Preview of Possible Changes In KLCI Constituents
■ Press Metal and Hartalega may have qualified for inclusion into KLCI.
■ BAT and IJM will most likely be deleted from KLCI to make way for the new inclusions.
■ SD Plantations will most likely be included in KLCI post the demerger of Sime Darby;
Sime Darby Properties and Sime Darby may not make the cut.
■ Maintain KLCI index target of 1,790 points for 2017F and 1,920 points 2018F.
KLCI review will use data from yesterday’s closing
FTSE Russell is due to announce the results of its upcoming semi-annual review of FTSE Bursa Malaysia Index Series on 30 Nov 2017. We provide our analysis below on potential inclusions and deletions of FBM KLCI constituents, based on our study of the FTSE Bursa Malaysia Index Series ground rules and latest market cap data of the top 40 largest listed companies on 20 Nov (on which the review will be based). All constituent changes in the review will take effect on 18 Dec 2017.
Press Metal and Hartalega qualify for inclusion into KLCI
Under the rules, a security would be inserted in the FBM KLCI during the periodic review if its market cap has risen to 25 th position or above among the eligible main market securities. Based on yesterday’s market cap and omitting Nestle from the list (as it does not satisfy the eligibility criteria), we found Press Metal and Hartalega Holdings in the 24 th and 25 th rank, respectively, which would qualify both companies for insertion into the KLCI index.
None of the constituent members met deletion criteria
According to the rules, a security would be deleted at the periodic review if it has fallen to 36 th position or below among the eligible main market securities. Based on yesterday’s market cap and after removing Nestle from the list of companies, we found that none of the companies in the KLCI constituents are in this camp.
BAT and IJM will most likely be deleted from KLCI
The rules specify that should a greater number of companies qualify to be inserted in an index than those that qualify to be deleted, the lowest ranking constituents presently included in the index will be deleted. Based on this, our analysis reveals that BAT and IJM could be deleted from KLCI at the upcoming periodic review.
How will this impact the soon-to be listed Sime Darby entities?
Sime Darby Plantation and Sime Darby Property are scheduled to list on 30 Nov. Following their listings, there will be 32 constituents in the KLCI index. After the market closes on first day of trading, index constituents of KLCI will be ranked by full market cap and the two smallest constituents in the KLCI will be deleted. Based on the mid-range scenario of indicative reference price, Sime Darby Plantation should be included in the KLCI while Sime Darby Properties and Sime Darby may not make the cut.
Potential changes in the reserve list
The reserve list for KLCI, which represents the top five highest ranking potential constituents not included in the index, will be used for selection for inclusion into KLCI should one or more constituents are deleted. Based on yesterday’s closing, companies that could qualify for the new reserve list are Malaysia Airport, Dialog, Gamuda, AirAsia and IOI Properties Group.
Maintain KLCI target of 1,790 for 2017F and 1,920 for 2018F
We maintain our KLCI target of 1,790 points and 1,920 points for 2017F and 2018F, respectively. We project the market to be range-bound till the end of the year as market participants await for fresh catalysts to drive it. The ongoing 3Q17 results season has so far been slightly disappointing, as the ratio of underperformers (29% of those that have reported their results) exceed the ratio of outperformers (26.7%).
source: CIMB Research –21/07/2017