Investment Highlights

• We maintain HOLD on Bursa Malaysia (Bursa) with a revised fair value (FV) of RM7.00/share from RM6.70/share after tweaking our earnings estimates for FY22F/23F/24F by 6%/6%/3% to factor in slightly higher effective clearing fee rate assumptions for the securities market. Our revised FV is pegged to an unchanged FY23F PE of 22x.

• No change to our neutral 3-star ESG rating.

• Bursa reported a lower 2Q22 earnings of RM59mil (-13% QoQ) largely due to the decline in trading revenue for the securities market. Daily average traded value (DATV) for the securities market fell to RM2.1bil in 2Q22 vs. RM2.6bil in 1Q22.

• 6M22 net profit came in at RM127mil, a drop of 39% YoY attributed to lower securities market trading revenue, listing, issuer and depository services fees. Cumulative earnings were within expectations, accounting for 53% of both our and consensus estimates.

• DATV of the securities market in 6M22 of RM2.4bil was in line with our forecast for FY22F. The average traded value on a YoY basis of retail investors, domestic and foreign institutions shrank by 64%/43%/14% to RM0.6bil/RM1.1bil/ RM0.6bil.

• DATV was low for June (RM1.9bil) and in July (1–25) 2022 (RM1.3bil) as market sentiment was weaker due to the more aggressive tightening of US monetary policy and the slowdown of China’s economy. Nevertheless, we are maintaining our DATV assumptions for the securities market of RM2.4bil/RM2.5bil in FY22F/23F.

• We expect securities market activities and DATV to pick up pace in the remaining months of 2H22 from the low levels seen in June and July 2022. This is based on the outlook that the Fed rate increases which already have been priced in by the market are tapering towards the end of 2022 after aggressive hikes of 75bps each in the months of June and July 2022. With that we foresee foreign fund outflows to stabilise ahead. Inflation has eased somewhat recently with the retreat of commodity prices from the high levels. This is anticipated to lead to improved market sentiments, alleviating concerns of a stagflationary impact.

• New CDS account openings by retail investors fell by 60% YoY to 58,709 in 6M22.

• 2Q22 recorded a cumulative foreign fund outflow from the securities market of RM0.4bil. This compared to an inflow of RM6.5bil in 1Q22. YTD up until June 2022, the securities market recorded a cumulative foreign funds inflow of RM6.1bil.

• We continue to expect lower effective clearing fee rates for the securities market in FY22F compared to FY21. This is based on the drop in the mix of retail trades.

• There were 16 new IPOs in 6M22 compared to 14 in 6M21.

• For derivatives trading, the average total contracts traded fell to 77,301 in 6M22 vs. 80,061 in 6M21. The average daily contracts (ADC) traded for the FCPO were lower at 65,753 while that of FKLI slipped to 11,367. Nonetheless, the derivatives trading revenue managed to chalk up a marginal increase of 2.8% YoY in 6M22 due to higher collateral management fees earned by the exchange.

• BSAS trading revenue climbed by 14.4% YoY in 6M22. ADV for BSAS rose by 23% YoY to RM42bil with an increase in the number of trading participants. In 6M22, 15 new participants had been admitted (10 local and 5 foreign).

• Opex in 6M22 declined marginally by 1.9% YoY contributed largely by a drop in staff cost and other operating expenses. The decline in personnel expenses was due to lower variable cost tied to the performance of the exchange. Meanwhile, the improvement in operating expenses was attributed to lower provision for CSR activities and SST on digital services. In 6M22, we understand that SST has started to be charged on digital services provided by the exchange. CI ratio shot up to 45.0% in 6M22 contributed by lower operating income.

• In FY22F, we gather that the capex allocation will be around RM70mil covering both non-IT (renovation of office) and IT expenses.

• An interim dividend of 15 sen/share has been declared. This represented a payout of 95%.

• Foreign ownership of the securities market was slightly higher at 20.6% as at end-June 2022 vs 20.3% in March 2022. Meanwhile, the stock’s foreign ownership remained stable at 15.1%.

• The stock is trading at 20x PER for FY23 and we continue to see limited upside potential.

Source: AmInvest Research - 29 Jul 2022