Investment Highlights

• We maintain HOLD on Bursa Malaysia (Bursa) with a lower fair value (FV) of RM6.80/share from RM7.00/share, This is after lowering our FY22F/23F/24F earnings by 6%/3%/0.3% with downward adjustments in our daily average traded value (DATV) assumptions for the securities market to RM2.1bil/RM2.3bil/RM2.6bil. Our revised FV is pegged to an unchanged FY23F PE of 22x with no changes to our neutral 3-star ESG rating.

• Bursa reported a weaker 3QFY22 earnings of RM50mil (- 15.7% QoQ) largely due to a lackluster securities market which saw a decline in trading revenue. The daily average traded value (DATV) for the securities market slipped to RM1.6bil in 3QFY22 vs. RM2.1bil in 2QFY22 with a lower velocity of 24%.

• 9MFY22 net profit was RM178mil, a drop of 39% YoY mainly attributed to lower securities market trading revenue, listing, issuer and depository services fees.

• Cumulative earnings were within expectations, making up 70.1% of ours and 76.7% of consensus estimates.

• DATV of the securities market in 9MFY22 of RM2.1bil was lower than our estimate of RM2.4bil for FY22F.

• The average traded value on a YoY basis of retail investors, domestic and foreign institutions shrank by 63%/42%/17% to RM0.6bil/RM1bil/ RM0.6bil.

• Effective clearing fee rate for 9MFY22 declined to 2.62bps compared to 2.73bps in 9MFY21. 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.

• New CDS account openings by retail investors fell by 58% YoY to 78,043 in 9MFY22. Local retail net buying shrunk significantly to RM2.3bil in 9MFY22 vs. RM10.4bil in the corresponding period last year.

• 3QFY22 recorded a cumulative foreign fund inflow into the securities market of RM527mil, compared to an outflow of RM380mil in 2QFY22. YTD up until Sept 2022, the securities market recorded a cumulative foreign funds inflow of RM6.6 bil.

• The number of new IPOs in 9MFY22 climbed to 28 compared to 24 in 9MFY21.

• Market sentiments in trading on the securities market is expected to remain cautious in the near term. This is premised largely on: i) uncertainties on the quantum of US Fed rate hikes ahead from the tightening of monetary policy, ii) looming technical recessions in the developed markets, and iii) ongoing geopolitical tensions. Adding to the above is also the domestic political uncertainties.

• For derivatives trading, the average total contracts traded rose to 78,540 in 9MFY22 vs. 76,836 in 9MFY21 contributed by higher volatility of CPO prices. The average daily contracts (ADC) traded for the FCPO rose to 66,871 while that of FKLI was subdued at 11,479. Nonetheless, the derivatives trading revenue chalked up an increase of 11.5% YoY in 9MFY22, attributing to higher collateral management fees.

• BSAS trading revenue increased by 17.3% YoY in 9MFY22. ADV for BSAS rose by 23.4% YoY to RM43bil with an increase in the number of trading participants to 319 in 9MFY22 (9M21: 289). In 9MFY22, 20 new participants has been admitted (14 local and 6 foreign).

• Opex in 9MFY22 was stable YoY. The decline in personnel expenses and other operating expenses due to lower provision for CSR activities and SST on digital services were offset by higher depreciation, amortisation, IT maintenance and service fees. CI ratio jumped to 47% in 9MFY22, contributing to lower operating income.

• Foreign ownership in the securities market was stable at 20.6% as at end-Sep 2022 similar to June 2022. Meanwhile, the stock’s foreign ownership declined to 7.8% in Sep 2022 (June 2022: 15.1%).

• The stock is trading at a fair FY23F PER of 21x and we continue to see limited upside potential on the stock.

Source: AmInvest Research - 1 Nov 2022