobiles, driven by the sales tax holiday under the short-term Economic Recovery Plan (Penjana).

• The growth prospects of the healthcare sector are underpinned largely by the strong demand for personal protective equipment, including gloves. Meanwhile, we believe oil prices have found support with the gradual recovery in demand from China as it reopens its economy, while Opec+ continues to exercise production restraint. Telcos are riding on a new wave of digitalisation of the economy, though partially offset by rising mobile competition amidst escalating capex requirements.

• The performance MyETF-DJIM25 was mixed over the last five years. It registered positive returns (in terms of total return, i.e. appreciation in price plus dividend) in 2015, 2017 and 2019, but losses in 2016 and 2018. On average over the five years (2015–2019), it delivered an annual total return of 1.5%.

• Our analysis shows that there is a positive correlation between the MyETF-DJIM25 and its benchmark index, the DJ Islamic 25 Index, and similarly between the price and net asset value (NAV) of MyETF-DJIM25 over 2015–2019.

Source: AmInvest Research - 22 Jun 2020