Changes to FBM KLCI list?

New index members? There might be changes to the FTSE Bursa Malaysia KLCI or FBM KLCI line-up at the mid-year semi-annual periodic review. This benchmark index represents 30 of Malaysia’s largest listed companies ranked by full market cap, which must also meet the freefloat criteria and pass the liquidity test. Using 31 May as the cut-off date, our simulation reveals two potential new entrants – MMHE (RM12.4b market cap) and UEM Land (RM11.4b market cap) – in the member list. Any changes to the index composition will take effect after market close on 17 Jun.

Likely omissions. Although both MMHE and UEM Land – the 26th and 27th largest companies by full market cap – are below the 25th position (a stock must rise to this spot
or above to be inserted as a new constituent under the buffer ruling; see Fig 1 for details), they could still gain entry into the index. This is because: (a) a replacement may be named ahead of the PLUS delisting (RM22.5b market cap) in 3Q11; and (b) MAS (RM4.6b market cap)
has dropped to 51st position, which means it will be dropped as an index constituent under the review rules.

Portfolio rebalancing effects. A snapshot of the probable FBM KLCI line-up is depicted in Fig 3, showing MMHE and UEM Land with relative weights of 0.76% and 0.69%, respectively, based on 31 May close. Changes to the index, if any, could see index-tracking fund managers rejigging their portfolios. We saw share price swings recently in response to the inclusion of MMHE, UEM Land and MAHB into (and the exclusion of PLUS and MAS from) the MSCI Malaysia Index.
Our current recommendations for the stocks under our coverage are PLUS (Hold; TP RM4.60) and MAS (Fully Valued; TP RM1.10).

Report from HWangDBS

Weekly Market Preview ( 23 May 2011 )

Momentum is the fuel to stock market advances. Without this inner strength, the likelihood is that the FBM KLCI could still be boxed inside a trading range for the time being.

The benchmark index recovered further initially, hitting a high of 1,550.62 before ending at 1,541.03 last week, little changed from the close of 1,540.74 two Fridays ago. Finishing mixed were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.7% and -0.1%, respectively. Trading activity, meanwhile, stood at a daily average of 882.8m shares in volume (from 922.6m units) and RM1.5b in value (from RM1.4b) during the holiday-shortened week.

After a climb of 25.5-point or 1.7% in two successive weeks, the FBM KLCI is just 1.5% higher than where it was at the beginning of the year. In terms of regional ranking, Malaysia is presently in sixth position (out of 11 Asian equity indices tracked by us), behind the top winning markets – Indonesia (+4.6% year-to-date), Thailand (+3.9%) and Korea (+2.9%) – but ahead of the worst performers, namely India (-10.6%), Japan (-6.1%) and Taiwan (-1.5%).

Fundamentally speaking, given a prevailing shortage of macro catalysts to trigger a broad market run-up, investors may want to use a bottom-up approach to identify individual stocks that could lift our Malaysian bourse performance. On the corporate scene this week, the interest will be on: (a) Tenaga, as the government may announce electricity tariff hikes on Wednesday according to media sources. Using last Friday’s close of RM6.27 as the reference level, a 5% swing in the share price would translate to a gain or loss of 4-index point in the FBM KLCI; and (b) big-cap listed companies like Telekom Malaysia, KL Kepong, Genting group of companies, Sime Darby and IJM Corporation that have yet to release their Jan-Mar quarter financial results.

From a charting perspective, there is no clear technical signal yet to say a breakout in the FBM KLCI is imminent anytime soon. Even so, we foresee a fairly resilient performance ahead with the index likely to find immediate support around the historically defensive 39-day moving average line. Our first two support levels are pegged at 1,530 and 1,495, respectively.

On the upside, gradual as it may be, the FBM KLCI could be showing a sideways trading pattern with a positive bias going forward. This means the key market barometer may be making its way to challenge the resistance targets of 1,550 (immediate) and 1,575 (next) eventually.

Report from HWangDBS

Today's Market Preview From HWangDBS (20 MAY 2011)

There is a chance that the key FBM KLCI would rise towards and challenge the immediate resistance threshold of 1,550 today after making a previous attempt yesterday. In essence, investors around the region are expected to be in a positive mood following the overnight increase on Wall Street with major U.S. bellwethers finishing up between 0.2% and 0.4% at the closing bell.

Possibly giving a lift to our benchmark index ahead are Tenaga (in response to the news that the government might approve an electricity tariff hike as early as next week) and RHB Capital (amid news that several parties are interested to bid for a 25% equity stake currently held by Abu Dhabi Commercial Bank).

Meanwhile, Tanjung Offshore’s share price could come under selling pressures today after its latest quarterly results came in below expectations.

Weekly Market Preview (16 May 2011) By HWangDBS

Are we back on track? Or are we merely back to square one? In spite of last week’s bounce-up, our Malaysian bourse could still be stuck inside a trading range with the benchmark FBM KLCI probably swinging between 1,530 and 1,550 unless buying activity gathers momentum soon.

Riding on a technical rebound, the key market barometer was up 25.2-point or 1.7% through the week to settle at 1,540.74. Getting a lift also were the FBM 70 Index and the FBM ACE Index, posting a weekly increase of 1.4% and 2.4%, respectively. Daily average volume remained light though at 922.6m shares valued at RM1.4b, a marginal decline from the preceding week’s 974.6m units worth RM1.4b.

We shall look west for positive vibes to emerge in the week ahead. In addition to the usual leads coming out from Wall Street, there is the Invest Malaysia 2011 Day in the US to watch out for. This event – to be held on Tuesday and Wednesday and led by our Prime Minister himself – is designed to raise the investment profile of the country. A fruitful outcome means attracting investors to put their money in our local stock market as well as other sectors of the broad economy, in industries like high-tech engineering, oil & gas and education services.

Speaking of our economy, we will get a performance update when the 1Q11 GDP report card is out on Wednesday. Meanwhile, as the Jan – Mar quarterly corporate reporting season swings into action, more earnings announcements are expected to come in this week. By promptly cutting above the 39-day moving average (MA) line last week, we should see diminishing selling
pressures for the FBM KLCI, technically speaking. The bellwether is expected to find immediate support at 1,530, where it presently intersects with the normally defensive 39-day MA line.
Yet, after several false starts lately, it remains to be seen whether the market momentum could pick up from where it left off last week. The first resistance hurdle for the FBM KLCI to cross is 1,550, to be followed by 1,575, before we would be tempted to say a resumption of the 26-month rally is in progress.

From a regional perspective, our local bourse is still a relative laggard with a year-to-date return of just 1.4%. With upside potential still outweighing downside risk in our opinion, let’s hope a positive bias is forthcoming sooner rather than later.

Report from HWangDBS

Hong Leong Bank - Raising RM2.6bn via rights

Rights issue size raised to RM2.6bn.
Hong Leong Bank has proposed to raise the rights issue size to RM2.6bn (from RM1.6bn) to further strengthen its capital base and for working capital purposes. The issue price will be fixed
at a later date, at 15%-35% discount to the theoretical exrights price, and the exercise should to be completed by 1QFY12. Given the larger rights issue of RM2.6bn, EPS in FY12 could be neutral to mildly negative, depending on the discount attached to the rights. In our FY12 proforma, we assumed 20% discount and it is EPS neutral. EPS would be accretive in FY13.
Sustainable growth.
3Q11 net profit of RM290m (flat qoq) was in line. 9M11 earnings were 73% of our full year
FY11 forecast. Net interest income was led by 2% loan growth, while NIM was flat at 1.77%. Non-interest income fell 17% qoq mainly due to lower fee income and foreign exchange gains. YTD loans grew 11%. Loan growth was mainly driven by personal loans (+8% qoq), mortgage
(+3% qoq) and working capital loans (+4% qoq). Asset quality remained robust with gross NPL ratio improving to 1.9% against 2Q11’s 2.1%, while absolute NPL amount fell 7% in the quarter. Contribution from Bank of Chengdu was RM57m (+29% qoq) or 16% of Group PBT. Tier-1 CAR and RWCAR are both at 12%.

Maintain Buy and RM15 TP.
Given a stronger balance sheet and greater financial muscle, Hong Leong Bank would be able to look at non-organic growth beyond Malaysia to meet its regional aspirations. Our RM15 target
price is based on the Gordon Growth Model and proforma estimates, with the following assumptions: 18% ROE, 5% long term growth and 9.4% cost of equity.

Report from HWangDBS

FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being

Although the flattish performance may still persist, initial signs are indicating that our Malaysian bourse could show a gradual uptrend going forward. A market recovery would likely be in progress if the FBM KLCI quickly pulls away – the farther the better – from 1,530 and glide towards 1,550.

The key market barometer inched up every day except Friday to close at 1,534.95, a cumulative increase of 12.2-point or 0.8% for the week. Finishing mixed though were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.2% and –0.5%, respectively. Daily trading volume was light at 1.0b shares valued at RM1.3b, down from the 1.2b units worth RM1.5b that changed hands a fortnight ago. Investors’ focus will shift back to the domestic scene this week. After reading the U.S. Federal Open Market Committee statement last week – which in summary said that the federal funds rate would be kept low for an extended period and the quantitative easing program to purchase US$600b of longer-term Treasury securities would be completed end-Jun as per the original deadline – we should see added interest in Bank Negara Malaysia’s monetary policy committee meeting to be held on Thursday.

An immediate decision to hike interest rates – or an indication to do so in the near future – by the Malaysian policy makers could enhance further the appeal of the Ringgit as the rate gap widens. Given the better returns in relative term, the Ringgit has been on the rise, climbing 7% since a year ago to reach a fresh 13½- year high of RM2.9610 vis-à-vis the greenback last week. An appreciating Ringgit, in turn, is expected to attract fund inflows thus benefiting Ringgit-denominated financial assets like equities.

The value of a currency – other than interest rate consideration – also depends on economic fundamentals. We will get an update on Malaysia’s external trade performance when the exports-imports statistics for Mar are out on Friday. On the corporate front, the Jan – Mar quarterly reporting season continues with more financial announcements from the likes of Malaysia Marine & Heavy Engineering this week. Let’s hope there will be pleasant earnings surprises ahead to excite investors on our local bourse, just like how the better-thanexpected
profit numbers from the U.S. listed companies have propelled Wall Street to new post-crisis highs lately.

Technically, the FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being. Its downside is cushioned by the 39-day moving average line (a fairly reliable technical gauge in the past and is currently standing at 1,525), which suggests limited room for corrections. Beneath the line, we have set the second support level at 1,495. Should our market recovery eventually kick in as anticipated, the FBM KLCI will be well-positioned to test and overcome the immediate resistance barrier of 1,550. Thereafter, the bellwether may be eyeing to challenge the next resistance target of 1,575 as it slogs its way to surpass the all-time peak of 1,577 (which was hit in early Jan this year).

Report from HWangDBS

Today's Market Preview From HWangDBS (29 APR 2011)

The benchmark FBM KLCI looks set to break away from the resistance mark of 1,530 today. It could climb and slog its way towards the next resistance target of 1,550.
This comes as key U.S. equity indices jumped to new post-crisis highs after posting an increase of between 0.6% and 0.8% last night. Essentially, investors were buoyed by the outcomes of the U.S. Federal Open Market Committee meeting, as follow:

1. it has maintained the range for federal funds rate at 0 – 0.25%;
2. it would keep the low interest rates for an extended period; and
3. it would complete its quantitative easing program of purchasing US$600b of longer-term Treasury securities by end-2Q11.

Back to our local bourse, among the counters that may see added trading interest today are:

1. RHB Capital, following media talk that Chinese banks would be tendering for the block of shares owned by Abu Dhabi Commercial Bank in the banking group;
2. Masterskill, after tying up with University of Newcastle from Australia to offer joint academic programs as part of its diversification plan to venture into other education fields; and
3. Focus Lumber, a niche plywood manufacturer due for listing today.