• Bursa Malaysia’s (Bursa) 4Q20 net profit came in at RM104.9m (+130% yoy; -14% qoq), while the 2020 net profit of RM377.7m (+103.2% yoy) was above our expectations by 13% but in line with street estimates
   
• Though the equity market’s ADV had pulled back qoq, it was however still at a very robust level of RM4.98bn in 4Q20 vs. RM5.8bn in 3Q20. Bursa’s ADV has been between RM1.8bn and RM2.4bn from 2015-2019
   
• Upgrade to BUY with a revised 12-month TP of RM10.90, based on our revised 2021E EPS and an unchanged P/E multiple of 27x (at +1SD).

Robust Yoy Growth in 4Q20 Profits, Though a Pullback Vs. 3Q20

Bursa continued to see a robust 130% yoy expansion in 4Q20 net profit, underpinned by an active securities market (88% of total revenue and +105% yoy), which also recorded an average daily value (ADV) of RM4.98bn (+143% yoy; -14% qoq). The 2020 equity ADV rose 100.5% yoy to RM4.31bn, underpinned by a strong 3Q20-4Q20 performance. In the derivatives market, 4Q20 revenue made up circa 11% of total revenue (+9% yoy; flat qoq), with average daily contracts (ADC) of 71k (+12.6% yoy and +2.3% qoq) underpinned mainly by FCPO and FKLI contracts.

Is this a new norm? Equity market trades driven by surge in retail participation

Retail participation averaged 38% in 2020 as compared to 25% in 2019 (2016-2018: 21%-22%) while local institutional participation, as a proportion, decreased to circa 27- 28% in 2020 vs. 33% in 2019. As disclosed by Bursa, 2020 saw the highest retail ADV ever recorded in Malaysian stock market history, rising from RM473m in 2019 to RM1,589m in 2020, +236% yoy. Retail participation has been driven by cash holdings, and not an increase in leverage. We note that retailers have been net buyers in 2020, at RM14.3bn vs. RM2.6bn in the prior year. In our view, this could be the new norm going forward, as retail participation could stay robust due to the entrance of new younger investors, booming online trades (grew 156% yoy in value) and ample liquidity given prevailing low interest rates.

Upgrade to BUY, With a Revised Target Price of RM10.90

We raise our 2021E/22E earnings forecasts by 28-36%, and introduce the 2023E forecasts based on these assumptions: i) equity market ADV of RM4.0bn / RM3.8bn / RM3.8bn; and ii) derivative market ADC of ~69k. We upgrade Bursa from a Hold to BUY, based on our revised Target Price of RM10.90 (at 27x P/E target) (from RM8.54 previously, methodology and multiple unchanged) which presents an upside potential of 17%. Downside risks to our view include: i) decreased interest in rubber gloves, technology and industrial/services sectors; ii) hike in interest rates.

Source: Affin Hwang Research - 3 Feb 2021