Investment Highlights

• We maintain HOLD recommendation on MyETF DJ Islamic 25 with an unchanged fair value (FV) of RM1.10 based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under our coverage). Our FV currently offers an 11% upside to the ETF’s NAV of RM0.99.

• The ETF recorded a sharp YoY improvement with a 62% drop in 1H2023 loss of RM8.2mil. The improvement mainly stemmed from a significant 56% YoY reduction in fair value loss of RM10.3mil from financial assets as the DJMY 25 Index declined by 5% YoY. Additionally, expenses dropped by 14% YoY to RM400k, resulting from manager’s fee decline.

• On a HoH basis, in the fair value loss reversed to a loss of RM10.3mil from a gain of RM2.8mil in 2H2022. This was reflected in the underperformance of the DJMY 25 Index, which declined by 7% HoH to 827.5 pts on 30 June 2023 from 890.5 pts on 31 Dec 2022. However, we foresee a better prospect as the DJMY 25 Index has increased by 3% since then.

• The ETF’s tracking error between its NAV and benchmark index was at 52.1%, higher than the 3% tracking error investment objective.

• The oil and gas sector accounts for the largest 24% NAV weightage. The sector recorded strong earnings due to higher oil prices against the backdrop of uncertain geopolitical tensions and ongoing energy transition policies. Therefore, we remain overweight for constituent stocks such as Petronas Gas, Dialog Group and Petronas Chemicals Group

• Meanwhile, the telecommunications and plantation sectors individually account for 18% of NAV. In view of falling palm oil exports attributable to weaker external demand and rising production in 2H2023, we remain neutral on the plantation sector. Based on latest Malaysian Palm Oil Board (MPOB) data, palm inventory rose by 9.6% in September due to weaker exports and higher production.

• Similarly, our neutral recommendation remains for the telecommunication sector as higher operating expenses from Digital Nasional's fixed 5G yearly wholesale capacity fee and softer subscriber affordability on inflationary pressures may dampened cellular operators’ forward earnings trajectory.

• Our in-house economist projects a stronger ringgit of RM4.50/US$1 by end-Dec 2023 and RM4.25/US$1 by end-FY2024. This could 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 - 16 Oct 2023