Investment Highlights

• We maintain our BUY recommendation on Bursa Malaysia (Bursa) with a higher fair value of RM10.30/share from RM9.65/share, pegging the stock to FY21 PER of 26x in line with the average of listed stock exchanges regionally. Our FY21/22 earnings have been raised by 6.3%/1.9% to reflect higher effective clearing fee rate for the securities market. We maintain our daily average trading value (DATV) assumptions for FY21/22 of RM3.2bil/RM2.8bil.

• Bursa recorded earnings of RM105mil (-14.0% QoQ) in 4Q20. It was lower than our projection of RM120mil largely due to higher staff cost and other operating expenses. The increase in other operating expenses in 4Q20 was attributable to a one-off professional fee (RM4mil for review of IT systems). Also, it was due to non-recurring provisions of RM13.6mil for the potential tax charges on digital services after the recent change in the scope of the SST. The exchange has booked the provisions conservatively despite clarifications are still being sought from tax authorities on the matter.

• For the full FY20, the exchange delivered earnings of RM378mil (+103.2% YoY), supported by higher securities and derivatives trading revenue. Cumulative net profit was within expectations, making up 96.5% and 104.9% of our and consensus estimate respectively.

• On the securities market, DATV (on OMT basis) for equities slipped to RM4.8bil in 4Q20 from a high of RM5.7bil in 3Q20. Nevertheless, for the full FY20, DATV for equities was still a record high of RM4.2bil (FY19: RM1.9bil).

• The strong DATV for equities was supported by higher retail participation. Retail ADV for FY20 surged to a record of RM1.59bil (+236.0% YoY) which contributed to 38.0% of the total ADV vs. 25.0% in FY19. Retail investors had been active in trading of industrial, products and services, healthcare and technology stocks.

• The number of new individual CDS accounts climbed by 132.0% YoY to 264,118 in FY20 with 64.0% of these accounts opened by retail investors aged 26–45 years old. Retail investors between 35 and 54 years old were the largest contributor (50%) to total retail ADV.

• FY20 saw the domestic institution and foreign institution ADV for the securities market rising by 117.9% YoY and 19.9% YoY to RM1.9bil and RM0.68bil respectively.

• YTD (4 Jan to 29 Jan 2021), the DATV for the securities market remained strong at RM5.04bil.

• 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 outflows of RM8.7bil and RM6.0bil respectively.

• In 2020, there were 19 new listings in the securities market vs. 30 in 2019. Total funds raised from new listings and secondary market rose by 51.5% YoY to RM10bil.

• The average total contracts traded for derivatives was higher for 4Q20 (Oct–Dec 2020) at circa 70.980 compared to 69,395 in 3Q20. QTD, average daily contracts (ADC) traded for FCPO was higher at 58,048 vs. 55,392 in 3Q20 while for FKLI, it was lower in 4Q20 at 12,659 vs. 13,744 contracts in the preceding quarter. For the full FY20, the ADC for all types of derivatives contacts rose by 32.8% YoY to 73,523 underpinned by higher trading of FKLI and FCPO with the rise in volatility of the FBMKLCI and CPO prices.

• For Bursa Suq Al-Sila’ (BSAS), ADV edged up to RM32.9bil in FY20 vs RM30.6bil in FY19. However, the adoption of volume-based pricing saw large volumes traded at shorter term tenures, thus generating lower revenue for the financial year.

• In FY21, we gather that the capex allocation will be around RM40–50mil comprising RM30mil for IT spend.

• Bursa declared a final dividend of 26 sen/share and a special dividend of 8 sen/share. Together with the interim dividend of 17 sen/share announced earlier, total dividends were 51 sen/share for FY20 (payout: 109.2%), higher than our forecast of 44 sen/share. Excluding special dividends, the payout ratio was 92.0%.

• 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.

• With the rise in new Covid-19 cases and uncertainties on the duration of the latest lockdowns, volatility continued to persist in markets. The continued volatility bodes well for active trading in the securities and derivatives markets. We expect markets to remain volatile in the near term until there are clearer signs of a firmer economic recovery.

Source: AmInvest Research - 3 Feb 2021