Investment Highlights

• We are downgrading our recommendation on Bursa Malaysia (Bursa) to HOLD from BUY with a lower fair value of RM7.90/share (previously: RM9.40/share). We peg the stock to an FY22 PER of 24x (previously: 25x). Our FY22/23 net profit estimates have been reduced by 12.8%/5.0% after factoring in lower DATV assumptions of RM2.8mil/RM2.9mil for FY22/23 (previously: RM3.2mil/RM3.0mil). This is premised on our expectations for the DATV from retail trades to taper from FY22.

• Beginning from 1 Jan 2022, the stamp duty rate on contract notes for stockbroking will be raised to 0.15% from 0.10% currently, with the capping of RM200 per contract removed. Also, it was announced in Budget 2022 that service tax for brokerage services will be exempted next year. The higher stamp duty will be partially offset by the exemption of service tax.

• The increase in transaction cost is anticipated to impact trading activities of retail investors. We expect retail investors that typically invest on short-term investment horizons to be sensitive to the changes in transaction cost. Meanwhile, the above changes in transaction cost is not expected to significantly impact trading activities of institutional investors who are longer term investors with trading activities driven by fundamentals.

• We anticipate DATV from retail trades to taper in 2022. This will be unlike 2020 and 1Q2021 which saw the securities market’s DATV reaching historic high levels driven by the active participation of retail investors and trades of IVTs. With the lower trades of retail investors moving forward, we expect DATV of institutional trades to make up a higher portion of the overall securities market’s DATV. This in turn is expected to lead to lower effective clearing fee rate for the exchange.

• Besides, underpinning our expectations of lower DATV assumptions for the securities market in FY22/23 are also: i) the gradual tapering of asset purchases by developed markets reducing excess liquidity; ii) the end of broad loan repayment assistance programme (moratorium) after FY21; iii) potential end of temporary suspension of IDSS and PDT short sale on 31 December 2021; and iv) the likelihood of a gradual increase in interest rate starting from 2H2022. This will be in contrast to 2020 where retail investors turned to higher yielding assets/investments after consecutive interest rate cuts to a low level.

• Bursa’s 3Q21 net profit of RM80mil was lower by 10.1% QoQ. The decline was mainly attributed to lower securities and derivatives trading revenue. 3Q21 saw the DATV (OMT) for securities slipping to RM2.9bil vs. RM3.8bil in 2Q21.

• 9M21 net profit was RM290mil, a growth of 6.4% YoY. The improved earnings were supported by stronger securities trading revenue (+3.1% YoY) and BSAS trading revenue (+4.7% YoY). Also, non-trading revenue (listing, issuer and depository services, market data and member services and connectivity fees) were higher YoY in 9M21.

• Cumulative earnings were above expectations making up 81.9% and 83.9% of our and consensus estimates. The variance to our expectation was due to higher-than-expected securities trading revenue with the DATV for the securities market higher than our assumption. In view of the above, we have tweaked our FY21 net profit slightly by +2.5% to raise our DATV assumption to RM3.7bil from RM3.6bil.

• 9M21 DATV for securities market was RM3.9bil (-2.5% YoY). By segment, retail DATV climbed to RM1.5bil (+2.8% YoY) while the DATV for domestic and foreign institutions fell to RM1.7bil (-8.2% YoY) and RM0.7bil (-1.5% YoY) respectively.

• 9M21 net buy position of retail investors stood at RM10.4bil. This was lower compared to the net buy position of RM14.3bil in FY20. The number of new retail investors’ CDS accounts declined by 8.6% YoY to 287,566 in 9M21.

• Trades from retail investors accounted for 39.0% of the DATV while that from institutions made up the remaining 61.0%.
   
• 3Q21 saw a net inflow of foreign funds into the securities market to a total of RM452mil cumulatively (July 2021: - RM1.3bil, Aug 2021: +RM1.0bil and Sep 2021: +RM740mil). This compared to an outflow of RM2.5bil in 2Q21.
   
• The Number of New Listings Surged to 24 in 9M21 Vs. 13 in 9M20.
   
• Derivatives trading revenue fell in 9M21 contributed by the decrease in collateral management fee rate from 1.0% to 0.5% since 1 July 2020 and the drop in ADC for FKLI. 9M21 saw a lower volatility for the FBMKLCI compared to 9M20.
• For BSAS, the ADV increased by 8.2% YoY to RM35.1bil supported by the onboarding of new trading participants. For 9M21, 26 new participants had been admitted (22 local and 4 foreign – 1 from Turkey and 3 from Kenya).

• Opex in 9M21 rose by 6.4% YoY largely contributed by higher headcounts and provisions for variable staff cost (performance rewards for its employees in line with improved earnings). Also, it was due to provisions for SST on digital services and expenses on corporate social responsibility (CSR).

• Foreign ownership of the securities market inched higher to 20.4% in 3Q21 vs. 20.3% in 2Q21. Meanwhile, the stock’s foreign ownership shrank to 16.7% in 3Q21 vs. 19.1% in 2Q21.

Source: AmInvest Research - 1 Nov 2021