Investment Highlights

• We downgrade our call on FBM KLCI ETF to HOLD from BUY previously with a lowered fair value (FV) of RM1.75 (from an earlier RM1.82), based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage or restrictions). This represents a premium of 13% to its NAV of RM1.55.

• The slight reduction in the ETF’s valuation stems mostly from a 13.5% decrease in consensus’ FV for Press Metal Aluminum and an 8.4% decline for Genting Malaysia. This was exacerbated by a 7.8% drop in our FV for Malayan Banking to RM9.50.

• Hartalega Holding and Top Glove Corp have been replaced by AMMB Holdings and QL Resources on 27 December 2022. AMMB has a weightage of 1.8% of the portfolio’s FV and QL Resources 1.3%. The only stock with an increased NAV share is CIMB, which rose to 8.2% (vs. 7.6% in our previous report on 25 Aug 2022).

• We are currently OVERWEIGHT on the banking sector with a projected core earnings growth of 8.4% YoY in 2023 due to firmer underlying income of banks, supported by higher net interest income and lower provisions for loan impairments. Hence, we have BUY calls on MayBank, CIMB, RHB Bank, Hong Leong Bank and Hong Leong Financial Group.

• Our OVERWEIGHT rating is retained on the Oil & Gas sector, with a BUY on Dialog Group due to its resilient noncyclical tank terminal and maintenance-based operations.

• We also like Petronas Gas, which offers highly compelling dividend yields from its optimal capital structure strategy and sustainable earning base. For utilities, Tenaga’s valuation remains attractive given its protected rate of return of 7% under the Imbalance Cost Pass-Through mechanism for fuel expenses.

• Looking forward, other key sectors are poised to be benefit from the easing of zero-Covid policy in China, higher port activities on global trade recovery and increased domestic consumption from a relatively robust economic growth in Malaysia vs US/Europe.

Source: AmInvest Research - 6 Jan 2023