Investment Highlights

• We maintain our HOLD recommendation on Bursa Malaysia (Bursa) with a lower fair value of RM6.50/share (previously: RM7.90/share).

• Our FY22/23 core earnings have been lowered by 10.4%/9.8% to RM238mil/RM246mil. This is after factoring in lower daily average trading value (DATV) of RM2.4bil/RM2.5bil (previously RM2.8bil/RM2.6bil) for the securities market. We now peg the stock to a lower PER of 22x.

• Bursa is scheduled to release its 4Q21 results on 28 Jan 2022. We expect a weaker 4Q21 earnings (-11.4% QoQ) of RM71mil due to lower DATV for securities market. This is expected to lead to a full FY21 net profit of RM361mil (-4.5% YoY).

• In 4Q21, DATV (of on-market transactions) for equities declined to RM2.5bil vs. 3Q21 and 2Q21’s RM2.9bil and RM3.8bil respectively. On a monthly basis, Oct, Nov and Dec 2021 saw lower DATV of RM2.9bil, RM2.8bil and RM1.9bil respectively.

• In FY21, DATV for the securities market for the full year came in at RM3.5bil, slightly lower than our estimate of RM3.7bil. This was contributed by weaker trading activities in 4Q21. FY21 saw a 15.8% YoY drop in DATV from RM4.2bil in FY20.

• In 4Q21, trades by institutions accounted for 41.7% of the total value of securities traded vs. 33.5% in 3Q21. This was contributed by a higher percentage in the value of securities traded by foreign institutions. Meanwhile, trades from retail investors and IVTs were lower at 30.8% and 13.1% respectively in 4Q21 compared to 35.1% and 15.1% respectively in 3Q21. For nominees, the percentage of the value of securities traded was also lower at 14.5% in 4Q21 (3Q21: 16.3%).

• Foreign fund inflow into the securities market was higher at RM600mil cumulatively in 4Q21 vs. RM452mil in 3Q21. Oct and Nov 2021 saw inflows in foreign funds of RM1.57bil and RM167mil respectively into the securities market. However, these were partially offset by foreign fund outflows of RM1.1bil in Dec 2021.

• On the securities market, there were 29 listings (Main Market: 6, ACE Market: 11 and Leap Market: 12) in FY21 compared to 19 in FY20.

• In Dec 2021, the exchange and Securities Commission (SC) announced the lifting of the temporary suspension on intraday and proprietary day traders (PDT) short selling effective 1 Jan 2022. This was not surprising given that the authorities in Jan 2021 had announced the expiry of the temporary suspension on regulated short selling (RSS). The lifting of the temporary suspensions of RSS, intraday and PDT short selling is expected to result in lower DATV of retail investors moving forward compared to FY20 and FY21. The downside risk protection of equities is seen as removed with the lifting of the temporary suspensions. We are already seeing the tapering of trades by IVTs (investment account traders) and retail investors.

• Recently, the authorities announced that the stamp duty on securities transactions will be capped at RM1, 000 with the rate of 0.15%. Although this was still higher than the previous rate of 0.10%, the reinstatement of the capping was a relief for the securities market. It is seen as less dampening on the trading of shares by retail and institutional investors compared to a full removal of the cap announced earlier in Budget 2022.

• We continue to expect lower DATV assumptions for the securities market in FY22/23 compared to previous two financial years underpinned by: i) the gradual tapering of asset purchases by developed markets which is seen accelerating due to inflation pressures. This will reduce excess liquidity in the market; ii) the end of broad loan repayment assistance programme (moratorium) after FY21; iii) temporary suspension of RSS, IDSS and PDT short selling which have all been lifted; and iv) the uptrend in interest rates.

• For derivatives trading, the average total contracts traded remained stable at circa 70,000 in 4Q21 vs. 71,000 in 3Q21. QTD, average daily contracts (ADC) traded for the FCPO was slightly higher at 60,382 in 4Q21 vs. 59,525 in 3Q21 while for the FKLI, it declined to 9,556 vs. 10,603 in the preceding quarter. For the full FY21, the total ADC traded for derivatives was 75,487 (+2.7% YoY), close to our estimate of 77,000 contracts. In FY21, ADC for FCPO rose by 8.6% YoY to 63,968 contracts while ADC for the FKLI fell 21.5% YoY to 11,067.

• Foreign ownership of the securities market remained steady at 20.4% as of end-Dec 2021. Meanwhile, the stock’s foreign ownership slipped to 14.5% as at Dec 2021 vs. 16.7% in Sep 2021.

Source: AmInvest Research - 26 Jan 2022