Bursa’s 4Q21 net profit to fall on weaker trading values

by ANIS HAZIM / pic by TMR FILE 

ANALYSTS expect Bursa Malaysia Bhd’s upcoming fourth quarter of 2021 (4Q21)’s net profit to decline year-on-year (YoY) and quarter-on-quarter (QoQ) due to weaker trading activities on the exchanges.

CGS-CIMB Securities Sdn Bhd’s analyst Winson Ng noted that the 4Q average daily trading value (ADTV) of securities on the local exchange had declined 11.3% QoQ and 46.2% YoY.

The analyst estimated the average daily contracts (ADC) on the derivative market dipped by 0.5% YoY to 70,700 in 4Q21.

“We estimate that Bursa’s 4Q21F net profit at RM50.5 million, the lowest since 4Q19 (before the Covid-19), based on assumptions for YoY declines of 46.2% in equity income and 0.5% in derivative income, on par with a YoY drop in the equity ADTV and derivative ADC,” Winson wrote in a recent research note on the exchange operator.

According to him, this would translate into declines of 51.9% YoY and 36.8% QoQ for 4Q21F net profit.

Based on his estimation, the analyst expects Bursa to have recorded a net profit of RM340.8 million in the financial year of 2021 (FY21F).

“This would be 9.1% lower than our previous projected FY21F net profit of RM374.7 million but largely in line with Bloomberg consensus’ estimate.

“As such, we reduce our projected FY21F net profit by 9.1% as we cut our assumed equity ADTV by 11.2% for FY21F,” he stated.

The equity ADTV also tumbled by 46%-48% YoY in the 3Q21 and 4Q21, the report noted.

The equity ADTV has been on a declining trend in the past three quarters, down from RM5.18 billion in 1Q21 to RM2.68 billion in 4Q21.

The equity ADTV has been heading to the pre-Covid-19 level of RM2 billion-RM2.5 billion. For 2022F, the broker projects an equity ADTV of RM2.56 billion (excluding the value of direct business transactions).

One of the factors that would lower the equity ADTV in 2022 is the increase in trading cost for investors, caused by the change in the stamp duty structure by the government.

On Dec 30, 2021, the Ministry of Finance (MoF) imposed a stamp duty of 0.15% on the value of the share trade notes for the stock market (in line with the proposal during 2022 Budget but higher than the stamp duty rate of 0.1% in 2021) with a cap of RM1,000 (compared to a full abolishment of the cap proposed under Budget 2022 but higher than the cap of RM200 in 2021).

The reinstatement of the cap for stamp duty per contract under the latest announcement by MoF (compared to the proposal for full abolishment under Budget 2022) is positive for Bursa.

However, the trading cost for investors would still increase in 2022 due to the higher rate for stamp duty (0.15% in 2022 versus 0.1% in 2021) and higher cap on stamp duty per contract (RM1,000 in 2022 versus RM200 in 2021), Ng noted.

CGS-CIMB estimates the total transaction cost for Malaysia’s stock market would rise from 0.19% in 2021 to 0.2% in 2022 for a trade value of US$1 million (RM4.2 million).

Ng maintained his target price of RM6.59 for Bursa which is still based on a target FY23 price-earnings P/E of 21.1 times, on par with the five-year historical average estimation.

“We factor in a decline in the assumed equity ADTV from RM3.56 billion in FY21F to RM2.56 billion in FY22F (versus RM4.21 in FY20F and pre-Covid-19 level of RM1.93 billion in FY19).

“This is due to the relaxation of movement control measures and higher stamp duty rate which will elevate investors’ transaction costs). With this, we project a 36.8% drop in Bursa’s FY22F net profit,” he said.

CGS-CIMB, however, upgraded Bursa from ‘Reduce’ to ‘Hold’ as it believes the decline in equity ADTV has been priced in by the market.

“This is because Bursa’s share price has fallen by 14.5% since the announcement of higher stamp duty rate in Budget 2022 on Oct 21, 2021, pushing down its calendar year of 2023F P/E from 24.1 times on Nov 1 to 20.6 times currently — below the five-year historical average of 21.1 times,” he added.

The analyst noted that Bursa’s FY22F dividend yield is also decent at 3.7%. CGS-CIMB prefers Hong Leong Bank Bhd for exposure to the Malaysian financial services sector.