Investment Highlights

• We maintain our BUY call on FBM KLCI ETF with an unchanged fair value (FV) of RM1.72 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).

• The recent budget 2024, which will have a largely neutral impact on the FBM KLCI index, aims to secure a sustainable future through carefully crafted retargeted subsidies to lower 2024 fiscal deficit to 4.3% from 5% in 2023. The budget allocation represents a moderate increase of 5.8% to RM393.8bil from RM373.3bil in 2023.

• The service tax rate will be raised to 8% from 6%, which excludes food & beverage and telecommunications. However, as other services such as logistics, brokerage, underwriting and karaoke will be included, this could introduce higher transaction costs for investors, particularly retail investors and traders, potentially dampening market liquidity in the near-medium term unless the government provides further clarity on additional exemptions.

• However, we expect an overall slight impact on the banking sector, which remains a neutral rating with the largest weightage of 42% of the basket.

• The government will gradually retarget subsidies by removing price controls on chicken & egg prices to ensure supply security. Together with RM10bil allocated for Rahmah cash contribution and RM2.4bil cash assistance for poor households, elderly and children, this will be beneficial for QL Resources.

• Meanwhile, the imposition of 5%-10% tax on high-value goods has a minimal impact on consumer sentiment and is expected to be neutral for affordable market segments, such as MR DIY Group.

• We forecast FBM KLCI 2024F earnings growth of +11.3%, slightly surpassing consensus estimate of +10.4%, driven by a firmer 2024F GDP projection of 4.5% vs. 4% in 2023.

• We remain overweight on oil & gas, autos, consumer, power, property with top picks being CIMB Bank, RHB Bank, Tenaga Nasional, TM and Dialog Group.

Source: AmInvest Research - 17 Oct 2023