Investment Highlights

• We maintain our HOLD call on FBM KLCI ETF but raise our fair value (FV) by 7% to RM1.76 (from RM1.64) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage), consensus FVs (for stocks not under our coverage) and last traded price (for Hap Seng Consolidated, which is not under any coverage). It is at a slight premium to its NAV of RM1.67 (Exhibit 1).

• The FV upgrade is driven largely by upgrades in our FVs for glove makers Top Glove (+28% to RM25.69) and Hartalega (+31% to RM16.23), on the back of upward earnings revisions on higher glove selling price assumptions and for longer as the Covid-19 pandemic rages on with a number of countries reporting record daily new cases.

• Post-pandemic, we believe the outlook for the glove sector will remain favourable given the higher hygiene standards and practices of global population. However, as in the past pandemics, we are mindful of an expected temporary slump in sales as end users run down their stock holding.

• We are mildly positive on the outlook for the FBM KLCI. We have an end-2020 target of 1,530 pts for the benchmark index based on 18x our projected 2021F earnings, which is consistent with its 5-year historical average.

• We believe there is a case for the FBM KLCI’s multiple to stay elevated to reflect the robust domestic liquidity driven by the risk-on sentiment globally triggered by the massive monetary and fiscal stimulus packages put in place by central banks and governments around the globe, optimism on economy reopening and the news flow on vaccine development. Also helping, is the reality that riskfree assets, i.e. cash and Malaysian Government Securities, are hardly generating any positive inflationadjusted yield.

• The robust domestic liquidity (from both institutional and retail investors) has effectively neutralised YTD net foreign outflow that stood at RM18.1bil as at 21 Jul 2020 (which has already surpassed the net foreign outflows of RM11.1bil and RM11.7bil recorded during the whole of 2019 and 2018 respectively).

Source: AmInvest Research - 22 Jul 2020