Investment Highlights

• We maintain our BUY call on FBM KLCI ETF and raise our fair value (FV) to RM1.86 (from RM1.83) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage). It is at a premium to its NAV of RM1.65 (Exhibit 1).

• The slight increase in the ETF’s FV is mainly due to higher FVs applied for Malayan Banking, CIMB Group, IOI Corporation, Kuala Lumpur Kepong, Hong Leong Bank, Hong Leong Financial Group, RHB Bank, IHH Healthcare, PPB Group and MR D.I.Y. Group (M).

• In 2021, the ETF reported a net loss of RM43,331 as compared to a net income of RM211,896 in 2020. The weak performance is caused by lower investment income of RM11,463 (FY20: RM248, 172). This reflected the decline in the Malaysian equity market in 2021 in which the FBM KLCI dropped 3.7% to 1567.53 pts from 1627.21.

• 4Q2021 results for FBM KLCI stocks. In the recently concluded result season for 4Q2021, plantation and healthcare sectors outperformed. Plantation stocks have benefited from higher CPO price. As for IHH Healthcare, the company’s operation in Singapore has registered strong earnings. However, the glove sector underperformed due to faster-than-expected decline in gloves average selling prices (ASP).

• We expect 2022 to be better for FBM KLCI stocks hence our BUY call on the ETF. We are OVERWEIGHT on the banking sector due to expectations of interest rate hikes which bode well for banks’ earnings. The oil and gas sector’s outlook is also positive as escalating crude oil prices and rising global demand will catalyse faster order flows across the value chain. Meanwhile, the power and consumer sectors are good proxy to the economy recovery hence we are positive on these sectors too. However, we are UNDERWEIGHT on plantations as we believe that the CPO price should ease in the 2H2022 as production increases.

Source: AmInvest Research - 2 Mar 2022