New CDS account openings have totalled 218k YTD (July) vs 97k SPLY with c.2- 3 month backlog in pending new accounts. Some of the key trading trends of retailers are (i) 74% trade online, (ii) margin usage has not increased and (iii) gloves is their most traded sector. Despite coming out of the MCO, “retail liquidity” has not diminished, and has in fact increased. With these meeting takeaways, we reaffirm our positive stance on Bursa and the glove sector.

We recently held a virtual meeting with Bursa to better understand the demographics and trading trends of the Malaysian retail investor. Speaking to us was Bursa’s Senior VP of Retail Marketing, Patrick Ng.

New account openings soar. We were told that new CDS account openings totalled 218k YTD (July) vs 97k SPLY; July openings alone stood at 53k. Given the unprecedented surge, we gather that there is still some degree of backlog in pending new accounts. 65% of these new accounts comprise of millennials (i.e. those age 25- 40).

Retail demographics. In terms of overall retail investor’s age breakdown, 36% are millennials, 61% >40 years and 3% others (55 years account for 36% of the value traded amongst retail investors. Gender wise, males make up 71% of retail investors. By ethnicity, Chinese comprise 70% of retail investors while Bumiputra is close to 30%; the latter has shown a good increase from the low-20% just 2 years ago. Geographically, the most active retailers (by ADV, starting from highest) come from Selangor, KL, Johor Bahru, Penang and Ipoh. Retail participation from East Malaysia (Sabah and Sarawak) is still minimal and presents a potential “growth region” for Bursa.

Trading trends. Amongst retail investors, 74% do online trading. Despite the strong increase in retail participation, Ng shared that their level of margin usage has not increased. In fact, the margin balance as of end-July was -13% lower than the end2019 sum, a healthy sign we might add. Retailers are however, doing more intraday trades at 34% of retail traded value in YTD (July) 2020 vs 2019’s 28%. Sectors (based on Bursa’s classification) that have the highest share of retailers (by ADV; YTD endJuly) are Industrial products and services (21.6%; small glove players included here), Healthcare (19.5%; large cap gloves classified here), Tech (16.2%), Consumer (12.5%) and Energy (7.3%; includes O&G stocks). The top 10 retail counters (by ADV; YTD end-July) are (starting from highest): Supermax, Top Glove, Comfort, Careplus, Hartalega, AirAsia, MyEG, Hibiscus, Rubberex and Datasonic.

Rejuvenated retailers. YTD (14 Aug), retail investors have (i) net bought RM9.98bn, which is >4x the sum for the full year 2019 (RM2.41bn) and (ii) participation rate of 33.5% vs 2019’s 24.7% and 10-year mean of 24%. While there is no clear cut answer on why retailers came in strongly to the market, Ng believes this was possibly due to (i) low interest rate environment causing retailers to seek higher returns in bashed down equities (i.e. during the Feb-Mar “Covid-19 crash”) and (ii) more time to participate in the market while being locked down during MCO.

No slow down post MCO. While we concur with these views, interestingly this “retail liquidity” has shown no signs of abating post MCO. Case in point: retailers net bought RM3.3bn with participation rate of 38.1% in June-July, even higher than during the MCO months (Mar-Apr) of RM2.70bn and 32.5%. Retail numbers for this month (up to 14 Aug) continues to look strong with net buys of RM1.45bn and participation rate of 45.9%. Nonetheless, there may be a downward normalisation in 4Q20 once the blanket loan moratorium ends on 30 Sept and changes to a targeted one.

Remain positive on Bursa and gloves. Overall, the meeting takeaways reaffirms our positive stance on Bursa (BUY, TP: RM11.85) via an all-time high ADV for FY20, which should translate to record earnings (+45% YoY). We also maintain our OVERWEIGHT stance on gloves (top pick: Top Glove, TP: RM31.31) which is the sector that has garnered the highest interest amongst retailers. In addition, we reckon that institutional investor interest in gloves will remain strong too, given the possibility of the sector’s heavier weighting (via the inclusion of Supermax and Kossan) in the KLCI come Nov review. Maintain KLCI target at 1,640 based on a “liquidity premium” PE of 18.5x (peak PE during QE3) on 2021 EPS.

Source: Hong Leong Investment Bank Research - 13 Aug 2020