Investment Highlights

• We maintain our BUY recommendation on Bursa Malaysia (Bursa) with a revised fair value of RM8.20/share (previously: RM6.40/share). We rolled over our valuation to FY21. Our FY20/21/22 earnings have been raised by 17.2%-43.4%, factoring in higher daily average trading value (DATV) of RM2.8/2.5/2.65bil for the securities market. Also, we have increased our assumptions for the average daily contracts (ADC) traded for derivatives in FY20/21/22 to 65,000/67,600/69,628. We continue to peg the stock to a PE of 24.0x (5-year historical average PE).

• The continued volatility will augur well for the securities and derivatives market.

• Bursa is likely to release its 2Q20 results in the final week of July. We expect a robust 2Q20 earnings of RM90-91mil which will be higher than 1Q20’s RM65mil. This is based on a record DATV for equities of RM3.8bil in 2Q20, significantly higher than the preceding quarter. YTD (Jan to May 20), the effective clearing fee rate rose to a record 2.69bps vs. 2.30bps in FY19 on higher retail investors’ participation. Meanwhile, derivatives trading revenue will be softer QoQ in 2Q20 due to the lower number of contracts traded for FCPO and FKLI. This is attributed to the shorter number of trading days in May 20 coupled with more stable CPO prices and securities market in the quarter.

• On the securities market, DATV (on OMT basis) for equities climbed to RM3.8bil in 2Q20 (1 April until 23 June 2020) vs. RM2.5bil in 1Q20. This has resulted in a YTD DATV for equities of RM3.1bil.

• During 2Q20 (Apr–May 2020), we continued to see foreign fund outflows from the securities market. The outflow was RM2.6bil and RM3.0bil in Apr and May 2020 respectively. The persistent net selling by foreign investor resulted in a net outflow of funds of RM13.3bil in the first 5 months of 2020. Nevertheless, this was offset by the net buying of securities by local institutions and retail investors. The percentage of local retail participation leapt to 34.25% as at 10 June 2020 vs. 22.67% in Mar 2020. Meanwhile, the percentage of local institution participation stood at 31.02% on 10 June 2020. Trades of investment traders (IVT) were classified under local institutions. The percentage of contribution of IVTs’ trades to DATV of local institutions rose from 26.65% in Mar 2020 to 37.11% and 46.97% in Apr and May 2020 respectively (see Exhibit 5).

• On 26 June, Bursa and the Securities Commission (SC) have further extended the suspension of short selling (intraday short selling, regulated short selling and intraday short selling by proprietary day traders) in the securities market until 31 Dec 2020. This is the second extension since the suspension began on 24 Mar 2020.

• Amidst the continuing volatility and uncertainties surrounding the development on Covid-19 pandemic, the further suspension on short selling is expected to limit the downside risk on the securities market. This will in turn provide more stability and confidence to investors.

• With the further suspension on short selling, it is not unrealistic to envision the extension of the temporary flexibility accorded for share margin accounts which will expire on 30 Sept 2020. The suspension of short selling and the flexibility on share margin accounts are seen as essential measures to encourage retail participation in the securities market which has surged to a high recently.

• YTD, there are 9 new listings in the securities market (Main Market: 3, ACE Market: 2 and LEAP Market: 4). As a comparison, 2019 saw a total of 30 IPOs (Main Market: 4, ACE market: 11 and LEAP Market: 15). These included 2 ETFs on the Main Market.

• On the 50% rebate on annual listing fees applicable to smaller listed companies (market cap < RM500mil) and those reporting losses at group level, the impact is around RM6mil per annum (<5%) on Bursa’s earnings.

• The average total contracts traded for derivatives was lower for 2Q20 (Apr–May 2020) at 66,595 compared to 85,578 in 1Q20. QTD, average daily contracts (ADC) traded for FCPO and FKLI was 51,804 and 14,588 respectively (1Q20: 69,194 and 15,072).

• For BSAS, there remain challenges with the adoption of volume-based pricing which saw large volumes traded at shorter term tenures, thus attracting lower revenue.

• The stock’s foreign shareholdings declined to a low of 14.7% in May 2020. Meanwhile, foreign ownership of the securities market slipped to 21.7% in May 2020 compared to 22.3% in March 2020.

Source: AmInvest Research - 29 Jun 2020