KUALA LUMPUR (April 15): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” call on Bursa Malaysia Bhd at RM8.70 with a higher target price of RM11.49 (from RM11.46) based on 29 times price-to-earnings ratio (P/E) tagged to financial year 2021 (FY21) earnings per share (EPS).

In a research note today, HLIB highlighted the market’s volatile recovery path, structurally higher retail participation and potential return of foreigners as auguring well for the average daily volumes (ADV) on the local bourse.

“Judging from 1Q21 ADV/average daily contract (ADC) of RM5.08 billion/79,900, quarterly core earnings could come in at RM108 million, implying a decline of 8% quarter-on-quarter (q-o-q) (fewer trading days) but an increase of 67% year-on-year (y-o-y).

“We raise FY21/FY22 earnings by 4%/8% and introduce FY23 forecast,” said HLIB research analyst Jeremy Goh in a note. 

He added the research house expects ADV to soften q-o-q in 2Q21 but to regain momentum in 2H21 as “election trading” sets in, particularly amongst local investors, taking a cue from the “state of emergency” which is slated to end on Aug 1.

“We maintain our rather consensus view that 2021 will be a vaccine-led recovery year. However, speed bumps such as vaccine hiccups (e.g. concerns over [AstraZeneca] and J&J), Covid resurgence, geopolitical tensions (i.e. US-China) and fluid domestic politics will bring much volatility along this recovery path, possibly inducing heightened trading activity.

“All in, we have pencilled in ADV of RM3.43 billion for FY21, which is lower than FY20’s exceptional RM4.21 billion but still much better than the pre-Covid highs of RM2.3-2.4 billion (FY17-18),” HLIB said. 

The research house also anticipates retail participation to remain strong and provide downside support to the market. 

“We believe that retail participation is now on a structurally higher base with the average participation rate at 39.6% post automatic loan moratorium vs the 10-year pre-Covid mean of 24%,” it said. 

On foreign shareholding, HLIB pointed out that fluid domestic politics remain the key risk to its return of foreigners' view.

“Foreign shareholding of 20.3% (end-March) is at a record low, even below the global financial crisis (GFC) trough of 20.7%.

“At current foreign shareholding levels, we reckon the base appears palatable to envision their re-entry, especially if they turn 'risk on' amid a vaccine-driven recovery climate,” it said. 

According to HLIB, the local bourse is tentatively slated to announce its 1Q21 earnings on April 27. 

At 9.36am, Bursa dipped 0.23% or two sen to RM8.68, valuing it at RM7.03 billion.