Bursa’s earnings to fall on lower daily average trading value

Bursa is expected to post earnings of RM71m for its 4Q21 results 

by AZALEA AZUAR / pic by TMR

BURSA Malaysia Bhd’s core earnings for financial year 2022 (FY22) and FY23 is expected to be reduced due to lower than daily average trading value (DATV) on the exchange. 

AmInvestment Bank Bhd (AmInvest) analyst Kelvin Ong has lowered Bursa’s core earnings for both years by 10.4% and 9.8%, respectively, to RM238 million and RM246 million, respectively, and has pegged the stock to a lower price-to-earnings or 22 times. 

This is in response to its DATV which has fallen to RM2.4 billion (FY22) and RM2.5 billion (FY23), whereas the investment bank previously forecast the DATV to be at RM2.8 billion and RM2.6 billion. 

For its fourth quarter of 2021 (4Q21) results today, Bursa is expected to post earnings of RM71 million, a decrease by 11.4% quarter-on-quarter on the back of lower DATV and RM361 million of net profit for FY21 (a decrease by 4.5% year-on-year [YoY]). 

“In 4Q21, the DATV (of on-market transactions) for equities declined to RM2.5 billion against the 2Q21 and 3Q21 value of RM3.8 billion and RM2.9 billion, respectively. 

“On a monthly basis, October, November and December 2021 saw lower DATV of RM2.9 billion, RM2.8 billion and RM1.9 billion, respectively,” Ong noted in a report on Wednesday. 

For the period, trades by institutions made up 41.7% of the total value of securities traded compared to 33.5% in 3Q21 due to a higher percentage in the value of securities traded by foreign institutions. 

Trades by retail investors and investment account traders (IVTs) decreased by 30.8% and 13.1% (4Q21) compared to 35.1% and 15.1% in 3Q21. 

The value of securities traded was 14.5% in 4Q21, while in 3Q21 it was 16.3%. 

“Foreign fund inflows into the securities market were higher at RM600 million cumulatively in 4Q21 against RM452 million in 3Q21. 

“October and November 2021 saw inflows of foreign funds of RM1.57 billion and RM167 million respectively into the securities market,” Ong explained. 

This was followed by foreign fund outflows of RM1.1 billion in December 2021. 

In FY21, there were 29 listings in the securities market compared to 29 in the corresponding year. 

Ong was also not surprised when the exchange and Securities Commission Malaysia decided to lift the temporary suspension of intraday and proprietary day traders (PDT) short selling effective Jan 1, 2022, as authorities have already announced the expiry of the temporary suspension on regulated short selling (RSS). 

“The lifting of the temporary suspensions of RSS, intraday and PDT short selling is expected to result in lower DATV of retail investors moving forward compared to FY20 and FY21. 

“The downside risk protection of equities is seen as removed with the lifting of the temporary suspensions,” he explained. 

AmInvest has observed the tapering of trades by IVTs and retail investors. 

“Recently, the authorities announced that the stamp duty on securities transactions will be capped at RM1,000 with the rate of 0.15%. 

“Although this was still higher than the previous rate of 0.10%, the reinstatement of the capping was a relief for the securities market,” Ong added. 

Compared to completely removing the cap, this would be less dampening on the trading of shares by retail and institutional investors. 

The research outfit decided to lower its expectations on Bursa’s security market DATV for FY22 and FY23 due to gradual tapering of asset purchases by developed markets, the end of the loan moratorium assistance, temporary suspension of RSS, intraday short selling, PDT short selling which have all been lifted and the interest rates uptrend. 

The average total derivative contracts traded on the exchange remained stable at circa 70,000 in 4Q21 against 71,000 in 3Q21. 

“On a quarter to date basis, the average daily contracts (ADC) traded for the Crude Palm Oil Futures (FCPO) was slightly higher at 60,382 contracts in 4Q21 against 59,525 contracts in 3Q21 while for the FKLI, it declined to 9,556 contracts versus 10,603 contracts in the preceding quarter,” Ong explained. 

For the full FY21, ADC for FCPO rose by 8.6% YoY to 63,968 contracts while ADC for the FKLI contract fell by 21.5% YoY to 11,067 contracts. 

As of the end of December last year, the foreign ownership of listed securities on the exchange remained at 20.4% but foreign ownership of stocks slipped to 14.5%. “We maintain our ‘Hold’ recommendation on Bursa with a lower fair value of RM6.50 per share (previously: RM7.90 per share),” he said. 

Bursa’s shares closed two sen lower at RM6.16 yesterday, giving it a market valuation of RM4.99 billion.