Bursa Malaysia’s 3Q FY2021 net profit to be dragged down by lower ADV

BURSA Malaysia Bhd is likely to experience core earnings contraction for its 3Q FY2021 on the back of falling average daily trading volumes (ADV).

Judging from the 3Q 2021 ADV of RM2.89 bil which is -23% quarter-on-quarter (qoq) and -49% year-on-year (yoy) as well as derivatives’ average daily contracts (ADC) of 70,600 (-11% qoq; +2% yoy), Hong Leong Investment Bank (HLIB) Research expects core earnings for the quarter to come in at RM66 mil (barring any unforeseen swings in cost structure).

The stock market operator is tentatively scheduled to release its 3Q FY2021 results on Oct 29 (during lunch break).

“If our prediction is right, this would imply core earnings contraction of -26% qoq (due to sequential fall in both ADV and ADC) and -46% yoy (steeper decline due to high base in 3Q 2020 which saw record quarterly earnings on the back of all-time high ADV of RM5.71 bil),” projected head of research Jeremy Goh in a company update.

More broadly, HLIB Research observed that ADV has been down trending mom from Feb (RM5.22 bil) to August (RM2.56 bil) although there was a recovery in September and month-to-date (MTD) October (RM3.07-RM3.17 bil) on the back of an economic re-opening sentiment.

“While this overall downward normalisation is expected as trading euphoria recedes (from the previous steep increase during 1Q 2020-1Q 2021), both year-to-date ADV (RM3.87 bil) and current levels are still meaningfully above the pre-COVID-19 highs seen in FY2017-2018 (RM2.31 bil-RM2.39 bil),” opined the research house.

“Looking ahead into 4Q 2021, we reckon there could be some qoq reprieve for ADV, perhaps around the low-RM3 bil mark which is our assumption for FY2022 as well (RM3.11 bil). This should be driven by continued ‘re-opening recovery’ sentiment and the traditional year-end window dressing phenomenon.”

HLIB Research further opined that foreign shareholding in Malaysian equities has scrapped the bottom of the barrel at 20.2% (July-August) before inching up to 20.4% in September.

“After 25 months of consecutive net selling by foreigners, the tide finally turned in August-September where they net bought RM1.92 bil,” justified the research house.

“There are some encouraging preliminary signs that foreign participation may be returning: (i) foreign ADV has been trending up from RM521 mil in July to RM652 mil in September (MTD-Oct: RM588 mil); and (ii) their participation rate rose from 17.3% in July to 21-22% in August-September (MTD-Oct: 18.5%).”

All-in-all, HLIB Research retained its “buy” rating on Bursa Malaysia with a lower target price of RM8.93 (from RM9.91 previously).

“We continue to like Bursa’s outlook, backed by (i) ADV recovery prospects in 4Q 2021; (ii) potential for another round of special-D (to recap, the previous earnings upcycle in FY2017-2018 saw two consecutive years of special dividend) on top of a decent normal yield of >4%; and (iii) still the cheapest exchange – its price-to-earnings ratio (PE) is at a 21% discount to regional peers (SGX, HKX, ASX and NZX),” added the research house.

At 11.36am, Bursa Malaysia was down 8 sen or 1.03% to RM7.71 with 867,500 shares traded, thus valuing the company at RM6.24 bil. – Oct 13, 2021

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