Bursa posted 9MFY21 PATMI of RM290m (+6% YoY) which was above our expectations (91%) but inline with consensus (84%). Looking ahead, feel that the recent change in stamp duty structure may significantly increase trading cost for institutional investors, potentially denting ADV. In addition, 2022’s “Makmur Tax” will directly hit Bursa via higher tax expense and indirectly as ADV may soften with market sentiment dampened. Raise FY21 earnings by 7% but cut FY22/23 by -1%/6% on lower ADV. Cut TP from RM8.93 to RM6.52 (19x FY22 EPS) and downgrade rating from Buy to SELL. We believe the recent headwinds from Budget 2022 present downside risk to ADV.

Above expectations. Bursa reported 3QFY21 core PATMI of RM79.9m (-10.1% QoQ, -34.4% YoY), bringing 9MFY21’s sum to RM290.3m (+6.4% YoY). The results were above expectations at 91% of full year forecast (consensus: inline at 84%). While the sequential earnings decline was expected, its magnitude was less severe than what we estimated. The positive results deviation vs our forecast was due to (i) higher-than-expected “implied securities rate” and (ii) stronger Other revenue.

Dividend. None Declared. Bursa Usually Declares Dividend 2Q (24 Sen) and 4Q.

QoQ. Revenue fell -11.6% due to the decline in Securities (-18.6%; ADV fell -23.1%) and Derivatives (-6.7%; ADC down -11.5%). Although opex was reduced by -12.5%, this was insufficient to mitigate the lower topline, resulting to PATMI decline of -10.1%.

YoY. -27.2% revenue decline was primarily attributed to plunge in Securities (-41.8% as ADV halved compared to the record high in 3QFY20) and to a lesser extent, Derivatives (-1.7%; ADC +1.7%) but partially mitigated by the rise in Others (+8.2%). While lower opex was recorded (-8.4%), PATMI still declined -34.4%.

YTD. Revenue increased +6.5% on back of rise in Securities (+3.1%; ADV -2.6% but there was higher implied rate of securities) and Others (+21.2%; mainly from listing & issuer and depository services) but was partially offset by weaker Derivatives (-4.9%; ADC grew slightly by 3.3% but revenue per contract fell -6.9%). After accounting for +6.4% higher opex, this trickled down to +6.4% PATMI increase.

Outlook. Budget 2022 tabled the increase in stamp duty from 0.1% to 0.15% and its RM200 cap for each contract note is abolished. Meanwhile the 6% SST for brokerage services will be exempted. Collectively, our back of envelop calculation suggests that the cost for a RM1m trade would almost double with these changes (largely stemming from the RM200 cap removal). We believe this may dent institutional investor participation in the near term and soften ADV. In addition, the one-off “Makmur Tax” (taxable income above RM100m at 33%) will (i) directly hit Bursa via higher tax expense and (ii) possibly dampen market sentiment and soften ADV.

Forecast. Increase FY21 earnings by 7% on the results upside surprise but lower FY22/23 by -1.5%/-5.6% as we now impute lower our ADV assumptions to RM2.90bn/RM3.19bn due to the reasons mentioned above.

Downgrade to SELL, TP: RM6.52. Alongside the FY22/23 earnings cut, we also roll forward our valuation horizon from mid-FY22 to end-FY22 (lower earnings base YoY). In view of the recently emerged headwinds, we also reduce our ascribed PE multiple from 24x (+1SD) to 19x (5Y mean). All in all, our TP reduces from RM8.93 to RM6. 52 and consequently, our rating is downgraded from Buy to SELL. We believe these structural changes presents downside risk to Bursa’s ADV and consequently share price.

Source: Hong Leong Investment Bank Research - 1 Nov 2021