4QFY21 PAT of RM65m brought FY21 PAT to RM355m, meeting consensus’ expectation but falling short of ours, mainly due to higher-than-expected costs. We expect ADV to soften to RM2.39b in 2022 and RM2.26b in 2023 on the lack of catalyst on the Malaysian bourse and cautious market sentiment. We cut FY22E earnings by 9% and introduce FY23E earnings, implying a 2% YoY decline. We maintain our MARKET PERFORM call with a lower TP of RM5.85 (from RM7.60), dragged by a lower FY22E EPS and PER of 17x (from 20x) to reflect expectations of softening ADV.

FY21 fell short. 4QFY21 PAT of RM65m (-19% QoQ; -38% YoY) brought FY21 PAT to RM355m (-6% YoY), which fell short at 94% of our FY21E target. Operating revenue came within expectations, thus, the deviation is due to higher-than-expected costs, as FY21 cost-toincome ratio of 37.6% exceeded our 36.1% estimate. FY21 earnings came within consensus’ expectations. 4QFY21 DPS of 17.0 sen brought FY21 DPS to 41.0 sen, within our estimate of 42.0 sen.

YoY, FY21 PAT fell 6% mainly on lower securities trading revenue (- 11%) as ADV fell 15% to RM3.56b. The lower trading revenue (-10%) was outweighed higher stable revenue (17%), which rose on better: (i) listing and issuer services (+24%) and (ii) depository services (+18%). The lower topline was cushioned by lower professional fees during the year amidst other stable cost components.

QoQ, 4QFY21 PAT fell 19% as securities trading revenue fell 12% on lower ADV (-12%) of RM2.53b, exacerbated by higher cost-to-income ratio of 45.6% (+7ppt). 

Softer ADV in 2022 and 2023. We foresee 2022 ADV to soften YoY to RM2.39b (from our earlier RM3b expectations). This continues the FY21 trend of QoQ softening of ADV premised on: (i) weaker market sentiment on likely stemmed by Fed/BNM rate hikes, (ii) lack of catalyst across local sectors, and (iii) continued softening of retail ADV, with substantial downside risks (FY21: RM1.3b vs FY17-19 average of RM512m). In 2023, we forecast ADV to marginally soften to RM2.26b (-5% YoY) as ADV continues to normalize from the retail trading frenzy in 2020/2021.

Post-results, we lower FY22E earnings by 9% on the abovementioned lower ADV assumption. Note that as management indicated that the one-off prosperity tax would only have a 2ppt impact on the effective tax rate (ETR), we have lowered our ETR assumption from 31% to 27% (+2ppt from the run rate of 25%). We introduce FY23E earnings of RM275m, a marginal 2% decline from FY22E, on softer ADV. On the softer earnings, we lower FY22E DPS from 35.0 sen to 32.0 sen. We forecast FY23E DPS of 31.0 sen.

Maintain MP with a lower TP of RM5.85 (from RM7.60, previously) on a lower FY22E EPS and lower PER of 17x at -0.5SD of its 5-year mean (previously 20x PER, which is currently its 5-year mean). We ascribed a valuation discount to reflect the expectations of softening ADV in the coming years. While dividend yields of 5.2%-5.0% are relatively attractive, we prefer to err on the side of caution given the downside risk to share price.

Risks to our call include: (i) higher/lower-than-expected trading volume in the securities and derivatives markets, (ii) lower/higher-than-expected opex, (iii) more/fewer-than-expected initial public offerings, and (iv) higher/lower-thanexpected dividend payout.
 

Source: Kenanga Research - 31 Jan 2022