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

Supermax is replacing KLCCP Stapled Group, comprising KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust (REIT), 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 glove sector will be represented by three constituents — Top Glove Corp Bhd, Hartalega Holdings Bhd and Supermax — making up an estimated weightage of 11.76% based on share prices as of the noon break today.

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

Meanwhile, the banking sector will remain as the largest in the KLCI with a 25.22% weightage through the representation of five banks, namely Malayan Banking 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%, telecommunications (at 10.12%, excluding Telekom Malaysia Bhd) and utilities (at 9.13%). These sectors have a combined weightage of 56.23% of the KLCI.

Meanwhile, Kenanga Research said Supermax's addition to the KLCI will result in only a marginal increase in the index's earnings per share (EPS) for financial year 2021 (FY21).

“Supermax’s entry should likely increase the KLCI’s FY21 EPS as its earnings contribution is expected to exceed that of KLCCP. 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, there are 11 analysts covering Supermax and all of them have "buy" calls for the counter, with a 12-month consensus target price (TP) of RM12.39, suggesting an upside of 49% from its share price of RM8.34 as at 4pm today. At that price, it had a market capitalisation of RM21.5 billion.

Following the review, the 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 DIY Group (M) Bhd, Westports Holdings Bhd and KLCCP, according to a statement from Bursa.

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

Malacca Securities Sdn Bhd senior analyst Kenneth Leong said analysts had expected both Supermax and Kossan to be included as share prices of glove stocks were trading near their all-time highs.

However, following the slew of positive vaccine news, share prices of glove stocks retraced from their peak levels, resulting in Kossan's market capitalisation declining and not making it into the list of Bursa’s top 30 companies by market capitalisation.

Kossan’s share price peaked at RM9.59 on Aug 6, but has declined since. Compared to its share price of RM6.09 at 4.15pm today, it has posted a decline of 36.5%. Nonetheless, it has risen 191% from RM2.08 on Jan 2.