Investment Highlights

• We upgrade our recommendation on Bursa Malaysia (Bursa) to BUY from HOLD with a higher fair value of RM9.65/share from RM9.50/share. Our FY20/21 earnings have been raised by 4.9%/7.3%, factoring in higher daily average trading value (DATV) of RM4.2/RM3.2bil (previously: RM3.8bil/RM2.7bil) for the securities market. Also, we have raised our assumptions for the average daily contracts (ADC) traded for derivatives in FY20/21 to 73,000/75,920. We are now pegging the stock to FY21 PER of 26x (previously: 28x) in line with the average of listed stock exchanges regionally.
   
• Bursa is scheduled to release it 4Q20 results on 2 Feb 2021. We expect a lower 4Q20 earnings by 1.9% QoQ to RM119.6mil (3Q20: RM121.9mil) based on a lower DATV for securities market despite an improvement in derivatives trading revenue. This will bring the full FY20 earnings to RM391.6mil (+110.1% YoY), above our earlier estimate of RM373.5mil supported by higher securities and derivatives trading revenue.
   
• On 16 December 2020, Bursa and the Securities Commission (SC) announced the lifting of the temporary suspension on regulated short selling (RSS) effective 1 Jan 2021. However, this was subjected to the following control measures: i) temporary reduction in the daily gross short position limit on approved securities to 2% (from 3%); and ii) the establishment of a new cap of 4% on RSS aggregated net short position. Also, the temporary suspension on intraday short selling of proprietary day trades (PDT) has been extended to 28 February 2021 while flexibilities for share margin financing have been stretched to 30 June 2021.
   
• We had earlier expected the DATV for securities market to taper in FY21 with the reintroduction of RSS and gradual lifting of the suspension in intraday short selling of PDT and flexibilities in share margin financing.
   
• However, with the rise in new Covid-19 cases and uncertainties on the duration of the latest lockdowns, volatility continued to persist in markets. Hence, this has caused the YTD (4–14 Jan 21) average DATV for equities to remain high at RM5.3bil.
   
• The continued volatility bodes well for active trading in the securities and derivatives markets. We see value reemerging on the stock, providing opportunities to accumulate after the retreat in the share price from a high of RM10.98. We expect markets to remain volatile in the near term until there are clearer signs of a firmer economic recovery.
   
• On the securities market, DATV (on OMT basis) for equities slipped to RM4.8bil in 4Q20 from a high of RM5.7bil in 3Q20. This resulted in a DATV for equities of RM4.2bil in FY20, which was above our projection of RM3.8bil.
   
• Foreign fund outflows from the securities market continued to be seen in 4Q20. Nevertheless, the outflow was lower at RM2.3bil vs. 2Q20 and 3Q20’s out flows of RM8.7bil and RM6.0bil respectively. Despite a volatile start for the securities market in 2021, YTD (4–13 Jan) saw the foreign funds outflows declining to RM19.2bil. This was contributed by consecutive days of foreign fund inflows since 7 Jan 2021. In Dec 2020, trades of local retail and institutions continued to the dominant in terms of the value of securities traded for the market. This saw the percentage of local retail participation at 40.59% while the percentage of local institution participation including investment traders (IVTs) stood at 44.76%.
   
• In 2020, there were 23 new listings in the securities market (Main Market: 6, ACE Market: 10 and LEAP Market: 7). This was lower than 2019’s 30 IPOs (Main Market: 4, ACE market: 11 and LEAP Market: 15).
   
• The average total contracts traded for derivatives was higher for 4Q20 (Oct–Dec 2020) at circa 71,000 compared to 69,000 in 3Q20. QTD, average daily contracts (ADC) traded for FCPO was higher at 58,048 vs. 55,392 in 3Q20 while for the FKLI, it was lower in 4Q20 at 12,659 vs. 13,744 contracts in the preceding quarter.
   
• The stock’s foreign shareholdings and foreign ownership of the securities market remained steady at 19.3% and 20.7% respectively in Dec 2020 compared to Sept 2020.

Source: AmInvest Research - 21 Jan 2021