Investment Highlights

• We maintain our BUY call on FBM KLCI ETF but tweak our fair value (FV) down to RM1.86 (from RM1.87) (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 premium to its NAV of RM1.58 (Exhibit 1).

• In 1H21, the ETF reported an investment loss of RM151,397 (comprising gross dividend and interest incomes of RM112,468 and a net investment loss of RM264,209), faring worse compared with an investment loss of RM107,364 in 1H20. Having accounted for expenditure and tax, it registered a net loss of RM176,517, which again was a further deterioration from a net loss of RM124,480 in 1H20 (Exhibit 2). This is reflective of a downtrend in the Malaysian equity market in 1H21 as a surge in Covid-19 infections weighed down on the recovery prospects, during which FBM KLCI lost 5.8% to 1,533 pts from 1,627 pts, vs. a 5.5% drop to 1,501 pts from 1,589 pts in 1H20.

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

• It is our base-case assumption that Malaysia shall reach herd immunity against Covid-19 before the year is out. As such, the underperformance of the local market in 1H21 makes it an even more attractive recovery play in 2H21.

• 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 - 23 Aug 2021