Nov 25, 2016

Securies Commission Shariah Screening: Nov 2016 Review

Overall 34 In; 30 Out; 1 Delisted = 672
IN: Eversendai OUT: GKent & Oldtown

shariah-compliant stocks listNews
  • SC has published the latest list of Shariah compliant securities under the new screening methodology for the Nov review, which will take effect from 25 Nov 2016.
  • In short, 34 stocks were added to the list, 30 stocks were excluded from the previous list, while 1 stock previously in the list was delisted. All-in-all, the SC Shariah list expanded to 672 stocks (previously: 669 stocks).
  • No change in SC’s Shariah rules and guidance.
  • Stocks under HLIB universe that were reclassified as Shariah non-compliant are GKent (BUY; TP: RM3.77) and Oldtown (HOLD; TP: RM2.09) . We had earlier reported the potential exclusion of GKent due to higher-than-threshold holding of conventional cash. The exclusion of Oldtown came in as a surprise, which could be possibly triggered by the same reason (Oldtown’s net cash of 38 sen/share). Please refer to Figure #1 for the full list.
  • Other notable names are Latitude (not rated), Tomypak (not rated) and Yinson (not rated).
  • As for those who were newly classified / reclassified as Shariah compliant, only one is under HLIB universe, i.e. Eversendai (BUY; TP RM0.66) . The inclusion of Eversendai was within expectations as guided. See Figure #2 for the full list.
  • Other notable names that were classified as Shariah compliant are Analabs (not rated) and Petron (not rated). Some recently listed stocks were also admitted to the Shariah list, i.e. BCM Alliance (not rated) and Perak Transit (not rated).
  • Despite the exclusion from the Shariah list, we reiterate our BUY rating on GKent (TP: RM3.77) given its record high orderbook of RM5.7bn, translating to a superb cover ratio of 13.9x on FY16 construction revenue. It also boasts solid financials with 3-year earnings CAGR of 28%, above industry ROE of 18.4% and net cash of RM0.64/share.
  • We maintain our HOLD call on Oldtown (TP: RM2.09) as we opine that Oldtown may experience some margin pressure (labour & raw materials) despite stronger contributions from the FMCG business. However, its share price may experience selling pressure as the exclusion from Shariah list came in as a surprise.
  • We also keep our BUY rating on Eversendai (TP: RM0.66) , which may see share price catalyst from reclassification as Shariah compliant. Despite lingering concerns on its liftboat contract, from a core earnings standpoint, its recovery appears to be panning out well coupled with robust job wins. The stock also trades at an attractive P/E of 6x and 5.3x on FY16-17 earnings with current P/B at 0.39x.
source: Hong Leong Investment Bank Research – 25/11/16
List of Shariah-Compliant Securities by the Shariah Advisory Council of the Securities Commission Malaysia: Shariah List (pdf) (direct download),