Investment Highlights

• We upgrade MYETF DJ Islamic 25 to BUY as valuations have fallen to more compelling levels notwithstanding a slightly lowered fair value (FV) of RM1.21 (from an earlier RM1.27) based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage and restriction). It is at a premium of 23% to its NAV of RM0.99 (Exhibit 3).

• The 4% reduction in ETF’s FV stems mostly from the 19% decrease in our valuation for Top Glove to RM0.88/share due to declining average selling prices and a telco operator.

• We are OVERWEIGHT on oil & gas, which accounts for the largest share of 25% of the ETF’s NAV. This is given expectations of an extended up-cycle from years of underinvestment globally which will re-catalyse capex rollouts for service providers as well as the entire value chain of upmid-downstream operators. Hence, we like Petronas Chemicals Group, Petronas Gas and Dialog Group.

• The technology industry continues to enjoy robust global semiconductor demand growth despite supply chain disruptions from the Russia-Ukraine conflict and China’s strict zero-Covid policies. Hence, we continue to like Inari Amertron and Malaysian Pacific Industries.

• We also like the automobile segment as industry sales expected to rebound in 2022 as supply chain normalises and consumers' confidence gradually recovers, with robust order backlogs of 2-4 months, more than usual of 1-2 months. This underpins our BUY call on Sime Darby.

• For the glove sector, that contribute 5% of NAV, we are neutral as the average selling price down-cycle could be tapering off towards the bottom amid heightened inflationary costs. We have HOLD ratings for Top Glove, Hartalega and Kossan.

• Our positive outlook for the ETF is partly tempered by our UNDERWEIGHT rating on the plantation sector, which account for 18% of the ETF’s NAV, on expectations of lower crude palm oil prices in 2H2022 against the backdrop of potentially higher production.

Source: AmInvest Research - 21 Jun 2022