Possible weight changes ahead for FBM KLCI

Tags: Astro All Asian Networks plc | CIMB | FBM KLCI | GLCs | Khazanah Nasional Bhd | MAS | Maxis Bhd | PLUS Expressways Bhd | RHB Research Institute | Weightage changes

Written by Financial Daily
Tuesday, 29 September 2009 11:12

KUALA LUMPUR: The FBM KLCI may undergo some weightage changes if four events occur as anticipated — Maxis Bhd is relisted, Khazanah Nasional Bhd pares down stakes in certain government-linked companies (GLCs), PLUS EXPRESSWAYS BHD [] is privatised, and Astro All Asian Networks plc makes a RM1 per share capital repayment, RHB Research Institute said.

The research house said if the Khazanah selldown occurred anytime between now and end-November, the changes would only be reflected after the next half-yearly review in mid-December. Likewise, a capital repayment by Astro (which would also reduce its market capitalisation) would only be reflected at the next half-yearly review.

However, under the FTSE ground rules, any changes caused by a Maxis relisting or PLUS privatisation prior to a half-yearly review would be reflected immediately.

Three years after it was privatised, Maxis is headed for a relisting on Bursa Malaysia, albeit only for its local operations. On its last day as a listed company on June 22, 2007, the stock was the fourth largest by full market capitalisation, ranked just below CIMB (formerly known as BUMIPUTRA-COMMERCE HOLDINGS [] Bhd) and above MISC BHD [] at the time.

“We note that the KLCI component stocks were still selected by full market cap in 2007, before the current free float-based system was implemented on July 6, 2009.

“In any case, as a start we have simplistically assumed that Maxis would have a market cap of RM37.5 billion roughly similar to what it was in 2007 prior to being delisted,” RHB Research said.

It said upon listing, due to its expected free float of 30% (and thus 0.3 time free float factor), Maxis would be added to the FBM KLCI at 10th spot even though it would be the fourth largest stock by full market cap.

RHB Research said MAS as the smallest by full market cap on the top 30 list as well as the reserve list would then drop out.

“We estimate Maxis would have an index weight of 3%, slightly diluting the top nine stocks by 0.09 percentage point to 0.28 percentage point. On the FBM100 [], Maxis would have an index weight of 2.39%,” it said.

RHB Research said Khazanah had had long-term plans to reduce its shareholdings in the GLCs but this had repeatedly been hampered by market downturns.

“While the timing of Khazanah’s future share sales is unknown, we highlight that this could potentially have an impact on the FBM KLCI stock weightings, which are based on estimated free floats.

“Khazanah would have to sell 12.8% of Tenaga Nasional, 23.8% of Telekom, and 19.5% of Axiata to push the free float factor from 0.75 time currently to one time in order to make a difference to their FBM KLCI weightings, and effectively dilute the top three heavyweights: CIMB, Sime Darby and Public Bank.

“However, we believe this is unlikely as Khazanah’s stake in all three companies would fall below 33%,” it added.

RHB Research said as the government continued to mull over plans to privatise PLUS, it believed the potential impact on other component stock weightings would be insignificant although a new stock would be promoted in its place. It said if PLUS fell out, the next stock in the reserve list, Gamuda, would be promoted to the FBM KLCI.

It said as Gamuda’s estimated free float was over 75% after taking into account the Employees Provident Fund’s 9.3% and Raja Datuk Seri Eleena’s 7.5%, its free float factor would be the full one time.

This would place Gamuda in 18th position on the FBM KLCI based on Sept 24 share prices, just one rung below PLUS’ vacated spot, but above other bigger market cap stocks like BAT, Petronas Gas and YTL Power.

Similarly, if Astro’s market cap falls by RM1.9 billion, assuming a RM1 per share capital repayment, the stock’s market cap would fall to below even that of MAS which is currently the smallest among the top 30 FBM KLCI component stocks as well as the five reserve stocks.

RHB Research said Maxis’ relisting would lift the telecom sector weighting from 9.5% currently to 12.3% and if Khazanah sold down its stakes in Telekom and Axiata, the sector’s weighting would rise further to 14%. If the infrastructure sector’s sole representative PLUS is privatised and replaced by Gamuda, the CONSTRUCTION [] sector weight would rise to 3.6%.

The research house said if Astro fell out of the index to be replaced by Gamuda, the construction sector weighting would rise to 3.5% and the media sector would no longer be represented in the index.

After the changes caused by the four scenarios, RHB Research noted that the finance and PLANTATION [] sectors remained the major heavyweights, still commanding over 52% of the total index weight. The power sector would be diluted slightly, although its ranking would fall to fourth place after Telekom, from third currently.


This article appeared in The Edge Financial Daily, September 29, 2009.