• We saw another month of robust equity and derivatives trading on Bursa Malaysia in 1Q21, with equity market ADV at RM5.1bn (+2.6% qoq; +98.2% yoy) while derivatives total volume traded was at 5.3m (+15.7% qoq; -2.5% yoy)
• It appears to be a new norm for trading values and volumes on our equity and derivatives market, given the flush in liquidity, prevailing low rates and emergence of a new group of young and savvy retail traders
• We raise our 2021E/22E/23E earnings forecasts by 15.8% / 9.8% / 6.4% as we incorporate a higher equity ADV assumption of RM4.0-4.3bn and derivatives ADC of 83.5k for 2021E. Maintain BUY on Bursa, with a higher TP of RM12.15, although on a lower target P/E of 26x on 2021E EPS.

Bursa’s 1Q21 net profit is projected at RM108m; another robust year anticipated

Bursa’s equity trading value rose to circa RM5.1bn in average daily value (ADV), driven by upbeat sentiment as the Covid-19 vaccine is rolled out while more sectors of the economy are allowed to operate as Covid-19 cases started easing from February. Derivatives trades (FCPO and FKLI) also picked up strongly in March. Based on data available (1Q21 equity ADV of RM5.1bn and total derivatives traded of 5.3m), we estimate a 1Q21 net profit of RM108m (+130.6% yoy; +3% qoq).

A new ‘norm’ has emerged with robust retail participation in equity market

Retail participation, which grew aggressively in 2020, has continued to hover at 39% in 1Q21 (vs. historical levels of 20%), driven by entrance of new younger and savvy investors, booming online trades and ample liquidity. Hence, it was not a surprise to see an elevated level of equity market velocity which had sustained at between 60-70% since May 2020. We believe that this could be the ‘new norm’. Even derivatives trading, which has recorded a new high in 2020, may see the trend sustaining in 2021.

Catalysts for Bursa Malaysia – Economic Recovery, Prolonged Low Rates

We cite catalysts such as more certainty in an economic recovery (with GDP projected at between 6-7.5% by BNM), a prolonged low interest rate environment, ample liquidity and return of corporate profits (from the worst year in 2020) to underpin investor confidence on Bursa Malaysia’s equity and derivatives market.

Maintain BUY. Price Target Raised to RM12.15 on Earnings Revisions

We raise our 2021E/22E/23E earnings forecasts by 15.8%/9.8%/6.4% as we incorporate a higher equity ADV assumption of RM4.0-4.3bn and derivatives ADC of 83.5k for 2021E with 2022-23E at ADC of ~68k. Maintain BUY, as we raise our TP higher to RM12.15 (from RM10.90), but on a lower P/E target of 26x (+1SD) on revised 2021E EPS. Downside Risks: Negative Market News/political Developments.

Source: Affin Hwang Research - 2 Apr 2021