Four glove makers in FBM KLCI from Dec 21?

PETALING JAYA: Supermax Corp Bhd and Kossan Rubber Industries Bhd could potentially qualify for inclusion in the FTSE Bursa Malaysia KLCI (FBM KLCI) if they maintain their current market capitalisation positions come end-November, and there could be four glove makers among the benchmark index’s constituent stocks for the first time in history.

The FBM KLCI comprises the Main Market’s largest 30 companies by full market capitalisation that meet eligibility requirements stated in the FTSE Bursa Malaysia Ground Rules.

The next FBM KLCI review is due to take place in December using data from the close of business on Nov 23, based on the ground rules. The outcome of the next review will be announced on Dec 3 and is effective from Dec 21.

This review is followed closely by the market as it could have an impact on FBM KLCI-linked products such as FTSE 30 ETF and FBM KLCI-linked funds. The current FBM KLCI constituents account for about 60.1% of total market capitalisation as at Aug 6, 2020.

“In our view, the glove share price rallies will impact KLCI in a few ways. Firstly, it has raised the weightage of Top Glove Corp Bhd and Hartalega Holdings Bhd in KLCI to 14.6% as at end July from 3.2% as at Dec 2019. Overall, healthcare sector weightage in KLCI has risen by 11.4 percentage points to 17.9% over the past seven months.

“This means the KLCI movements are now more sensitive to the share price performances of Top Glove and Hartalega. The higher weightage of glove makers in KLCI came at the expense of lower weightage for the banks, Genting Bhd, Genting Malaysia Bhd and Tenaga Nasional Bhd,“ CGS-CIMB said in its strategy note yesterday.

Based on share prices on Aug 6, Supermax has risen to 16th position in the market cap ranking while Kossan has taken the 21st position. This could potentially qualify them for inclusion in the index. In this scenario, the lowest ranking constituents in the index will be excluded. Based on Friday’s closing, Genting Malaysia and KLCCP Stapled Group were the two lowest ranking FBM KLCI constituents.

“Assuming Supermax and Kossan become eligible for inclusion into the KLCI, we are likely to see a higher price-to-earnings (P/E) valuation for the market as their 2021 P/E of 18 times and 26 times are higher than Genting Malaysia’s 24 times and KLCCP’s 18 times. This could also propel healthcare sector weightage in KLCI of 18% as at end of July to levels closer to banks’ sector weightage of 29%.

“If KLCCP and Genting Malaysia are no longer included in KLCI constituents in the next review, the real estate sector will no longer be represented in KLCI and travel and leisure weightage will be reduced. Excluding glove makers, we estimate the current KLCI P/E would be two times lower at 15.4 times.”

Yesterday, glove makers led the top decliners on Bursa Malaysia as investors reaped their rewards following a recent rise in the companies’ share prices, driven by a resurgence of Covid-19 cases globally.

Supermax closed RM1.72 or 7.5% lower at RM21.20, Kossan Rubber Industries ended down RM1.08 or 5.69% at RM17.90, Top Glove Corp closed at RM27.20, 94 sen or 3.34% weaker and Hartalega Holdings shed 78 sen or 4.08% to RM18.36.

source https://www.thesundaily.my/business/four-glove-makers-in-fbm-klci-from-dec-21-GX3404778