PETALING JAYA: Bursa Malaysia’s benchmark index FBM KLCI, which is already heavily tilted towards the price movement of rubber glove counters, will see more rubber glove weightage being added to it starting Dec 21.
Supermax Corp Bhd will join its two larger counterparts in the top 30 list, marking a historical moment for the index with three glove makers, but also one that will make it more sensitive to the sector.
Together with Top Glove Corp Bhd and Hartalega Holdings Bhd, Kenanga Research said the three constituents were estimated to make up a 14.3% weight based on current prices, up from 11.7%.
This has also raised some debating points among analysts on the index’s increasing exposure to the risks faced by the sector.
A good example of this was Top Glove’s plunge yesterday, falling 7.48% or 55 sen to RM6.80 yesterday after 28 of its factories in Klang had to be shut down in stages due to a surge in Covid-19 cases among its workers.
The group alone was responsible for a third of the FBM KLCI’s decline yesterday.
The index fell 19.09 points or 1.2% to 1,578.39 points, of which Top Glove contributed to a 6.88 points decline after shaving RM4.43bil off its market capitalisation in just one day.
A total of 5,767 workers have been tested so far and 2,534 turned out to be positive for Covid-19.
Its other counterpart in the index, Hartalega, lost 28 sen to RM14.18, which translated to a 1.46 points drop in the index as market sentiments turned bearish yesterday with 1,093 decliners across the board.
“You can already see how the negative news of one rubber glove counter can affect the index. If it was a sector-wide problem, we would be seeing larger movements in the index compared with what it was previously, ” an analyst said.
A major development the analyst foresaw would be the announcement of a successful vaccine development that is safe for global consumption, something free of ethical hazards and tested 100% by relevant agencies.
While something like this would definitely trample the prices of rubber glove counters like what happened after Pfizer announced its 95% efficacy mRNA-based vaccine, this may be offset by the rebound in other sectors as the market expected borders to reopen and for businesses to recover. The FBM KLCI is now up for its semi-annual review and FTSE Russel is expected to make an announcement next Thursday on Supermax’s inclusion.
This will be based on the market capitalisation data at the close of the trading day on Monday, which placed Supermax 24th in the list with a market capitalisation of RM20.96bil, according to Bloomberg’s data.
According to the ground rules for the construction and management of the FTSE Bursa Malaysia Index Series, a security will be inserted at the periodic review if it rises above 25th position. With Supermax’s inclusion into the FBM KLCI, this would mean that KLCCP Stapled Securities’ re-inclusion in the index back in June was short-lived as it would be removed next month because it has the lowest market capitalisation of RM13.92bil, placing it on the 35th spot.
Kenanga said this was contrary to earlier expectations that Genting Bhd and its subsidiary Genting Malaysia Bhd (GenM) would fall off the list after the two groups rebounded strongly on the back of positive vaccine news.
As of Monday, the market capitalisation of Genting and GenM were RM15.83bil and RM14.25bil respectively.
“Based on Supermax’s represented index shares of 1.62 billion at RM8.16 (on Monday) versus KLCC’s 442.85 million at RM7.71, we estimate that Supermax would be coming in at around 2.6% weight versus KLCCP exiting at 0.68% weight.
“The final figures, however, will be based on closing prices on Friday, Dec 18 after which the new constituents will be first reflected when trading starts on Monday, Dec 21, ” Kenanga said in its market strategy report.
It added that Supermax’s estimated net profit for CY21 of RM2.5bil with an earnings per share (EPS) of 92.3 sen exceeded KLCCP’s estimated RM669mil with an EPS of 37.1 sen.
As the glove maker’s entry will be represented with a higher number of shares compared to KLCCP’s, the research house said it was highly likely that the estimated FBM KLCI EPS for FY21 will be enhanced by about 2.4%.
“We keep our FY21 EPS estimate at 95.5 sen for now pending the conclusion of the 3QCY20 earnings season early next week, ” it said.
CGS-CIMB Research said the upcoming review would be followed closely by the market as it could have an impact on index-linked products such as FTSE 30 ETF and KLCI index-linked funds.
Current FBM KLCI constituents account for about 58% of the total market capitalisation as at Oct 30.
“Among the constituents, MISC Bhd, Axiata Group Bhd and Tenaga Nasional Bhd posted the largest declines in market capitalisation since the last FBM KLCI review date on May 22. “The top three gainers were Top Glove, Hartalega and Press Metal Aluminium Holdings Bhd.
“The sharp increase in Top Glove and Hartalega was expected given that these two rubber glove players are the prime beneficiaries of the Covid-19 outbreak, ” it said.
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