TWO stocks under RHB Research’s radar – Yinson Holdings Bhd and Rubberex Corp (M) Bhd – risk dropping out from the new shariah-compliant list that is tentatively slated for unveiling by the Securities Commission (SC) on Nov 26 for failing to meet the 33% cash and debt ratios threshold.
On the contrary, the research house also noted that three currently non-compliant securities – Tan Chong Motor Holdings Bhd, Tasco Bhd and NTPM Holdings Bhd – could be added into the list following the SC’s semi-annual review.
“After screening the financial metrics of the shariah-compliant stocks under our coverage, we flag two stocks – Yinson and Rubberex – which have failed to meet the financial ratios requirement,” head of research Alexander Chia pointed out in a market strategy note.
“Enquiries made with their respective managements do not indicate that there are any significant components of shariah-compliant cash or debt to mitigate this risk.”
The shariah rules specify that the debt and cash ratios – intended to measure riba (charged interest) and riba-based elements within a company’s financial position – must not exceed 33% of total assets.
On the potential inclusions, RHB Research noted that Tan Chong and Tasco’s debt ratios have now fallen below the permissible threshold.
Although NTPM’s nominal debt levels exceed 33%, the research house said this includes an Islamic debt component (stripping this out brings the company’s debt ratio to below 33% of its total assets).
More broadly, the research house expects the impending state elections in Melaka and Sarawak as a trial run for the 15th General Election (GE15).
“Other than political implications, the health and safety aspects from the conduct of campaigning for the upcoming state elections is worrying after considering that the state elections held in Sabah in September 2020 was widely considered to have been the source of COVID-19’s third wave here,” noted RHB Research.
Elsewhere, the research house also expects the incremental corporation tax payable for cukai makmur in Budget 2022 will wipe out nominal FBM KLCI earnings growth for FY2022 and raise market valuation by a one-time P/E (price-to-earnings) multiple.
“The investment strategy in 2022 will centre around astute stock picking, nibbling value and cyclical names on weakness with core holdings in growth, defensive, and high-yielding stocks,” projected RHB Research.
“Clarity on the prospects for 2023 will only become apparent in the latter part of 2022, in our view. In the meantime, the tone of Budget 2022 suggests that policy and regulatory risks will remain elevated for some time.” – Nov 16, 2021
