AMID weak trading activities in the capital markets, Bursa Malaysia Bhd is expected to rake in a net profit of RM50.5 mil for its 4Q FY2021, the lowest since 4Q FY2019 prior to the outbreak of the COVID-19 pandemic.
CGS-CIMB Research based such assumptions on year-on-year (yoy) declines of 46.2% in equity income and 0.5% in derivative income which is on par with a yoy drop in the equity average daily trading value (ADTV) and derivative average daily contracts (ADC).
“This would translate into declines of 51.9% yoy and 36.8% qoq for 4Q FY2021F’s net profit,” projected analyst Winson Ng in a company update. “
According to the research house, there have been declines of 11.3% quarter-on-quarter (qoq) and 46.2% yoy in the 4Q 2021 ADTV of the equity market while the ADC for the derivative market dipped by 0.5% yoy to 70,700 in 4Q 2021.
Based on CGS-CIMB Research’s estimated net profit of RM50.5 mil in 4Q FY2021F, Bursa Malaysia would have recorded a net profit of RM340.8 mil in FY2021F which would be 9.1% lower than the research house’s previous projected FY2021F net profit of RM374.7 mil but largely in line with Bloomberg consensus’ estimate.
“We factor in a decline in the assumed equity ADTV from RM3.56 bil in FY2021F to RM2.56 bil in FY2022F (vs RM4.21 bil in FY2020F and pre-COVID level of RM1.93 bil in FY2019) due to relaxation of movement control measures and higher stamp duty rate (which will elevate investors’ transaction costs),” justified CGS-CIMB Research.
“With this, we project a 36.8% drop in Bursa’s FY2022F net profit.”
Despite its anticipated decline in Bursa Malaysia’s FY2021 earnings, the research house upgraded the stock exchange operator to “hold” (from “reduce” previously) while maintaining its target price at RM6.59 as it thinks that the decline in equity ADTV has been priced in.
This is because Bursa’s share price has fallen by 14.5% since the announcement of Budget 2022 in October 2021 (when the Government proposed a higher stamp duty fee rate), thus pushing down its CY2023F P/E (price-to-earnings ratio) from 24.1 times on Nov 1, 2021 to 20.6 times currently (which is below the five-year historical average of 21.1 times).
“Its FY2022F dividend yield is also decent at 3.7%. We prefer Hong Leong Bank Bhd for exposure to the Malaysian financial services sector,” added CGS-CIMB Research.
At the close of trading yesterday (Jan 7), Bursa Malaysia was down 4 sen or 0.63% to RM6.35 with 675,300 shares traded, thus valuing the company at RM5.14 bil. – Jan 8, 2022
