Glove sector poised to be second largest in KLCI’s weighting with inclusion of Supermax

KUALA LUMPUR (Dec 4): The glove sector is set to become the second-largest in weighting of the FBM KLCI after the inclusion of Supermax Corp Bhd later this month.

Supermax replaced KLCCP Stapled Group, comprising KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust, following the semi-annual review of the FTSE Bursa Malaysia Index Series yesterday.  All constituent changes are to take effect at the start of business on Dec 21.

With the latest changes, the rubber gloves sector will be represented by three constituents – Top Glove Corp Bhd, Hartalega Holdings Bhd and Supermax Corp Bhd  – making up an estimated weightage of 11.76% based on shares prices as of the noon break today.

Supermax’s index shares to be represented in the FBM KLCI is about 2.03%, while Top Glove is 5.03% and Hartalega is 4.7%.

Meanwhile, the banking sector will remain as the largest on FBM KLCI with a 25.22% weightage through representation from five banks, namely Malayan Banking Group Bhd (8.85%), Public Bank Bhd (6.85%), Hong Leong Bank Bhd (3.75%), CIMB Group Holdings Bhd (3.68%) and RHB Bank Bhd (2.1%).

This  is followed by the glove sector at 11.76%, telcos (10.12%, excluding Telekom Malaysia Bhd), and utilities (9.13%). These sectors have a combined weighting of 56.23% on the FBM KLCI.

Meanwhile, Kenanga Research said that Supermax's addition to the FBM KLCI will result in only a marginal increase of the index's earnings per share (EPS) for FY21.

“Supermax’s entry should likely increase the FBM KLCI’s FY21 EPS as its earnings contribution is expected to exceed that of KLCC. After accounting for the dilutive impact of a higher divisor, we estimate the rebalancing would still potentially enhance EPS by around 2%,” the research house said in a note today.

According to Bloomberg, Supermax has 11 analysts covering it and all of them have buy calls on the counter, with a 12-month consensus target price of RM12.39, which suggests an upside of 49% from its shares price of RM8.34 at 4pm. At its current price, it has a market capitalisation of RM21.5 billion.

Following the review, the FTSE Bursa Malaysia KLCI reserve list now comprises the five highest-ranking non-constituents of the index by market capitalisation, which are Kossan Rubber Industries Bhd, QL Resources Bhd, Mr D.I.Y. Group Bhd, Westports Holdings Bhd and KLCC Stapled, according to a Bursa Malaysia’s statement.

Based on FTSE Russell’s rules, a stock would be added as a component of the KLCI if its market capitalisation rises to 25th place or above, while one will be removed from the index if it falls to 36th position and below.

Malacca Securities Sdn Bhd senior analyst Kenneth Leong said analysts expected both Supermax and Kossan to be included earlier as gloves share prices were trading near all-time high during that period.

However, with the slew of positive vaccines news, shares price of gloves stocks have retraced from peak levels since then. This has resulted in Kossan's market capitalisation declining and not making into the Bursa Malaysia’s top 30 companies list.

Kossan’s share price peaked at RM9.59 on Aug 6, but has declined since. Compared to its shares price traded at RM6.09 at 4.15pm, it posted a decline of 58%.  Nonetheless, it has risen 191% from RM2.08 on Jan 2, 2020.