Investment Highlights

• We downgrade MYETF DJ Islamic 25 (MYETFDJ) to HOLD from BUY with a lower fair value (FV) of RM1.10 (vs. RM1.15 previously) based on our FVs (for stocks under our coverage) and consensus FVs (for sticks not in our coverage and under restriction). It is at a premium of 10% of to its NAV of RM0.9933.

• Following the latest quarterly review by the index’s manager i-VCAP Management, Time Dotcom and Westports Holding have been replaced by Petronas Dagangan and Sime Darby, accounting for 2.4% and 1.6% respectively of the portfolio’s fair valuation. This took effect after the close of trading on 9 December 2022.

• The 8.5% reduction in ETF’s FV stems mostly from declining FVs for technology sector, such as: Malaysian Pacific Industries, D&O Green Technologies and V.S. Industry. This stems from the technology sector’s near-term earnings growth potential being impacted by the potential slowdown of global economic activities and sustained inflation which is affecting demand for end-products.

• The FV reduction stems from:
  i) a 32% FV reduction in Top Glove Corp to RM0.60;
  ii) 27% decline in Malaysian Pacific Industries’ FV to RM38.40;
  iii) 24% drop in Hartalega Holdings’ FV to RM2.46; iv) 17% fall in V.S. Industry’s FV to RM1.27; and
  v) 11% FV reduction in D&O Green Technologies’ consensus FV to RM4.73.

• We are neutral on the glove sector, which makes up 3.4% of NAV, mainly due to declining sales volume (-30% QoQ) coupled with lower average selling prices (ASP) (-5.6% QoQ).

• Moreover, we have a SELL call on Top Gloves due to lower sales orders (-32%) as a result of customers holding off restocking activities. Losses of Top Glove and Hartalega also widened QoQ in 1QFY23 due to rising costs of gas, electricity, and labour.

Source: AmInvest Research - 5 Jan 2023