Investment Highlights

• We downgrade our call on Bursa Malaysia (Bursa) to HOLD from BUY with a revised fair value of RM9.30/share (previously RM8.20/share) due to high valuation of the stock which is already trading at a PE of over 30x. We tweak our FY20/21 earnings by +4.1%/-2.6% after adjusting our daily average trading value (DATV) and effective clearing fee rate assumptions for the securities market. We now expect a DATV of RM3.0/RM2.5bil for the securities market in FY20/21 (previously RM2.8/RM2.5bil). We are now pegging the stock to a PE of 28.0x based on the average of the listed stock exchanges regionally (previously 24.0x).
• Bursa reported a strong 2Q20 earnings of RM86mil (+33.2% QoQ) on the back of higher securities trading revenue with a strong DATV of RM3.8bil vs. RM2.5bil in the preceding quarter. It was slightly lower than our expected profit of RM90–91mil for the quarter due to higher staff costs.
• 6M20 net profit of RM151mil surged 62.0% YoY mainly driven by higher securities and derivatives trading revenue of RM188.2mil (+59.7% YoY) and RM48mil (+44.3% YoY) respectively. Cumulative earnings were within expectation, accounting for 49.8% of our projection. However, it beat consensus estimates, making up 59.2% of street numbers.
• 6M20 DATV for equities was RM3.1bil, higher than RM2.0bil in 6M19. Also, the effective clearing fee rate rose to a record high of 2.62bps in 6M20 vs. 2.42bps in 6M19 on the back of higher retail investors’ participation. The number of new CDS accounts skyrocketed 99.6% YoY to 167,321 while the retail DATV soared to RM1bil in 6M20 vs. RM495mil in 6M19.
• In 2Q20, we continued to see foreign fund outflows of RM8.6bil from the securities market, comprising RM2.6bil, RM3.0bil and RM3.0bil in Apr, May and June 2020 respectively. The persistent net selling by foreign investors resulted in a net outflow of funds of RM16.3bil in 6M20. Nevertheless, this was offset by the net buying of securities by local institutions which included trades of investment traders (IVT) and retail investors.
• The percentage of retail participation leapt to 33.0% in 6M20 vs. 25.0% in 2019. Meanwhile, the percentage of institution participation stood at 67.0%. IVT trades were classified under local institutions. The percentage of contribution of IVT trades to DATV of local institutions increased to 43.89% in June 2020 from 26.65% in Mar 2020 (see Exhibit 6).
• 6M20 saw 9 new listings in the securities market (Main Market: 3, ACE Market: 2 and LEAP Market: 4). As a comparison, in 2019, there were 30 IPOs (Main Market: 4, ACE Market: 11 and LEAP Market: 15). These included 2 ETFs on the Main Market. In July 2020, there were 6 new listings (Main Market: 2, ACE Market: 3 and LEAP Market: 1). Meanwhile, in Aug 2020, there will be 2 new listings (ACE Market: 1 and Leap Market: 1).
• The average daily contracts (ADC) traded for derivatives climbed to 76,956 in 6M20 compared to 49,351 in 6M19. This was supported by higher ADC traded for the FCPO and FKLI at 61,125 and 15,042 respectively.
• For Bursa Suq Al-Sila' (BSAS), ADV rose to RM33bil in 6M20 vs RM30bil in 2019. However, there remain challenges with the adoption of volume-based pricing which saw large volumes traded at shorter term tenures, thus attracting lower revenue for 6M20.
• CI ratio improved to 38.5% in 6M20 vs. 49.0% in 6M19 attributed to higher revenue despite opex rising by 3.7% YoY as a result of staff and technology costs. In the near term, the allocation for capex is around RM20–25mil to improve digital platforms. Bursa is looking at a 3-year business plan for a potential revision of its capex allocation.
• The stock’s foreign shareholdings declined to a low of 17.0% in June 2020. Meanwhile, foreign ownership of the securities market slipped to 21.4% in June 2020 compared to 22.3% in March 2020.
• An interim dividend of 17sen/share has been declared (payout of 91.0%) for 6M20. In terms of quantum, it was the highest interim dividend payment in the last 5 years. Management is still keeping to their dividend payout guidance of around 90.0% for FY20.
• Thus far, 3Q20 DATV for equities is still looking robust with the strong trading participation of retail participants and IVTs. Quarter to date (up until 27 July 20), we are still seeing a strong DATV for equities of RM5.3bil. Nevertheless, we expect the DATV to taper starting 4Q20 with the loan moratorium likely to end on 30 September. Borrowers will then be required to start servicing their loan repayments from 1 October 2020. This is expected to reduce the level of cash to be diversified to stocks in search for higher yields as seen recently. Also, the suspension of short selling and the flexibility on share margin accounts are seen only as temporary measures to encourage retail participation in the securities market. Our valuation is already based on FY21 earnings, and we do not expect these measures to continue moving into 2021.

Source: AmInvest Research - 29 Jul 2020