• The FTSE Russel Index review will take effect 18 June 2018.

• The KLCI may see 3 deletion and 3 inclusion.

• Hartalega is ranked 24th, while KLCI member Astro is at 43rd.

• Shariah-compliant representation may rise to 56.8% of unadjusted market cap from 54.5%.

KLCI semi-annual review effective 18 Jun

The semi-annual review of the FTSE Bursa Malaysia Index Series constituents will take effect on Monday 18th June 2018. The announcement of the changes will be made on 31 May 2018. According the FTSE ground rules, the review will use data from the close of business on the Monday 4 weeks prior to the review effective date, which makes it Monday 21 May 2018.

For the KLCI, it is likely that 3 securities will be deleted from the index as they have fallen to 36th position and below in terms of full market capitalization ranking (based on Friday’s closing price). These 3 securities are Astro (ranked 43), AMMB (ranked 39) and YTL Corp (ranked 36). The 3 possible candidates to replace the deletions in the KLCI are Hartalega (ranked 24), Dialog (ranked 27) and MAHB (ranked 29). The final weighting for the new stocks in the KLCI will be determined based on their free float.

Increase in KLCI’s Shariah-compliant – next review may see Digi back

From the 3 possible candidates for inclusion, Hartalega and Dialog are shariah compliant. As all 3 possible deletions are non-shariah compliant, the KLCI will see the number of shariah-compliant securities rising to 19 post-review from 17 currently. From a market capitalization perspective, total shariah-compliant securities (unadjusted for free float) will increase their share of total KLCI to 56.8% post-review from 54.5% currently. If Digi is successful in being re-instated as shariah-compliant in the next shariah list review, the total market capitalization (unadjusted)of shariah compliant securities will rise to 60% (refer Table 2, whilst the total number of shariah-compliant securities will increase to 20 from 13 currently.

The upcoming updated list of Shariah-compliant securities by the Securities Commission’s (SC) Shariah Advisory Council (SAC) will be released on Friday 25 May 2018 and will take effect 28 May 2018. From on our coverage, Digi may be re-instated as shariah-compliant in this review. Digi was excluded from the SAC’s November 2017 list for breaching the debt to total asset (D/TA) ratio ceiling of 33% in its FY16 audited accounts. In its FY17 accounts, Digi has regularized its D/TA to and has made its audited accounts available on 28 March 2018, well before the 31 March deadline for the upcoming May 2018 SAC review.

Source: BIMB Securities Research - 21 May 2018