This article first appeared in The Edge Financial Daily on November 5, 2019

KUALA LUMPUR: Top Glove Corp Bhd, Malaysia Airports Holdings Bhd and AMMB Holdings Bhd could be at risk of exclusion from the 30 component stocks on the FBM KLCI when  the FTSE Russell announces its review next month.

Westports Holdings Bhd, Telekom Malaysia Bhd (TM) and KLCCP Stapled Group, comprising KLCC Property Holdings Bhd and KLCC Real Estate Investment Trust, have overtaken the three existing KLCI members in market capitalisation (cap) based on yesterday’s closing.

Westports was ranked 28th, KLCCP 29th and TM 30th, based on yesterday’s market cap (see chart).

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.

Meanwhile, Fraser & Neave Holdings Bhd’s (F&N) market cap of RM12.85 billion exceeded AMMB and Top Glove with market cap of RM12.11 billion and RM11.57 billion respectively.

QL Resources Bhd’s market cap of RM11.84 billion was higher than Top Glove’s.

Notably, Top Glove and AMMB were added as part of the 30 component stocks of the KLCI in December 2018. TM and KLCCP were booted from the list.

In June, FTSE Russell, in a statement, said the KLCI reserve list, comprising the five highest-ranking non-constituents of the index by market cap, will be used if one or more constituents are deleted from the KLCI in accordance with the index’s ground rules during the period up to the next semi-annual review.

In the reserve list are Westports, YTL Corp Bhd, F&N, QL Resources and TM.

Top Glove was ranked 35th among the listed companies on Bursa Malaysia, based on yesterday’s closing.

Year to date, Top Glove’s share price has fallen 17.89%, to yesterday’s closing of RM4.52, valuing it at RM11.57 billion.

Comparing with RM14.32 billion market cap based on the closing price of RM5.505 on Dec 31, 2018 when it was added to the member list, some RM2.75 billion market cap was wiped out over the past 10 months.

“It (Top Glove) is currently ranked 35th by market capitalisation and will be automatically removed if it falls to 36th or below during the review,” wrote AllianceDBS Research analyst Quah He Wei in a note.

“The semi-annual review of the [30] KLCI constituents will take place in December 2019 based on closing prices on Nov 30, 2019,” he added.

The world’s biggest rubber glove maker was under selling pressure due to its weaker earnings report.

For the financial year ended Aug 31, 2019, its net profit fell 12.7% year-on-year to RM370.56 million versus RM424.36 million, despite a 13.8% rise in revenue to RM4.8 billion from RM4.22 billion a year ago.

According to Bloomberg, of the analysts tracking the glove manufacturer, five of them have “buy” calls, 10 “hold” and seven “sell”, with target prices (TPs) from RM4 to RM5.47.

Kenanga Research, maintaining its “underperform” recommendation with an unchanged TP of RM4, was less sanguine about Top Glove’s prospects as the research house expects the group’s profitability to continue facing competitive pressure from low-margin latex gloves and a slow recovery at surgical glove maker Aspion.

“Although earnings are expected to be underpinned by an uptick in nitrile demand, the group is plagued with competitive pressure from low margin latex gloves [accounting for an estimated 50% of the product mix]which could offset gains in the nitrile segment,” Kenanga Research analyst Raymond Choo Ping Khoon wrote in his report.