Following a recent visit to the bourse, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that positive market sentiments had led to continued strong fund flow.
KUCHING: Bursa Malaysia Bhd (Bursa Malaysia) is going through some positive developments and analysts are upbeat outlook on Malaysia’s equities market.
Following a recent visit to the bourse, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out 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 RM10.39 billion in 2017, offsetting approximately 35 per cent of the total cumulative net outflow recorded in 2014 to 2016.
“Pursuant to this, we believe that the continuing foreign funds’ participation reflects an upbeat outlook on Malaysian equities market,” it said.
Aside from that, the research team also highlighted that Bursa Malaysia expected more initial public offerings (IPOs) this year, compared with 2016 which saw 11 companies raise a total RM660 million.
On this note, it opined, “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 Malaysia will be able to continue attracting more IPO due to its competitive services and pricing in the region.”
It also pointed out that there has been a surge in young investors on Bursa Malaysia which could further enhance the retail trading in the market.
“Management (Bursa Malaysia) noted that more younger investors aged 25 years and below are participating in the market, as evident by the 36 per cent year-on-year (y-o-y) 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,” MIDF Research said.
Another positive development seen in Bursa Malaysia is the possible introduction of SME Market.
“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 Malaysia as the new framework will potentially become a catalyst for an uptrend in the securities trading activities and listing fees,” it opined.
It noted that there are few factors which could drive up the overall revenues in the SME Market. These factors include high demand from SMEs to seek funding via capital market, 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,” it added.
Overall, MIDF Research said, while it believed Bursa Malaysia has some positive developments, it retained its earnings forecast, for now.
It explained, “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.”
As there is no change to its earnings forecast, MIDF Research maintained its ‘neutral’ call on the stock with a target price of RM11 per share based on three-year historical average price earnings ratio (PER) of 25-folds.
In terms of valuation, it believed that the positive prospect of the company has already been fully priced in.
However, it has 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 (such as listing fees).
“Nevertheless, we will monitor the situation and revisit our valuation once the new framework is announced,” it added.
It also noted that Bursa Malaysia indicated its commitment to continue rewarding shareholders by keeping the dividend payout at above 90 per cent.