Investment Highlights

• We keep our BUY recommendation on FBM KLCI ETF but tweak our fair value (FV) down slightly to RM1.91 (from RM1.92 previously) based on our FVs (for stocks under our coverage), consensus FVs (for stocks not under our coverage) and the last traded price (for Hap Seng Consolidated, which is not under any coverage). It is at a 15% premium to its NAV of RM1.66 (Exhibit 1).

• Following its latest semi-annual review, the index providers FTSE Russell and Bursa Malaysia replaced a constituent of the FBM KLCI, Supermax Corporation, with MR D.I.Y. Group (M), effective 22 June 2021. We are reflecting these changes in our revised valuation.

• We are optimistic that the world at large shall enter into the late stage of the pandemic in 2H21, with more countries attaining herd immunity against Covid-19. A synchronised global economic recovery is underway, underpinned by the gradual reopening of economies and international borders.

• We hold the view that the underperformance of the local market in 1H21 (due to the resurgence in Covid-19 infections) makes it an even more compelling recovery play in 2H21. Sector-wise, while clarity is still lacking with regards to the extent of the irreversible damage the pandemic has inflicted on businesses, and hence asset quality of banks, we take comfort that banks have started to make pre-emptive provisions in the form of management overlays, in addition to provisions based on changes to macroeconomic factors.

• Other key sectors that are poised to benefit from the recovery are power (increased demand for electricity, particularly, from the commercial and industrial segments), oil & gas (higher crude oil prices), seaport (higher throughput on further recovery in global trade), airport (the eventual reopening of international borders), consumer (cash handouts and recovery in the job market to sustain consumption) and REIT (reduced rental rebates, recovery in footfall and occupancy).

• Meanwhile, while the availability of effective vaccines has greatly brightened the recovery prospects of the air travel sector, we remain mindful of the need for airlines to recapitalise their balance sheet after massive losses during the pandemic.

Source: AmInvest Research - 22 Jun 2021