FTSE Russell is due to announce the results of the first semi-annual review for 2021 of the FTSE Bursa Malaysia Index series after business close on Thursday, 3rd June. Decision will be based on yesterday’s closing data. We expect SUPERMX (OP; TP: RM6.49) to be edged out from the FBMKLCI, being the smallest market cap constituent, by MRDIY (UNRATED) coming in as the largest non-constituent. MRDIY which is the 20th largest by market cap, has cleared the ranking threshold of 25th place as a condition for entry. The changes should likely see the rubber glove sector’s weight being reduced from 9.9% currently to about 8.4% and the FBMKLCI FY21E EPS shaved c.4.4% by our estimates, to 107.8 sen. Separately, the updated SC list of Shariah approved stocks will be released after business close on Thursday 27th May. We expect all 131 stocks under our coverage to remain status quo.

Expect announcement of changes to FBM series constituents next week: Details of the review outcome will be available after the close of business on 3rd June. Constituent changes will take effect after the close of business on Friday 18th June and the updated FBM series constituents will be reflected in the indices at the start of trading on Monday, 21st June.

On the closing prices at cut-off date, MRDIY at RM24b market cap, was ranked 20th, qualifying it for inclusion into the FBMKLCI: The ground rules state that a non-component stock will be included if it has risen to 25th position or higher by full market value on cut-off date which was yesterday, 24th May. (see table of ranking overleaf)

SUPERMX edged out: Because of MRDIY’s inclusion, the smallest FBMKLCI incumbent, which happens to be SUPERMX has to be dropped from the 30-member constituent. SIME (OP; TP: RM5.10) another vulnerable component did not fall off the list as there were no other non-constituent apart from MRDIY that was close to the 25th rank threshold, the closest being WPRTS (MP; TP: RM4.20) at 31st.

Inclusion and exiting weights almost equal: Based on MRDIY’s represented index shares of 1,950.78m at RM3.89 versus SUPERMX’s 1,591.33m at RM4.49, we estimate that MRDIY would be coming in at around 1.52% weight versus SUPERMX exiting at 1.43% weight. The final figures, however, will be based on closing prices on Friday, 18th June after which the new constituents will be first reflected when trading starts on Monday, 21st June.

The Consumer sector weight increases from 1.7% to 3.2% as MRDIY joins NESTLE: With the latest expected changes, the Rubber Gloves sector is back to being represented by just two constituents – TOPGLOV (OP; TP: RM6.49) and HARTA (OP; TP: RM15.76) – making up an estimated 8.4% weight based on current prices, down from 9.9%, making space for the Consumer sector weight rising from 1.7% to 3.2%.

Downside to FBMKLCI’s FY21 EPS is expected with the changes: MRDIY’s consensus EPS for CY21 of 8.3 sen trails SUPERMX’s estimated EPS of 113 sen. On balance, after accounting for the differences in index represented shares between MRDIY and SUPERMX, we expect that the estimate FBMKLCI EPS for FY21 will be reduced as a result, by about 4.4% from 112.8 sen to 107.8 sen and for FY22 by 2% from 111.8 to 109.5 sen. Our target FBMKLCI of 1,710 remains for now pending final EPS adjustments after the conclusion of the 1QCY21 earnings season next month

Source: Kenanga Research - 25 May 2021