KUALA LUMPUR (Jan 21): AmInvestment Bank Research has upgraded Bursa Malaysia Bhd to “buy” at RM8.78, with a higher fair value (FV) of RM9.65 (from RM9.50), and said its continued volatility bodes well for active trading in the securities and derivatives markets.

In a note today, analyst Kelvin Ong said he had raised his earnings forecasts for Bursa for the financial year ended Dec 31, 2020 (FY20) and FY21 by 4.9% and 7.3% respectively, factoring in a higher daily average trading value (DATV) of RM4.2 billion/RM3.2 billion from RM3.8 billion/RM2.7 billion previously for the securities market, as well as raised his assumptions of average daily contracts traded for derivatives in FY20/21 to 73,000/75,920.

“We are now pegging the stock at an FY21 price-earnings ratio (PER) of 26 times (previously 28 times), in line with the average of listed stock exchanges regionally,” he said.

Ong noted that on Dec 16 last year, Bursa and the Securities Commission Malaysia (SC) announced the lifting of the temporary suspension of regulated short selling (RSS) effective Jan 1, 2021, as well as the temporary suspension of intraday short selling of proprietary day trade (PDT), had been extended to Feb 28, 2021, while flexibility in share margin financing had been stretched to June 30, 2021.

“We earlier expected the DATV of the securities market to taper in FY21, with the reintroduction of RSS and gradual lifting of the suspension of intraday short selling of PDT and flexibility in share margin financing,” said the analyst.

Ong also noted that continued volatility in markets amid the recent rise in new daily Covid-19 cases and uncertainties over the duration of the latest lockdowns had caused the year-to-date (YTD) (Jan 4- Jan 14, 2021) average DATV of equities to remain high at RM5.3 billion.

“We see value re-emerging for the stock (Bursa), providing opportunities to accumulate after a retreat in its share price from a high of RM10.98,” said Ong, expecting markets to remain volatile in the near term until there are clearer signs of a firmer economic recovery.

Meanwhile, Ong said Bursa is scheduled to release its fourth quarter of FY20 (4QFY20) results on Feb 2, 2021, where he expects lower earnings by 1.9% quarter-on-quarter (q-o-q) at RM119.6 million (3QFY20: RM121.9 million) based on a lower DATV of the securities market despite an improvement in derivatives trading revenue.

Ong said this will bring its full FY20 earnings to RM391.6 million (+110.1% year-on-year), above his earlier estimate of RM373.5 million, supported by higher securities and derivatives trading revenue.

He added: “The average total contracts traded for derivatives were higher in 4Q20 (October to December 2020) at about 71,000, compared with 69,000 in 3Q20.

"Quarter-to-date (QTD), average daily contracts traded for the FCPO (Crude Palm Oil Futures Contract) was higher at 58,048 versus 55,392 in 3Q20, while for the FKLI, it was lower in 4Q20 at 12,659 versus 13,744 contracts in the preceding quarter.”

Ong also noted that despite a volatile start for the securities market in 2021, it YTD (Jan 4 to 13) had seen the foreign funds outflow declining to RM19.2 billion, which was contributed by consecutive days of foreign fund inflows since Jan 7, 2021. 

Last December, trade of local retail and institutions continued to dominate, where the percentage of local retail participation was at 40.59% and local institution participation, including investment traders, stood at 44.76%.

“The stock’s foreign shareholding and foreign ownership of the securities market remained steady at 19.3% and 20.7% respectively in December 2020, compared to September 2020,” reckoned Ong. 

He also pointed out that last year, there were 23 new listings in the securities market (the Main Market: six; ACE Market: 10; LEAP Market: seven), which were lower than 2019’s 30 IPOs (the Main Market: four; ACE Market: 11; and LEAP Market: 15).

At 10.18am today, Bursa had dipped 0.68% or six sen to RM8.72, with a market capitalisation of RM7.06 billion.