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INARI (0166) INARI AMERTRON BHD in, Hap Seng out in FBM KLCI's December tweak?

There will likely be changes to the flagship index of Bursa Malaysia’s 30 biggest companies next month, following FTSE Russell Malaysia’s final semi-annual review for this year.

KUALA LUMPUR: There will likely be changes to the flagship index of Bursa Malaysia's 30 biggest companies next month, following FTSE Russell Malaysia's final semi-annual review for this year.

Hap Seng Consolidated Bhd might be taken out from among 30 constituents of Bursa Malaysia's benchmark FBM KLCI, according to Kenanga Research.

In its place will most likely be Inari Amertron Bhd.

Kenanga Research noted that Nov 22 was the cut-off date for the FTSE Russell Malaysia's final semi-annual review of 2021.

"Data as of yesterday's close will determine the updated constituents of the FBM Index series that will be published on Thursday 2nd December and to be implemented effective Monday 20th December.

"Among the big caps, we expect Hap Seng (unrated) to be removed from the FBM Index series on the grounds of falling below the required liquidity threshold," Kenanga Research's Koh Huat Soon said in a report yesterday.

At the closing prices as at Monday's cut-off date, Hap Seng was ranked 25th by market capitalisation. But the diversified group is likely to be disqualified on grounds of insufficient liquidity.

"The ground rules state that to remain in the FBM Index series, a member stock must turn over at least 0.04 per cent of its free-floating shares in issue, based on its median monthly trading volume for at least 8 of the 12 months prior to the semi-annual review.

"For Hap Seng, (its) trading liquidity fell below the required threshold towards the end of review period for five straight months. The median turnover exceeded 0.04 per cent only for six of the last 12 months. As such, it appears to us that Hap Seng has failed to satisfy the minimum liquidity threshold," Koh said.

Kenanga Research said Inari is currently the largest non-FBM KLCI constituent with the requisite free float and liquidity.

If admitted, Inari would be the sole technology component in the index, the firm added.

"Based on Inari's represented index shares of 2,275.58 million at the current price of RM4.24 versus Hap Seng's 649.52 million at RM7.70, we estimate that Inari would come in at around 1.97 per cent weight versus Hap Seng exiting at 1.03 per cent weight.

"The final figures will however, be based on closing prices on Friday, December 17, after which the new list will be first reflected at the start of trading on Monday, December 20," Koh said.

Kenanga Research said at RM4.24, Inari was the 30th largest by market capitalisation and the company needed to remain at least above 36th to avoid direct removal in the next review round.

"Whether Inari can remain in the FBM KLCI beyond just one semi- annual period would depend on, among others, whether it can remain above 36th position in size, dropping below which it will be dropped according to the rules," Koh said.

This was the case with Supermax Corp Bhd which fell off in the June 2021 review just six months after admission in December 2020.

"Our tech analyst Samuel Tan is bullish on Inari, setting a target price of RM4.80 (13 per cent upside), reinforcing our confidence that Inari is likely to remain in the FBM KLCI for the long haul," Koh added.


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