Investment Highlights

• We downgrade FBM KLCI ETF to HOLD from BUY given the limited upside to our lower fair value (FV) of RM1.66 (v. RM1.72 previously) based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). This represents a premium of 7% to the ETF’s NAV of RM1.55 (Exhibit 1).

• The reduction in our ETF’s valuation stems from lowered Ambank’s FV by 21% for Axiata and 13% for CIMB Group, partly mitigated with 10% FV increase for CelcomDigi and 6% for Sime Darby Plantation.

• Pursuant to the latest semi-annual review, FTSE Russell and Bursa Malaysia have replaced 2 FBM KLCI constituents Dialog Group and Westports Holdings with YTL Corp and its 56%-owned YTL Power International effective on 18 December 2023. We likewise reflect this index change in our valuation.

• We currently have a BUY call on YTL Power (FV: RM2.70/share) for its compelling valuation, supported by the group’s recurring income which largely stems from the group’s Singapore-based YTL Power Seraya. The successful 2-year trial run to import 100MW from Peninsular Malaysia is expected to pave the way for more renewable electricity exports to Singapore.

• We project an end-2024F FBM KLCI base-case target of 1,545 points, pegged to an unchanged 2024F P/E of 14.9x, at parity to its 5-year median. We expect heightened global recessionary narratives next year after the 500bps increase in US interest rate hikes since 2022, which could lead to increased market volatility, amid a relatively robust domestic 2024F GDP growth of 4.5%, strong 13% FBMKLCI index earnings growth, compelling dividend yields, low foreign shareholding and stronger ringgit prospects.

• The banking sector, which accounts for the heaviest 41% of the FBMKLCI index weighting, will face a modest growth in loan volume and slight net interest margin compression in 2024F, tempered by persistent deposit competition. Banks are also expected to remain prudent on provisions on the back of macroeconomic uncertainties, pressure on funding cost and moderating treasury income.

• We have recently lowered consumer and automobile sectors to Neutral from Overweight, largely on lower consumer sentiments.

Source: AmInvest Research - 19 Dec 2023