Investment Highlights

• We maintain our HOLD call on FTSE Bursa Malaysia KLCI ETF with a slightly lower fair value (FV) of RM1.70 (from RM1.77 previously), based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). This presents a 4% premium to its NAV of RM1.63.

• In 2023, the ETF’s investment income declined 6% YoY to RM50,593 (comprising gross dividend and interest incomes of RM210k and net investment loss of RM160k). Hence, the ETF’s FY23 net loss doubled to RM6.5k from RM2.7k in 2022 amid a flattish expenditure. The weakened performance primarily resulted from the fair value losses.

• This was reflected in the slight decline in the Malaysian Equity market in 2023 in which the FBM KLCI decreased by 2.7% to 1,455pts from 1,495pts on 31 Dec 2022. In addition, the expenditure for the year rose slightly by 0.5% to RM57k.

• In 1H2023, the FBMKLCI experienced a decline of 7.9% to 1,377 on 30 June 2023 from end-2022, which led to a net investment loss of RM315k. However, the index rebounded subsequently by 5.7% in end-2023, resulting in the ETF turning around to a net investment income gain of RM366k and a net profit of RM339k.

• In the upcoming months, we recognise the potential impact of uncertain macroeconomic headwinds arising from global recessionary pressures and inflationary trends, compounded by the timing of the US Federal Reserve's interest rate adjustments for the year could lead to significant revisions to corporate earnings projections.

• We are currently neutral on the banking sector, which account for 41% of the ETF’s NAV on expectations of moderating loan growth momentum, lower non-interest treasury income due to flattish overnight policy rate trajectory and flattish credit cost prospects as financial institutions maintain prudent provisioning policies given global economic uncertainties.

• Towards the year-end, we anticipate a moderately positive end-2024 FBMKLCI conclusion driven by renewed expectations of infrastructure initiatives supported by a strong government mandate.

Source: AmInvest Research - 26 Feb 2024