Investment Highlights

• We keep our BUY recommendation on FBM KLCI ETF but tweak our fair value (FV) down slightly to RM1.87 (from RM1.91 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 18% premium to its NAV of RM1.59 (Exhibit 1).

• The FV adjustment is largely to reflect the downgrade in our FVs for Top Glove (-18% to RM3.66) and Hartalega (-20% to RM6.87) on further de-rating of the glove sector as vaccination gains momentum globally.

• 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).

Source: AmInvest Research - 8 Jul 2021