Investment Highlights

• We maintain HOLD call on FTSE Bursa Malaysia KLCI ETF with a higher fair value (FV) of RM1.95 (from RM1.89 previously), based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). The higher FV presents a 12.1% premium to its NAV of RM1.74.

• The higher FV is mainly driven by:
  
  1) 25% rise in IHH Healthcare’s FV to RM7.80/share (previously RM6.25/share), contributed by better-than-expected revenue per patient growth across key markets.
  
  2) 21% rise in Axiata Group’s FV to RM3.50/share (previously RM2.90/share) to incorporate higher revenue growth across operating companies coupled with narrower forex losses.

• As US rate cut probabilities starting from this month have become more certain following clear signals from Federal Reserve officials, our economist has revised our end-4Q2024 USDMYR target from 4.63 to 4.40 while acknowledging potential short-term corrections in the US election run up culminating in a Trump victory. By the end of 2025, our economist is looking at USDMYR to improve further to 4.20 with the narrowing of interest rate differentials.

• We have recently raised our end-2024F FBM KLCI base-case target from RM1,635 to RM1,660, pegged to a higher 2024F P/E of 15.7x (from 15.2x earlier). This adjustment is supported by robust foreign equity flows and improved prospects for MYR.

• We continue to hold a NEUTRAL outlook on the banking sector, which constitutes the largest 35.2% (-0.8%) of FBM KLCI index weighting. The sector’s 2Q2024 earnings grew by 2% QoQ due to lower provisions, partly offset by a marginal decrease in total income and rise in operating expenses.

• We have now downgraded the oil & gas (O&G) sector to neutral due to rising downside risks for local maintenance contractors due to Petroleum Sarawak (Petros) taking over Petronas’ upstream developments in the state, anaemic outlook for petrochemical supply-demand dynamics and slowing 2025F overall sector earnings growth.

• Our neutral rating on banking, plantation, telecommunications, power, O&G, automobiles and consumer sectors now account for a larger share of 79% (from 62% previously) of the FBMKLCI index weightage. The sectors currently with OVERWEIGHT rating are technology, manufacturing, ports, property, REIT and transportation sectors

Source: AmInvest Research - 13 Sept 2024