Investment Highlights

• We maintain our BUY call on FBM KLCI ETF with a slightly lower fair value (FV) of RM1.72 (from 1.75 previously), based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). This represents a premium of 13% to the ETF’s NAV of RM1.52 (Exhibit 1).

• For 1HFY23, the ETF reported a wider net loss of RM346k from RM273k in 1HFY22. This stemmed from a negative investment income of RM315k as net investment loss of RM422k overwhelmed gross dividends and interest income of RM106k, faring worse than the negative investment income of RM242k in 1H22(Exhibit 5).

• This was reflective of the underperforming Malaysian equity market as the FBM KLCI declined by 8% HoH to 1,376 pts on 30 June 2023 from 1,495 pts on 31 Dec 2022 and slid by 4.7% YoY from 1,444 pts on 30 June 2022. However, 2H2023 prospects may be better as the FBM KLCI has risen by 3.4% since then.

• Conservative prospects for non-interest income and net interest margin for the banking sector, accompanied with a higher-for-longer US interest outlook, led to a neutral call for banking sector which comprises the largest weightage of 41% of the basket.

• We are currently overweight on oil & gas, autos, consumer, power, property, and REIT with top picks being CIMB Bank, RHB Bank, Tenaga Nasional, Telekom Malaysia and Dialog Group. Our OVERWEIGHT sectors and BUY stock calls carry a combined weightage of 65% on the ETF currently.

• We are projecting a decent FBM KLCI 2024F earnings growth of +11.3%, slightly higher than consensus’ +10.3%, against the backdrop of normalising ringgit prospects and firmer 2024F GDP forecast of 4.5%.

• Our in-house economist projects a stronger ringgit of RM4.50/US$1 by end-Dec 2023 and RM4.25/US$1 by endFY2024. This will underpin a long-awaited semblance of normalcy and positive market inflection point as local institutions reposition on window-dressing, ample local liquidity and stronger year-end corporate earnings.

Source: AmInvest Research - 12 Oct 2023