Investment Highlights

• We maintain our HOLD recommendation and fair value (FV) of RM1.39 for MYETF DJ Islamic 25 based on our fair values (FVs) (for stocks under our coverage) and consensus FVs (for stocks not under our coverage). It is at a premium to its NAV of RM1.27 (Exhibit 3).

• In 2020, the ETF reported an investment income of RM55.5mil (comprising a gross dividend income and shariah-compliant deposit profits of RM7.9mil and a net investment gain of RM47.6mil), surging about 10x from RM5.7mil in 2019. Having accounted for expenditure and tax, it registered a net gain after tax of RM53.7mil, which was about 13x higher than RM3.9mil in 2019 (Exhibit 5).

• The results were reflective of a steep 17.9% rise in the Dow Jones Islamic Market Malaysia Titans 25 Index to 1,150 pts from 975 pts in 2020, driven by a strong rally in glove stocks vs. a marginal increase to 975 pts from 974 pts in 2019. The rally in glove stocks was driven by significantly improved earnings prospects of glove makers underpinned by a steep jump in average selling prices of gloves thanks to a surge in demand amidst the Covid-19 pandemic.

• We maintain our view that the upside to glove stocks and hence the healthcare sector is now capped, on the back of the rollout of Covid-19 vaccines worldwide. The vaccines’ rollout pave the way for the eventual end to the pandemic, and hence an end to the surge in demand for gloves.

• On the other hand, we are positive on the outlook of other key sectors tracked by the ETF, i.e. consumer goods, oil & gas and telecommunications (Exhibit 2). We believe consumer spending will be well supported by cash handouts during the pandemic and the recovery in the job market thereafter. Meanwhile, we believe oil prices will ride on the gradual recovery in global economy, while Opec+ continues to exercise production restraint.

• Telcos are buoyed by a new wave of digitalisation of the economy. The still intense competition among mobile telecommunications operators amidst escalating capex requirements could also trigger M&As within the sector.

Source: AmInvest Research - 18 Feb 2021