More to come from govt’s programmes

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Proposals for divestiture of GLICs, Islamic securities products augur well for Bursa, says analyst

NATIONAL GOALS: Prime Minister Datuk Seri Najib Tun Razak peruses the book ‘Program Tranformasi Kerajaan’ during Invest Malaysia 2011 Conference in Kuala Lumpur, as chairperson of Securities Comission, Tan Sri Zarinah Anwar (right) and chairman of Bursa Malaysia, Tun Mohamed Abdullah (left) look on. Wong says government proposals on further divestitures of GLICs in major listed firms alongside efforts to promote Islamic securities products via tax deductions should augur well for Bursa Malaysia this year. – Bernama photo

KUCHING: Government proposals on further divestitures of government-linked investment companies (GLICs) in major listed firms alongside efforts to promote Islamic securities products via tax deductions should augur well for Bursa Malaysia this year, says an analyst.

Wong Li Hsia from TA Securities Holdings Bhd further noted that within national ambitious undertakings such as the Economic Transformation Programme (ETP) and 10th Malaysia Plan (10MP), the two notable proposals should benefit the local bourse by way of improving liquidity and scale, increasing volatility in the market as well as expanding product offerings.

“Couple this with Bursa’s solid first quarter results, we foresee earnings momentum to remain strong given buoyant investor sentiments. Some key assumptions include stable velocity rate to 36 per cent for 2011-2013, a 20 per cent year-on-year increase in derivatives volume and average return on equity of around 18 per cent,” the analyst observed.

For the first three months of this year, the local bourse announced a profit after tax and minority interest (Patami) of RM40.5 million – a 44-per cent increase of RM12.4 million against RM28.1 million registered in corresponding quarter last year.

Bursa Malaysia chief executive officer Datuk Tajuddin Atan on Tuesday remarked that the strong year-on-year performance was largely attributed to the increase in trading revenues from its two core business activities namely securities and derivatives trading.

In the securities market, daily average trading value surged by more than 45 per cent to RM2.2 billion during the first quarter of this year, while market capitalisation grew by an encouraging 24 per cent to RM1.3 billion and turnover velocity accelerated by 42 per cent versus 28 per cent in corresponding quarter last year.

In the derivatives market, daily average contracts jumped by a solid 52 per cent to 36,785 units, while the number of open positions climbed to 136,202 from 132,151 as at end of last year.

Wong highlighted this further, “We understand the increasing interest in the derivatives market is attributed to the volatility of commodity prices along with the migration of derivatives products to CME Globex in September 2010.” The analyst  added that regional internationalisation of the market should also be accretive to the local bourse.

“Possible inflow of foreign funds and efforts to internationalise the market via the Asean Link will bode well for Bursa. While we understand that discussions are still underway among exchanges in the region, the Asean e-trade linkup between exchanges in Thailand, Singapore and Malaysia is expected to come into effect by end-2011,” Wong revealed.

Based on this, target price for Bursa Malaysia remained at RM9.35, according to Wong.

“Our assumption is based on the group’s three-year average payout in excess of 90 per cent. Nevertheless, we upgrade Bursa to a ‘buy’ recommendation for the previous ‘hold’ call, premised on the potential 18 per cent upside from the stock’s last close.”

Currently, Bursa Malaysia is trading in line against average regional peers’ price-earnings ration of 23.9 times, in comparison with Singaporean SGX’s 24.3 times, Hong Kong’s HKEx’s 31.4 times and Australian ASX’s 15.9 times.