Based on 4Q21 equites ADV of RM2.55bn (-12% QoQ, -47% YoY) and derivatives ADC of 70.4k (flat QoQ, -1% YoY), we estimate earnings for the quarter could amount to RM68m (-15% QoQ, -36% YoY), bringing FY21’s sum to RM358m (-5% YoY). While the stamp duty cap reinstatement (at a higher ceiling of RM1k) would help keep trading cost reasonable and inline with neighbouring bourses, ADV numbers are still off to a timid start in Jan (MTD: RM2bn). Maintain our HOLD rating on Bursa with unchanged RM5.95 TP (20x FY22 PE).
4Q21 results preview. In 4Q21, equities ADV chalked in at RM2.55bn (-11.7% QoQ, -47.2% YoY) while derivatives ADC was 70.4k (-0.3% QoQ, -0.8% YoY). Assuming Other revenue continues its quarterly run rate of c.RM55m and cost structure remains relatively unchanged, we estimate that earnings in 4Q21 could amount to RM68m (-15.4% QoQ, -35.5% YoY). This would bring FY21 earnings to RM358m, decreasing -5.3% YoY and forming 105% of our existing forecast. Bursa is tentatively scheduled to release its 4Q21 results on 28 Jan.
Cap reintroduction... On 30 Dec, MoF confirmed that a stamp duty cap would be reintroduced – albeit at a higher ceiling of RM1k/contract vs RM200 previously – which took effect on 1 Jan. Needless to say, we are positive on the cap reintroduction as it would ensure that trading cost is kept at reasonable levels and the local bourse remains competitive. To recap, during Budget 2022, a stamp duty restructuring was tabled, initially involving: (i) higher rate from 0.10% to 0.15%, (ii) abolishment of the RM200/contract cap and (iii) removing SST on brokerage. (Refer to our report dated 9 Dec 2021 for a detailed analysis on the initial stamp duty restructuring).
…to help keep trading cost reasonable. Assuming a trade size of RM1m and brokerage of 0.2%, trading cost would now increase by 26% compared to the previous structure. Had the RM1k cap not been imposed (as what was initially proposed in Budget 2022), the quantum of increase would be much higher at 45% (see Figure #1). Intuitively, increase in trading cost (in % terms) becomes less significant at higher trade sizes as the “protection” from the cap becomes more profound – e.g. trade size of RM5m would only see a 1.6% increase in trading cost vs the previous structure.
At par with peers. When compared regionally (i.e. within ASEAN-5) – assuming a USD1m trade equivalent in local currency and homogeneous brokerage of 0.20% across all countries – the new stamp duty structure makes little difference to trading cost as a % of trade size (see Figure #2). This increases from 0.2468% to 0.2540%, much less damaging than 0.3800% had the RM1k cap not be in place. The new effective trading cost of 0.2540% (or 0.25% rounded up for simplicity) is at par with Singapore’s 0.25% and not too far off Thailand’s 0.22% and Philippines’s 0.23%, while Indonesia remains the highest at 0.33%.
Forecast. Although the cap reinstatement was a positive move, we keep our earnings forecast unchanged which imputes a -30% YoY decline in FY22 ADV to RM2.48bn. While still in its early days, MTD-Jan ADV of RM2.04bn is running below our assumption.
Maintain HOLD, TP: RM5.95. We keep our HOLD rating on Bursa with unchanged TP of RM5.95 based on 20x PE (5Y mean) tagged to FY22 EPS. For sanity check, we note that the share price of Bursa averaged RM5.85 from FY17-18 when ADV was chalking RM2.3-2.4bn with earnings at RM223-224m – this is not too far off our TP of RM5.95 with FY22 ADV and earnings forecast of RM2.48bn and RM240m respectively.
Source: Hong Leong Investment Bank Research - 13 Jan 2022