Investment Highlights

• We maintain our BUY call on FBM KLCI ETF with a lower fair value (FV) of RM1.77 (from an earlier RM1.83), based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage or restrictions). This represents an upside of 17% to the ETF’s NAV of RM1.51 (Exhibit 1).

• The FV reduction stems our recent stock devaluations, primarily from a: i) 46% fall in Hartalega to RM2.46; ii) 10% decline in Petronas Chemicals Group to RM10.13 and Maxis to RM4.34; iii) 17% drop in Sime Darby Plantation to RM3.65/share; and iv) 12% reduction in IOI Corp to RM4.05;

• Meanwhile, the ETF’s 1H2022 losses widened by 54% YoY to RM273K from RM177K in 1H2021, mainly due to a 23% increase in the fund’s fair value losses to RM324K arising from its component stocks (Exhibit 5).

• This was slightly worsened by a 28% cut in dividend/interest income and total expenses increasing by 21% to RM30.4K. The higher expenses stemmed from a doubling in other expenses to RM13K as the manager’s fee slid slightly to RM10.2K.

• Looking forward, we are currently overweight on the banking, oil & gas, technology and auto sectors. Including Sime Darby and MR D.I.Y., our OVERWEIGHT or BUY calls carry a combined current market weightage of 68% on the ETF currently (Exhibit 2).

• Over the next few months, we expect a volatile FBMKLCI at 1,400 to 1,600 as domestic liquidity could partially cushion any negative earnings revisions amid stagflationary pressures exacerbated by overaggressive US rate hikes, elevated crude oil prices near US$100/barrel and ongoing supply chain disruptions.

• Towards the end of the year, we expect a long-awaited semblance of normalcy with a stronger ringgit which could underpin a positive market inflection point as local institutions reposition on likely window-dressing activities amid clearer visibility to our FBMKLCI 2023F EPS growth recovery of 8%, underpinned by reopened borders and rebound in post-pandemic domestic consumption.

Source: AmInvest Research - 25 Aug 2022