Investment Highlights

• We maintain our HOLD call on Bursa Malaysia (Bursa) with a revised fair value of RM9.50/share (previously: RM9.30/share), pegging the stock to 28x FY21 EPS. We tweak our FY20/21/22 earnings upwards by 18.5%/5.1%/4.2% after adjusting our daily average trading value (DATV) assumptions higher and finetuning our cost-to-income (CI) ratio estimates.
• Bursa posted a record 3Q20 earnings of RM122mil (+41.4% QoQ) on the back of higher securities trading revenue with a strong DATV of RM5.7bil vs. RM3.8bil in the preceding quarter. Meanwhile, derivatives trading revenue was stable QoQ.
• 9M20 net profit of RM273mil grew 94.5% YoY mainly driven by the rise in securities and derivatives trading revenue to RM349.2mil (+101.1% YoY) and RM69.3mil (+33.8% YoY) respectively. Cumulative earnings were above expectations, accounting for 86.6% of ours and 87.4% of consensus expectation respectively.
• 9M20 DATV for equities was RM4.0bil, higher than the RM2.0bil in 9M19. Also, the 9M20 effective clearing fee rate rose to a record high of 2.57bps vs. 2.45bps in 9M19 on the back of higher retail investors’ participation. The retail DATV surged to RM1.5bil in 9M20 vs. RM476mil in 9M19 while foreign ADV traded was RM683mil.
• Foreign fund outflows from the securities market persisted. The outflow was RM2.6bil, RM1.5bil and RM2.0bil in July, Aug and Sep 2020 respectively. 3Q20 saw a cumulative outflow of RM6.0bil vs. RM8.7bil in 2Q20. For 9M20, foreign investors have persistently been net sellers of equities resulting in outflows of RM22.3bil.
• The percentage of retail participation leapt to 37.0% in 9M20 vs. 25.0% in 2019. Meanwhile, the percentage of institution participation shrank to 63.0%. IVT trades were classified under local institutions. The percentage of contribution of IVTs’ trades to DATV of local institutions increased consecutively in July and August but then slipped in Sep 2020 (see Exhibit 8).

• 9M20 saw 17 new listings in the securities market (Main Market: 5, ACE Market: 6 and LEAP Market: 6). As a comparison, in 2019, there were 30 IPOs (Main Market: 4, ACE Market: 11 and LEAP Market: 15). These included 4 ETFs on the Main Market. In Oct 2020, there were 5 new listings (Main Market: 1, ACE Market: 4). The largest was Mr D.I.Y. Group (Main Market) followed by Southern Cable Group (ACE Market) and Aneka Jaringan Holdings (ACE Market).
• The average daily contracts (ADC) traded for derivatives climbed to 74,408 in 9M20 compared to 52,644 in 9M19. This was supported by the higher ADC traded for the FCPO and FKLI at 59,193 (+42.6% YoY) and 14,604 (+60.9% YoY) respectively.
• For BSAS, YTD ADV rose to RM32.5bil vs. RM30.6bil in 2019. However, there remain challenges with the adoption of volume-based pricing which saw large volumes traded at shorter term tenures, thus resulting in lower revenue for 9M20.
• CI ratio improved to 35.3% in 9M20 vs. 48.3% in 9M19 attributed to higher revenue. Total revenue climbed on higher securities and derivatives trading revenue, increase in depository services fees from higher account openings and ROD (record of depositors) fees as well as stronger revenue from subscriptions for market data. Opex rose by 11.1% YoY due to provisions for staff cost, higher IT maintenance expenses and an increase in globex fees in tandem with the rise in the number of derivatives contracts traded.
• The stock’s foreign shareholdings rose to 19.3% in Sept 2020 vs. 17.0% in June 2020 while the foreign ownership of the securities market continued to trend downwards to 20.9%.
• From our tracking, the monthly DATV for the securities market slipped from the high of RM7.1bil in August 2020 to RM4.7bil in Sep 2020, and RM4.3bil for the period 1–21 Oct 2020. This was in line with our expectation that the DATV would taper off after the end of the automatic blanket loan moratorium on 30 September. Month-to-date until 21 Oct, the domestic retail trading participation was still high at 40.21% vs. 38.1% in Sept 2020.
• However, we are seeing a pickup in the interest of investors towards small-cap stocks based on the rise in trading volume of the FBM Small Cap Index in Oct 2020. Even though trading on glove counters (Top Glove, Hartalega, Supermax and Kossan) is still active, the ADV on these counters has moderated from the peak seen in 3Q20. Based on these trends, together with the expiry of the suspension on short selling and the flexibility on share margin accounts in Dec 2020, we continue to expect a further tapering of the securities market’s DATV moving forward.
• Our assumptions on the DATV for the securities market for FY20/21 have been raised from RM3bil/RM2.5bil to RM3.8bil/RM2.7bil.

Source: AmInvest Research - 28 Oct 2020