Investment Highlights

• We maintain our BUY call on FBM KLCI ETF but tweak our fair value (FV) down to RM1.85 (from RM1.86) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage). It is at a premium to its NAV of RM1.57 (Exhibit 1).

• FBM KLCI ETF has added Inari Amerton into its basket of stocks, replacing Hap Seng Consolidated. The change, effective 20 Dec, is consistent with the announcement by FTSE Russell on the FBM KLCI semiannual review on its components. We are reflecting this change in our valuation.

• We have a BUY call on Inari (FV: RM4.78). We like the stock due to its role as a proxy for the growth of 5G through its Radio Frequency business, which is set to benefit from the expected increase in demand for 5G smartphones going into FY22.

• Meanwhile, we project an end-2022 FBM KLCI target of 1,600 points. Our target forward PE is unchanged at 15.6x, which is pegged at -0.5 standard deviation (SD). The discount is to reflect the negative earnings growth projected for the total FBM KLCI component earnings in 2022 and a higher stamp duty for share transaction which will affect trading volume.

• For 2022, we expect FBM KLCI earnings to decline by 3.5% due to lower earnings projection for the glove and plantation sectors. Despite positive earnings growth expected from the banking and oil and gas sectors in 2022, this is inadequate to offset the decline in gloves and the plantation sector. We also expect the prosperity tax to cut 2022 earnings in almost all FBM KLCI stocks.

• Omicron is a new uncertainty. According to the WHO’s weekly epidemiological update on Covid-19 on 14 Dec, the Omicron variant has been confirmed in 76 countries. Our base case scenario is a recovery from Covid in 2022 due to the high vaccination rate that already exceeded 95% of adults in Malaysia. We are keeping a close watch on the Omicron development.

Source: AmInvest Research - 21 Dec 2021