Retail investors to boost Bursa Malaysia revenue

Q1 average daily value shows 5.2% increase

“We estimate that core earnings for the quarter could come in at Rm108mil, forming 35% of our initial FY21 earnings forecast.” Hong Leong Investment Bank Research

KUALA LUMPUR: Robust retail participation and the potential return of foreign investors augur well for the local bourse, potentially raking in higher revenues for Bursa Malaysia Bhd.

With the first quarter (Q1) average daily value (ADV) coming in stronger at Rm5.08bil, which is a 5.2% increase quarter-on-quarter (q-o-q) and 100.8% increase year-on-year (y-oy), analysts are expecting Bursa Malaysia to post decent profits for the first three months of the financial year ending Dec 31, 2021 (FY21).

While volumes fell 11% q-o-q to 8.6 billion, these were offset by higher per-share value traded.

“Barring any unforeseen swings in cost structure, we estimate that core earnings for the quarter could come in at Rm108mil, forming 35% of our initial FY21 earnings forecast and 32% of consensus,” Hong Leong Investment Bank Research (HLIB) said in a note yesterday.

If met, this implies a 7.9% q-o-q dip in core earnings. But on a y-o-y basis, HLIB’S Q1 core earnings estimate suggests a 66.9% jump as ADV doubled.

The bourse is slated to release its financial results for Q1 on April 27.

Retail participation in the market has remained strong amid expectation of improved economic conditions.

Macquarie Equities Research pointed out that retail remained net buyers through Q1, while local institutional investors turned net sellers.

Average retail participation in the first quarter stood at 39.3% (retail ADV: Rm1.99bil) alongside net buys of Rm5.36bil.

HLIB believes that retail participation is now on a structurally higher base with the average participation rate at 39.6% post-automatic loan moratorium versus the 10-year pre-covid mean of 24%.

This should lend some downside support to the market given that the ADV is expected to soften q-o-q in Q2.

“The weaker April-to-date securities ADV of Rm3.6bil (-30% month-on-month, +35% y-o-y) is linked to soft participation from local institutions, which can be partially attributed to the I-SINAR withdrawal programme by EPF, which saw applications rising after criteria was relaxed in March.

“Rm52.5bil has been approved as at midmarch,” according to Macquarie.

Meanwhile, foreign shareholding of 20.3% as at end-march is at a record low, which is lower than the global financial crisis trough of 20.7%.

But green shoots are emerging with this segment of investors, considering the Q1 numbers compared to Q4 of FY20.

HLIB noted that foreign participation rose from 15% to 16.7% with foreign ADV rising from Rm0.73bil to Rm0.86bil and their net selling tapering from Rm2.29bil to Rm1.73bil.

“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. However, we are cognisant that fluid domestic politics remain the key risk to our return of foreigners view,” HLIB said.

The brokerage expects trading to regain momentum in the second half of FY21 as “election trading” sets in, particularly among local investors, taking the cue from the “state of emergency” which is slated to end on Aug 1.

All in, HLIB is projecting FY21 ADV to come in at Rm3.43bil.

While this is lower than FY20’S exceptional Rm4.21bil, it noted that the value was still much better than the pre-covid highs of Rm2.3bil-rm2.4bil (FY17-FY18).

As such, it has raised its FY21 and FY22 earnings forecast for Bursa Malaysia by 3.7% and 7.6% respectively.

HLIB has maintained a “buy” rating on the stock with a slightly higher target price of RM11.49.

Meanwhile, Macquarie has revised its earnings per share forecast for FY21-FY23 by +0.7%, -0.6%, and -1.0%, respectively.

It reiterated its “outperform” call on Bursa Malaysia, albeit with a lower target price of RM10.40.