Investment Highlights

• We maintain HOLD call on FTSE Bursa Malaysia KLCI ETF with a higher fair value (FV) of RM1.89 (from RM1.78 previously), based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). The higher stems from changes in weightage to the basket with an increase for CIMB, Malayan Bank, Public Bank and YTL Corporation. The higher FV presents a 9.2% premium to its NAV of RM1.73.

• The ETF’s 1HFY24 investment income turned around to a positive RM572k, leading to a net profit of RM543k from a previous loss of RM346k. This notable improvement is primarily due to a positive net investment gain of RM452mil in 1HFY24 vs. an investment loss of RM422mil in 1HFY23, 13% increase in investment gains/gross dividends and a 4% reduction YoY in expenditures.

• The investment gains were driven by the strong performance of the FBMKLCI in 1H2024, which rose 10% to 1,591 on 30 June 2024 from 1,453 as at end-2023. We anticipate a more positive outlook for the second half of 2024, given that the FBMKLCI has increased by an additional 3% since then.

• For now, we maintain our base-case target for the FBMKLCI at RM1,635 for end-2024. Our cautious stance is due to several factors: slowing global economic growth prospects, uncertainty of the quantum of expected US Federal Reserve interest rate cuts, which may introduce volatility across all markets, and moderating domestic consumption amidst rising inflation from anticipated subsidy rationalisation later in the year.

• Banking stock prices have rebounded following the recent 3-day global market downturn in early August. We remain neutral on the banking sector, which now represents 41% of the FBMKLCI index, up from 38% prior to the weight adjustment. While asset quality in banks is expected to remain stable, credit costs are likely to stay flat in the near term with provisions unlikely to trend lower due to cautious managerial stance. We also expect Bank Negara to maintain OPR for the rest of the year, which could mean lower non-interest income for financial institutions’ domestic operations.

• Our in-house economist forecasts a better performance in 2H2024 with full-year 2024 GDP potentially reaching up to 5.0% YoY, exceeding our earlier estimate of 4.5%. This robust growth is supported by robust private consumption, a key growth driver of the economy, coupled with solid labour market conditions, stable inflation, festive seasons and EPF Flexible (Account 3) withdrawals.

Source: AmInvest Research - 27 Aug 2024