News

• Goodies for Malaysian equities. During yesterday’s World Capital Markets Symposium 2018, Prime Minister Najb Tun Razak (PM Najib) announced several measures in his keynote speech to stimulate vibrancy in Malaysia’s capital market. These measures include (i) liberalisation of margin financing rules, (ii) intraday short selling will be allowed to all investors, (iii) addition of a new category of traders called “trading specialists” who trade on their own account, (iv) stamp duty on mid-small cap stocks to be waived effective March 2018 for 3 years, (v) volume based incentive program to enhance trading activity and (vi) new investors to be given fee waiver on trading and clearing fees for 6 months.

• Connecting neighbours. It was also announced that Malaysia and Singapore will set up a market corridor to connect both countries, alongside a trading link between the respective stock markets. PM Najib said this “Malaysia-Singapore Connect” (MY-SG) will provide investors from both nations with easier and seamless access to each other’s markets with a combined market capitalisation of over USD1.2trn and 1,600 public listed companies.

Comments

• A boost for retailers. In our view, the 6 vibrancy stimulating measures will largely boost retail participation on Bursa. Apart from that, we believe the proposed measures will also enhance market liquidity. To recap, the total value traded on Bursa by retailers rose 53% YoY in 2017 to RM113.5bn. Retail participation on Bursa for 2017 stood at 20.1%, increasing from 16.8% in 2016.

• 1/3 rd stocks to benefit from stamp duty waiver. On the stamp duty waiver for mid-small cap stocks, PM Najib said there are over 350 of such companies with total market capitalisation of RM271bn, accounting for more than 1/3 rd of listings on Bursa. However, the yardstick on what constitutes mid-small cap stocks was not disclosed. We feel that this initiative compliments the Bursa MiDS scheme which was launched in 2017 to promote small-mid cap stocks. There are currently 98 companies enlisted under the MiDS scheme.

• Higher foreign inflows. The implementation of MY-SG should help stimulate foreign inflows to Bursa (from Singapore). Net foreign inflow into Bursa for Jan 2018 was encouraging at RM3.3bn, the highest since March 2017. Also, cumulative net foreign inflow (measured since Jan 2011) has finally moved back into positive territory after being negative since July 2015.

Risks

• Measures such as margin financing liberalisation, intraday short selling, trading specialists and volume based incentives may heighten market volatility.

Valuation

Maintain 2018 FBMKLCI target of 1,880

• With FBMKLCI declining 3.1% in the last 2 trading days, this has almost wiped out most of its gains this year (4.1% peak on 2 Feb). Nonetheless, we remain positive on Malaysian equities on back of a stronger ringgit, domestic consumption revival and higher foreign inflow post 14GE. Our FBMKLCI target of 1,880 is based on 16.5x (0.5SD above mean) P/E tagged to 2018 earnings.

Stock Picks

• Large caps: Tenaga, RHB, MAHB, Genting, Gamuda and Sunway.

• Mid-small caps: DRB, Mitra, Lay Hong and MB World.

Source: Hong Leong Investment Bank Research - 7 Feb 2018