Investment Highlights

• We maintain our HOLD recommendation on Bursa Malaysia (Bursa) with a revised fair value of RM6.70/share from RM6.50/share after rolling over our valuation to FY23F PE of 22x (historical average from Jan 2018 to Apr 2022 as seen in Exhibit 12) and reflects a neutral 3-star ESG rating.

• No changes to our earnings estimates as 1Q22 net profit was within expectations, accounting for 28% of our and 27% of consensus’ full-year estimates.

• Bursa’s 1Q22 earnings came in lower at RM68mil (-44% YoY) largely due to the decline in trading revenue for securities market (-46.7% YoY). Retail daily average traded value (DATV) shrank significantly by 64% YoY. New CDS account openings by retail investors fell drastically by 62% YoY to 32,500.

• In 1Q22, the DATV (of on-market transactions) for equities slipped to RM2.6bil vs. 1Q21’s RM5bil. On a monthly basis, DATV was higher for Feb at RM2.8bil and Mar 2022 at RM3bil compared to Jan 2022’s RM2bil. The last two months of 1Q22 saw an increase in trading by foreign investors with higher inflow of funds into the securities market.

• Breaking down 1Q22 DATV, the average traded value on a YoY basis of retail investors, domestic and foreign institutions declined by 64%/44%/23 to RM0.7bil/RM1.2bil/ RM0.6bil.

• QTD, the cumulative foreign fund inflows into the securities market stood at RM6.5bil vs. -RM1.7bil in 1Q21. Jan, Feb and Mar 2022 saw inflows of foreign funds amounting to RM332mil, RM2.8bil and RM3.3bil respectively.

• YTD (up until 22 Apr 2022), the DATV of the securities market was circa RM2.5bil. It is tracking closely to our assumption of RM2.4bil for FY22. Thus far in Apr 2022 (1–22 April), we are seeing a lower DATV of RM2bil compared to Feb and Mar 2022.

• Contributing to the decline was the tapering of inflows of foreign funds in the securities market amid signals of more aggressive tightening of the US monetary policy. The more aggressive rate hike outlook in US and the slowdown of China’s economy have recently impacted the trading activity and performance of Asian shares.

• There were 5 IPOs in 1Q22 compared to 6 in 1Q21.

• We maintain our DATV assumptions for the securities market of RM2.4bil/RM2.5bil in FY22/23. Our FY22 DATV assumption is lower than that in FY21 by 32% premised on the following: i) more aggressive tightening of monetary policies and unwinding of asset purchases by developed markets to combat rising inflation pressures; and ii) the non-extension of temporary suspension of the RSS, IDSS and PDT short selling in FY22 contributing to lower retail trades compared to FY21.

• We continue to expect lower effective clearing fee rates for the securities market going forward based on the drop in mix of retail trades. Hence, with the anticipated increase in the percentage of institutional trades ahead, a higher portion of the clearing fees of securities trading is poised to be capped at the maximum of RM1,000 per contract.

• For derivatives trading, the average total contracts traded fell to 77,513 in 1Q22 vs. 80,338 in 1Q21. Both the average daily contracts (ADC) traded for the FCPO and FKLI were lower YoY at 65,966 and 11,306 respectively. Nonetheless, the derivatives trading revenue managed to chalk up a marginal increase of 0.8% YoY in 1Q22 due to higher collateral management fees.

• BSAS trading revenue rose by 12.2% YoY in 1Q22. ADV for BSAS soared by 19.3% YoY to RM42bil with an increase in the number of new trading participants. In 1Q22, 10 new participants had been admitted (7 local and 3 foreign).

• Opex in 1Q22 surged by 4.6% YoY contributed largely by higher marketing and development expenses. CI ratio shot up to 44.0% in 1Q22 as a result of lower operating income.

• Foreign ownership of the securities market was marginally lower at 20.3% as at end-Mar 2022 vs 20.4% in Dec 2021. Meanwhile, the stock’s foreign ownership increased slightly to 14.9% as at Mar 2022 (Dec 2021: 14.5%).

• The stock is already trading at 23x PER for FY23 vs a 4-year average of 22x, and we see limited upside potential for now.

Source: AmInvest Research - 29 Apr 2022