This article first appeared in Capital, The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

BURSA Malaysia is due to conduct a constituent review this month. Among the super big capitalisation (cap) stocks, both YTL Power International Bhd and its parent YTL Corp Bhd stand a good chance of being on the member list of the benchmark FBM KLCI, judging by their market cap.

YTL Power is ranked 23rd and YTL Corp is 24th on Bursa Malaysia, ahead of companies such as Genting Bhd, Sime Darby Bhd and Mr DIY Group (M) Bhd, based on market value as at Nov 8.

Hong Leong Financial Group Bhd, whose share price has come off the peak of RM18.78 in August, was ranked 22nd. The banking group had a market cap of RM19.6 billion as at Nov 8.

YTL Power’s share price rocketed to a record high of RM2.26 on Nov 9, quadrupling since the start of the year. Its market cap has expanded RM12.7 billion over the last 11 months.

The upward trend has been buoyed by the government’s move to lift the ban on the export of renewable energy, as the company is seen as a big beneficiary, given its presence on both sides of the causeway.

Meanwhile, the bullish sentiment also spilled over to YTL Corp, which controls a 49.1% stake in YTL Power. The stock has more than tripled to RM1.50, with the big leap adding RM9.3 billion in market cap this year alone.

It is worth noting that YTL Corp was a component stock of the FBM KLCI but was excluded from the member list in June 2018 when it was traded around the RM1 level, having been on a decline since 2012.

YTL Power, a stock that had largely been neglected, is back on the radar of investors, particularly foreign funds, which are shovelling money into green energy-related companies.

Prior to the release of its financial results for the quarter ended Sept 30, 10 analysts had a “buy” call on the counter, with an average target price of RM2.39.

Kenanga Research expects YTL Power to see solid earnings growth from its Singapore operations PowerSeraya in the next two to three years, anticipating better margins there, driven by higher retail prices and low locked-in gas prices.

The research house has raised its earnings forecast on YTL Power for financial year 2024 (FY2024) and FY2025 by 15% to 16% to RM2.17 billion and RM2.06 billion, respectively, with a higher target price of RM2.50 to reflect its sustained low input cost.

YTL Power hogged the limelight recently when it bought an 18.87% stake in Ranhill Utilities Bhd.

“We view the deal positively, as it strengthens the company’s position in waste management services, in addition to being earnings-accretive,” CGS-CIMB Research said in a report dated Nov 2.

Besides the positive view on its subsidiary YTL Power’s prospects, the keen interest in YTL Corp is also fuelled by the expectation of rising local demand for cement, given its dominant position in the industry. The conglomerate owns 78.58% in Malayan Cement Bhd.

According to Maybank IB Research, both YTL Corp and YTL Power could feature as FBM KLCI constituents if they rank 25th and above, at the close of trading on the upcoming constituent review date. The review date is slated for Nov 20.

“The constituent change will take place after the market closes on the third Friday in December, or Dec 15, and would be effective the following Monday, Dec 18,” it said in a report dated Nov 8.

In the previous review of the index in June, Westports Holdings Bhd was added as a constituent and Inari Amertron Bhd was removed.

Among the existing component stocks, those at the bottom of the list are AMMB Holdings Bhd (market cap: RM12.8 billion), Dialog Group Bhd (RM12 billion) and Westports (RM11.4 billion).

AMMB Holdings’ share price was drifting lower in the first half of the year, but it reversed the downward trend in mid-June. Still, it is down by roughly 5% year to date.

Shares in Dialog have declined 12.5% this year to RM2.13, giving it a market cap of RM12 billion. Westports’ share price fell 8.2% to RM3.34, placing its market cap at RM11.4 billion.

AMMB Holdings is ranked 30th, Dialog Group 34th, and Westports 36th. Between the trio are KLCCP Stapled Group (31st), Gamuda Bhd (32nd), Malaysia Airports Holdings Bhd (33rd) and Hap Seng Consolidated Bhd (35th). (See table.)

Rakuten Trade head of equity sales Vincent Lau says the inclusion into the FBM KLCI is based not only on market cap but also factors such as liquidity and free float.

According to Rakuten’s Lau, the FBM KLCI is lagging behind its emerging-market peers, trading at a price-earnings (PE) multiple of 13.36 times, which is three standard deviations below the pre-pandemic median of 17 times.

“The market needs some new catalysts to improve the market sentiment. I feel that the rate hike in the US is coming to an end of its cycle, which is positive to the emerging market,” he tells The Edge.

Lau suggests that technology stocks have bottomed and all the bad news has been priced in. “We could see the technology sector doing better next year. It has been lagging behind other sectors,” he says.

The FBM KLCI index has dropped 3.37% this year.

A quick check on the components of the FBM KLCI shows a mixed bag in terms of performance: 14 stocks saw their share prices decline this year; 13 companies saw theirs rise; and three were almost unchanged.

Among the top decliners are Mr DIY, with a drop of more than 20.5% in its share price to RM1.57, followed by Axiata Group Bhd and PPB Group Bhd, which have fallen 17.7% and 13.6% respectively YTD.

Meanwhile, the top gainers on the FBM KLCI this year are Malayan Banking Bhd, with a 12% jump in share price to RM9.12 apiece last Wednesday; Maxis Bhd, which gained 10% to RM4.10; and CelcomDigi Bhd, which rose 9.7% to RM4.29.

In terms of sectors, banking and infrastructure companies are among the best performing, while oil and gas and healthcare are underperforming.

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