Macquarie Equities Research (MQ Research) maintained Outperform on Bursa Malaysia (BURSA) but trimmed its target price to RM10.40 and the FY21-23’s securities average daily value assumption to RM4.8/3.8/3.6bn on a weaker volume outlook. Overall, in 1Q21, ACE market trading value declined but main market trading value improved with retail investors remaining net buyers while institutional investors as net sellers. Read on for an excerpt of MQ Research’s report dated 15 April.

1Q21: Robust Preview

• 1Q21 securities average daily value (SADV) is moderately ahead of MQ Research’s expectation at RM5.1bn (+3.7% q/q) vs MQ Research’s full-year forecast of RM4.90bn. Interestingly, volumes fell -11% q/q to 8.6bn but were offset by higher per-share value traded (+10.5% q/q). This would normally be indicative of weakness in effective clearing rates; however, robust retail participation in 1Q21 of 39% (4Q20: 41%; FY20: 34%) suggests otherwise. Interestingly, ACE-market trading value declined -14% q/q, while main market trading value improved +2% q/q through the quarter as well. Overall, retail remained net buyers through 1Q21, while local institutional investors turned net sellers. Meanwhile, foreign institutional investors saw net selling declining sharply. Feedback from Macquarie’s traders indicates the sectors with the biggest swings (from selling to buying) by foreign institutional investors were banks and gloves. On derivatives daily average volume traded (DDAV) rose +13% q/q, in line with increased volatility in crude palm oil (CPO) prices.

2Q21: weak April start on i-SINAR withdrawals

• The weaker April-to-date SADV of RM3.6bn (-30% m/m, +35% y/y) is linked to soft participation from local institutions, which MQ Research believes can be partially attributed to the i-SINAR withdrawal program by EPF, which saw applications rising after criteria was relaxed in March; RM52.5b approved mid-March. Year-to-date (YTD) SADV of RM4.96bn is still marginally ahead of MQ Research’s forecasts, +91% y/y. While the weaker volume prompts MQ Research to trim its SADV forecasts for FY21, MQ Research maintains its elevated assumption for the effective clearing rate (2.56bps) on persisting retail participation. Lastly, MQ Research remains optimistic on FY21 earnings, given Bursa has ample headroom to cut staff costs to offset any revenue weakness due to SADV downside following FY20’s +16% y/y increase in staff costs; potential +6% net profit if staff costs rebase to FY19 levels.

Earnings and Target Price Revision

• MQ Research trims its FY21-23 SADV assumptions from RM4.9/3.9/3.76bn to RM4.8/3.8/3.6bn on a weaker volume outlook. However, MQ Research upgrades its DADV assumptions +10%. Adjust FY21-23E earnings per share (EPS) by +0.7%/-0.6%/-1.0%. Cut target price (TP) from RM10.60 to RM10.40 on 18x (prev: 18.4x) FY21E enterprise value/earnings before interests, tax, depreciation and amortization (EV/EBITDA).

Price Catalyst

• 12-month price target: RM10.40 based on a EV/EBITDA methodology.
• Catalyst: 1Q21 results, rebound in SADV, elections, tech-sector rally.

Action and Recommendation

• Reiterate Outperform on lower TP of RM10.40. Sticky retail participation is key to the bull-case valuation for Bursa (RM12.04); cost-cutting caps downside risk.

12-month Target Price Methodology

• BURSA MK: RM10.40 based on a EV/EBITDA methodology

Source: Macquarie Research - 15 Apr 2021