• The Securities Commission of Malaysia (SC) has officially disclosed its updated roster of non-Shariah-compliant stocks, wherein Ann Joo Resources Bhd (Ann Joo) has been reclassified as such.

• Ann Joo's reclassification as a non-Shariah compliant counter is due to a higher level of conventional debt. Our internal Shariah screening has revealed a 45.1% debt proportion in conventional accounts, surpassing the stipulated Shariah SC’s requirement.

• The group is monitoring its debt progress for Shariah compliance and anticipates a reversion to compliance during the SC's review in November 2024.

• We maintain our coverage on Ann Joo but as a non-rated stock.

Reclassified to Non-Shariah Compliant

The Securities Commission (SC) recently made updates to the List of Shariah-Compliant Securities, effective from 24 November 2023. These updates include the classification of 31 newly identified Shariahcompliant securities and the reclassification of 26 securities into the non-Shariah category, with Ann Joo being one of them. The SC conducted a Shariah screening review on Ann Joo based on its Annual Report for the year 2022.

Higher Percentage in Conventional Debt

The management has clarified that this action is a result of a higher level of conventional debt compared to Islamic debt. Although the exact percentage has not been disclosed, management indicates that the actual proportion slightly surpasses the 33% threshold set by the SC. Nevertheless, based on our in-house Shariah screening, and assuming 100% of the debt portion is conventional, the group holds a higher proportion of debt in conventional accounts and instruments compared to its total assets; amounting to 45.1%, which exceeds the SC requirement of 33%.

Reclassified into Shariah in the Next Two SC Reviews

We also sought material information from the management regarding their initiative to address their non-Shariah status. The group intends to monitor debt progress to regain its Shariah status. The SC's May '24 review covers information up until the March '23 annual report (to be released by Ann Joo in Apr '24). In our view, this is likely to lead to reversion during the Nov '24 review.

Change Recommendation to Non-Rated

We are presently upholding coverage for Ann Joo; however, the stock has been designated as Non-Rated.

Source: BIMB Securities Research - 24 Nov 2023