A list of measures, including liberalisations and incentives to supercharge the vibrancy of capital market, has been announced by our Prime Minister. While we maintain our FY18E/FY19E earnings pending further details, we are longterm positive on the initiatives as if implemented well, these would further boost equity capital market activities in the long run, which could also be earnings accretive to BURSA. Maintain MP with an unchanged TP of RM11.00.

Initiatives to catalyse the local bourse… According to press media news as well as a media release by Bursa Malaysia yesterday, a list of measures including liberalisations as well as incentives to stimulate the vibrancy of capital market has been announced by our Prime Minister, Dato’ Sri Mohd Najib Bin Tun Abdul Razak at the World Capital Market Symposium 2018.

… such as: (i) the exemption of stamp duty for a period of three years, on shares of mid and small cap companies traded on Bursa Malaysia, (ii) liberalisation of margin financing rules, (iii) intraday short selling to be allowed to all investors, (iii) introduction of new category of traders who trade on their own account, known as ‘Trading Specialists’ as well as (iv) a volume-based programme that would be introduced by BURSA and all new investors will be given a fee waiver on trading and clearing fees. Additionally, our Prime Minister has also announced the establishment of a stock market trading link between Bursa Malaysia and Singapore Exchange (SGX). The trading link will allow investors to trade and settle shares listed on each other’s stock market in a more convenient and cost efficient manner.

Generally positive to the capital market and BURSA. While not much detail is being disclosed at the moment, we are long-term positive on the initiatives as all these would enhance the vibrancy and liquidity of the local market, especially on the retail participation, which would in turn enhance BURSA’s trading revenue. Note that trading revenue alone contributed 65% to the group’s operating revenue in FY17. For illustration purpose in terms of earnings impact, assuming a 10% boost in Securities trading activities (SADV and volume) from our base case of RM2.8b/RM2.6b in FY18E/FY19E’s SADV and volume of 3.5b/3,3b, the earnings accretion to our FY18E/FY19E NP would be 6%/4%. However, the details available at this juncture is insufficient for us to fairly impute any assumptions. Hence, we prefer to keep our earnings estimates in check for now pending further updates.

So far so good despite volatility. Thus far, our strategist’s seasonal study that suggested a stronger 4QCY has been proven correct; alongside stronger SADV which improved 19% QoQ and 37% YoY to RM2.3b. For 2018, while the equity market may not be smooth sailing, we believe the spill-over effect of favourable seasonal factor coupled with the improved Buying Interest/Momentum should lend strength to the SADV in the short run, at least in 1Q18. In fact, this is already happening with better Securities ADV of RM3.1b as well as higher trading volume of 4.3b shares, from beginning of January 2018 till date of writing. Key catalysts are: (i) undemanding valuation of FBMKLCI against regional peers attracting more foreign interest, (ii) favourable uptrend of Ringgit, and (iii) firmer crude oil prices.

Maintain MARKET PEFORM with an unchanged TP of RM11.00. In terms of valuation, BURSA is currently trading at its +1SD level above its 5-year average PER, which we believe that the near-term catalysts could have already been priced in. We make no changes to our earnings estimates for now. Our TP is kept at RM11.00, still based on an unchanged 23.0x FY18E PER (which is at the +1SD above the 5-year average PER).

Source: Kenanga Research - 7 Feb 2018