• Continued strong global fund flow reflects positive market sentiment

• IPO listing fees to trend higher

• Initiatives to further increase participation in securities and derivatives trading are still in the works

• We make no changes to earnings forecast at this juncture

• We maintain NEUTRAL with TP of RM11.00

Global fund flow to Malaysian equities still strong. We visited Bursa Malaysia yesterday for a latest update. We understand that positive market sentiments had led to continued strong fund flow. Foreign buying streak has stretched to 18 straight weeks. Foreign net purchase has now registered a cumulative of RM10.39b in 2017, offsetting approximately 35% of the total cumulative net outflow recorded in 2014-2016. Pursuant to this, we believe that the continuing foreign funds’ participation reflects an upbeat outlook on Malaysian equities market.

Higher fee from IPO listing to be expected. The management expects more initial public offerings (IPOs) this year, compared with 2016 which saw 11 companies raise a total RM660m. We are optimistic that fees will trend higher this year including from more foreign interest such as Bank Islam Brunei Darussalam, Brunei’s largest lender, We believe that Bursa will be able to continue attracting more IPO due to its competitive services and pricing in the region.

Young investors are participating in the market. Management noted that more younger investors aged 25 years and below are participating in the market, as evident by the +36%yoy jump of the number of Central Depository System (CDS) account holders, to circa 30,000 in 2016. This was a direct result of its financial literacy programme at universities. We opine that the jump in CDS account holders will further enhance retail trading, adding velocity of trades in the market. More retail participation is expected in the future with potential implementation of new technology where trades are executed via a direct pass-through online system.

Dividend payout expected to remain above 90%. Management indicated its commitment to continue rewarding shareholders by keeping the dividend payout at above 90%.

SME Market as new alternative albeit restricted. The proposed new SME market, to be later this year, will provide greater access to capital market financing for the SMEs. We are bullish on the news as the introduction of new market will provide more funding opportunities for SMEs, to add to the existing Main Market and ACE Market. We view this as a positive move by Bursa as the new framework will potentially become a catalyst for an uptrend in the securities trading activities and listing fees. Few factors which will drive up the overall revenues are (1) High demand from SMEs to seek funding via capital market, (2) Less stringent regulations and lower listing cost in the new SME market. However, we understand that the new SME market will only cater for sophisticated and institutional investors, which we believe will limit the upside in trading revenue growth in this segment.

No changes to earnings forecast. Although we believe that Bursa has some positive developments, we make no changes to our earnings forecast for now. This is due to the fact that we have already taken into account the expected higher IPO fees and fund flows. In addition, we believe that certain developments such as the SME markets and higher participation of young investors will take time to make a notable impact.

Maintain NEUTRAL. As there is no change to our earnings forecast, we maintain our NEUTRAL call on the stock with a TP of RM11.00 based on 3-year historical average PER of 25x. In terms of valuation, we believe that the positive prospect of the company has already been fully priced in. However, we have yet to impute the impact of the SME Market introduction given the lack of details such as the framework, number of SMEs participating, and pursuant fees (e.g. listing fees). Nevertheless, we will monitor the situation and revisit our valuation once the new framework is announced.

Source: MIDF Research - 15 Jun 2017