• We maintain HOLD call on FTSE Bursa Malaysia KLCI ETF with a slightly higher fair value (FV) of RM1.73 (from RM1.70 previously), based on our FVs (for stocks under coverage) and consensus FVs (for stocks not under coverage or restriction). This presents a 1% premium to its NAV of RM1.73.

• The higher FV is mainly driven by:
  
  1) 28% rise in Tenaga Nasional’s FV to RM14.55/share (previously RM11.40/share) by rolling over the group’s base year to FY24F as it transitions to clean energy from coal while being a proxy to the country’s improving economic growth prospects.
  
  2) 23% rise in YTL Power International’s FV to RM6.25/share (previously RM5.10/share) to incorporate the earnings accretion of data centres (DCs) from its partnership with Nvidia against the backdrop of affordable Johor land and energy costs.

• Meanwhile, on 6 June 2024, FTSE Bursa Malaysia KLCI Index’s semi-annual review replaced AMMB Holdings with Sunway, which will be effective on the index on 24 June 2024.

• We currently have a BUY call on Sunway (FV: RM4.22/share) for its exposure to the dynamic Johor property market and rapid order book growth of its 54.6%-owned Sunway Construction and 84%- owned Sunway Healthcare, which is slated for listing by 2027.

• We remain neutral on the banking sector, which constitutes the largest 38% of FBM KLCI index weighting. The sector’s 1Q2024 earnings rose by 7.9% YoY driven by stronger total income partially offset by higher operating expenses and provisions for loan losses.

• We have recently raised end-2024F FBM KLCI base-case target to RM1,635 from RM1,550, pegged to a 2024F P/E of 15.2x. This projection is propelled by robust domestic liquidity and bullish sentiments from the government’s unveiled National Semiconductor Strategy, which aims to attract RM500bil of foreign direct investments.

• Our in-house economist projects a stronger domestic economy in 2024, driven mainly by resilient consumption with some support from an expected export recovery. The ringgit is expected to strengthen despite geopolitical issues, supported by Malaysia’s improving economy and a narrowing interest rate gap between the US Federal Funds rate and OPR amid probable US rate cuts.

Source: AmInvest Research - 18 Jun 2024