This article first appeared in Capital, The Edge Malaysia Weekly on April 20, 2026 - April 26, 2026

DEBATE over expanding the FBM KLCI from 30 to 50 constituents often centres on a key question: Are the “next 20” ready to join the benchmark, or would broadening the benchmark risk diluting its quality?

To examine this, The Edge tracked the 20 companies occupying the No 31 to 50 positions at end-2015 over a 10-year period, spanning about 20 semi-annual index reviews.

A look at the companies shows that a hypothetical 50-stock index would have introduced businesses with smaller and more volatile earnings bases than the current established constituents.

As a reference point, the typical 20th FBM KLCI constituent such as PETRONAS Dagangan Bhd (KL:PETDAG) generates earnings of about RM800 million to RM1 billion (excluding Covid-19-affected years).

This highlights the earnings threshold typically required to sustain a place within the benchmark.

Expanding the index could lower that bar, admitting companies with earnings bases below RM500 million.

These include several “next 20” names with weaker and more cyclical earnings such as Sapura Energy Bhd, now called Vantris Energy Bhd (KL:VANTNRG), Bumi Armada Bhd (KL:ARMADA), Hartalega Holdings Bhd (KL:HARTA), Malakoff Corp Bhd (KL:MALAKOF) and Genting Plantations Bhd (KL:GENP).

Some of these companies subsequently fell sharply in rankings — from within the top 50 to near 100s, and in one case beyond 200, underscoring their cyclical or less durable earnings profiles.

Another concern is whether index inclusion artificially lifts valuations of mid-cap stocks that may not otherwise command such premiums.

Market observation points to valuation gaps even within similar earnings bands.

For instance, consumer names such as Fraser & Neave Holdings Bhd (KL:F&N) trade at around 25 times earnings, compared with FBM KLCI component Nestle (Malaysia) Bhd (KL:NESTLE) at 45.3 times and QL Resources Bhd (KL:QL) at about 32 times — despite broadly comparable earnings bases of around RM500 million.

This raises the possibility that index inclusion — rather than fundamentals alone — plays a role in sustaining higher valuation multiples.

Only a handful of companies consistently hover within the No 31 to 50 range. These include IOI Properties Group Bhd (KL:IOIPG) and Batu Kawan Bhd (KL:BKAWAN), which have maintained scale but have not broken into the top 30.

Their persistence highlights a structural gap between mid-cap leaders and established large caps, largely driven by differences in earnings scale.

Given that inclusion into an elite index typically attracts incremental flows, a key question emerges: Would these stocks command higher-than-usual valuations if the expanded list were adopted?

Historical data also suggests that the current 30-stock structure is not static, but self-regulating.

Of the “next 20” tracked since 2015, 10 stocks were eventually promoted into the FBM KLCI, reflecting the index’s ability to capture rising companies over time.

However, eight of these later exited the benchmark, leaving only two — YTL Power International Bhd (KL:YTLPOWR) and Gamuda Bhd (KL:GAMUDA) — as current constituents.

This cycle indicates that companies typically enter the index after demonstrating sustained earnings growth, rather than through a lower inclusion threshold.

A common feature among several names is a surge in trading activity and valuations ahead of index inclusion.

In the case of Gamuda, average trading volume rose to above 20 million shares from about five million to six million, while its price-earnings ratio (PER) expanded to nearly 30 times as earnings climbed beyond RM1 billion from its previous sub-RM700 million levels.

Similar patterns were observed with Dialog Group Bhd (KL:DIALOG), Hartalega and Top Glove Corp Bhd (KL:TOPGLOV), for which earnings and market interest increased in the run-up to inclusion.

This suggests that valuation uplift is not purely speculative, but reflects a combination of improving fundamentals and forward-looking positioning by investors anticipating index inclusion.

At the same time, this creates a self-reinforcing dynamic — where rising market capitalisation attracts further trading interest, supporting additional valuation expansion.

A snapshot of the current “next 20” — companies ranked No 31 to 50 by market capitalisation as at April 14 — offers insight into the immediate candidates for an expanded FBM KLCI.

Notably, seven of these companies had previously been part of the benchmark, having once exceeded at least RM12 billion in market capitalisation.

They are Westports Holdings Bhd (KL:WPRTS), KLCC Property Holdings Bhd (KL:KLCC), QL Resources, Dialog Group, Genting Malaysia Bhd (KL:GENM), Genting Bhd (KL:GENTING) and IJM Corp Bhd (KL:IJM).

Their reappearance in the “next 20” highlights a key feature of this segment — it is not a one-way progression into the FBM KLCI, but a revolving belt where companies move in and out depending on earnings cycles and market conditions.

Within this group, a subset of companies stands out for demonstrating sustained earnings growth alongside valuation rerating over the past three years.

These include United Plantations Bhd (KL:UTDPLT), IOI Properties, Westports, KLCC Property, KPJ Healthcare Bhd (KL:KPJ), IGB REIT (KL:IGBREIT), TIME dotCom Bhd (KL:TIMECOM), Malayan Cement Bhd (KL:MCEMENT), Sunway Construction Group Bhd (KL:SUNCON) and Sime Darby Property Bhd (KL:SIMEPROP).

The pattern reinforces a familiar pathway: earnings expansion first, valuation rerating next, followed by market capitalisation.

United Plantations illustrates this trajectory most clearly. Its earnings more than doubled to about RM825 million, while its PER expanded from around 15 times to 26 times.

This dual uplift drove its market capitalisation to more than triple, from about RM6 billion to RM20.53 billion, placing it at No 31 — just outside the current FBM KLCI threshold.

The case highlights that even strong performers must achieve both earnings scale and valuation support to break into the top tier.

KPJ Healthcare, TIME dotCom and Sunway Construction display similar trends of earnings growth coupled with valuation expansion — but also illustrate the gap that remains.

KPJ Healthcare’s earnings rose steadily from about RM200 million in 2019 to RM366 million in 2025, while its PER expanded from around 25 times to 40 times, lifting its market capitalisation to RM14.39 billion and ranking it 36th.

TIME dotCom recorded consistent earnings growth over several years, with its PER increasing to about 25 times from 20 times. Its market capitalisation now stands at RM10.72 billion — more than double its level six years ago — placing it at No 40.

Sunway Construction’s earnings accelerated to RM187 million and RM362 million in the past two years, supported by strong data centre-related construction jobs. Its PER rose to 24.7 times from below 20 times previously, pushing its market capitalisation to RM8.97 billion, ranking it No 46.

While these companies demonstrate improving fundamentals and growing investor interest, most remain some way from the scale typically seen among entrenched FBM KLCI constituents.

The “next 20”, therefore, functions less as a ready-made extension of the benchmark, and more as a proving ground — where companies must demonstrate consistency in earnings, scale and investor support over time.

Some companies exhibit clear trajectories towards large-cap status, while others remain cyclical or dependent on specific market themes.

This unevenness reinforces a key tension in the expansion debate — whether broadening the index improves representation or prematurely elevates companies still in transition.

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