Investment Highlights

• We maintain our BUY call on FBM KLCI ETF with a slightly lowered fair value (FV) to RM1.84 (from RM1.86) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage or restrictions).

• Following the recent stock market de-rating from the US Federal Reserve’s aggressive rate hike stance which has led to the ETF’s NAV declining by 7% to RM1.50 (Exhibit 1) from March this year, our valuation is now at a premium of 23% to NAV.

• The slight 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, slightly exacerbated by lower consensus targets for Genting Malaysia and 2 telco operators.

• Post-1Q2022 results, our FBMKLCI's 2022F EPS has turned around to a growth of 1.1% from an earlier 5.6% contraction due to higher earnings revisions mainly from plantation and oil & gas sectors.

• The higher 2022 EPS base also moderated our FBMKLCI 2023F EPS growth from an earlier 14.9% to 8.3%. Even so, this will be the second highest growth since 2017, coming in after the 30.7% rebound in 2021 in the wake of the 2020 initial pandemic lockdowns.

• We expect a volatile FBMKLCI over the next quarter at 1,400 to 1,600 as domestic liquidity could partially cushion any negative earnings revisions amid stagflationary pressures exacerbated by over-aggressive US rate hikes, elevated crude oil prices above US$100/barrel and ongoing supply chain disruptions.

• Towards the end of the year, we believe a long-awaited semblance of normalcy will underpin a positive market inflection point as local institutions reposition on likely window-dressing activities amid clearer visibility to our FBMKLCI 2023 EPS growth recovery, underpinned by reopened borders and normalising post-pandemic domestic consumption.

Source: AmInvest Research - 21 Jun 2022