Investment Highlights

• We maintain our HOLD recommendation on Bursa Malaysia (Bursa) with an unchanged fair value of RM6.50/share pegging the stock to FY22 PER of 22x.

• We fine-tuned our FY22 core net profit by +0.9% after factoring in lower additional taxes for Cukai Makmur post-results briefing. Meanwhile, we maintain our FY22F/FY23F daily average trading value (DATV) assumption of RM2.4bil/RM2.5bil for the securities market.

• Full FY21 net profit of RM355mil was slightly below our estimate of RM361mil, accounting for 98.3% of our and 101.1% of consensus estimates. The slight variance to our forecast was due to higher than expected operating expenses.

• Cumulative earnings declined 6.0% YoY contributed by lower securities and derivative trading revenue as well as a drop in conference fee and exhibition related income.

• Bursa’s 4Q21 earnings came at RM65mil (-18.7% QoQ) due to lower DATV for securities market.

• In 4Q21, DATV (of on-market transactions) for equities declined to RM2.5bil vs. RM2.9bil in 3Q21 and RM3.8bil in 2Q21. On a monthly basis, DATV slid from RM2.9bil in Oct to RM2.8bil in Nov and RM1.9bil in Dec 2021.
• 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. By breakdown for FY21, DATV of retail investors declined to RM1.3bil (-16.0% YoY) while that for domestic institutions slipped to RM1.5bil (-20.4% YoY). DATV of foreign institutions fell marginally by 1.9% YoY to RM666mil.
• 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 RM1.6bil 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 30 listings (Main Market: 7, ACE Market: 11 and Leap Market: 12) in FY21 compared to 19 in FY20.

• We continue to expect lower DATV assumptions for the securities market in FY22/23 compared to the previous two financial years underpinned by: i) the gradual tapering of asset purchases by developed markets which is accelerating due to inflationary pressures, reducing 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 uplifted; and iv) the uptrend in interest rates.

• For derivatives trading, the average total contracts traded remained relatively 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.

• For BSAS, the ADV increased by 13.2% YoY to RM37.3bil supported by onboarding of new trading participants. For FY21, 36 new participants had been admitted (28 local and 8 foreign).

• Opex in FY21 declined by 1.1% YoY contributed largely by lower other operating expenses. Recall in FY20, the exchange incurred higher one-off expenses. Management alluded to higher capex spending in FY22 for the exchange’s initiatives which included IT refreshments.

• Management guided that only a few of its companies will be subjected to the additional tax for Cukai Makmur. We understand the maximum additional taxes on the group will only be 2% in FY22. This is based on the assumption of a similar DATV for equities as in FY21. However, with our DATV assumption for FY22 at RM2.4bil, well below the RM3.5bil in FY21, the additional taxes from Cukai Makmur is expected to be lower than the guided 2%.

• A final dividend of 17 sen/share has been proposed, bringing the total dividends for FY21 to 41 sen/share (payout of 93.0%). No special dividend has been declared. This was in line with our forecast.

• 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 - 31 Jan 2022