Weak quarter expected for Bursa Malaysia

by ANIS HAZIM / Pic by TMR

CGS-CIMB Research expects Bursa Malaysia Bhd’s net profit to remain weak in the second quarter of 2022 (2Q22F) as the local stock exchange saw a 41.9% year-on-year (YoY) drop in its equity average daily trading value (ADTV) in 2Q22.

“We expect Bursa to report another quarter of double-digit net profit decline for 2Q22F given the lower ADTV in the equity market,” CGS-CIMB analysts Winson Ng said in a research note on Friday.

Ng said Bursa’s equity ADTV dwindled 41.9% YoY to RM2.24 billion in 2Q22, representing the fourth consecutive quarter of 40% to 50% YoY decline, while on a quarterly basis, it fell by 15.8%.

He noted that Bursa’s average daily contracts (ADC) also declined 3.6% YoY and 0.5% for quarter-on-quarter (QoQ) to 77,100 in 2Q22.

“However, we expect Bursa’s 2Q22F derivative income to be flattish or slightly higher YoY due to an increase in collateral management fee as was the case in 1Q22),” he said.

Nevertheless, he estimates that the net profit would decline by 48.2% YoY to RM46.1 million in the 2Q222F due to several factors including the 41.9% YoY drop in equity income which is in line with the decline in its equity ADTV.

Another factor is due to the higher effective tax rate of 33% in 2Q22 compared to 25.4% in 2Q21 lifted by the prosperity tax (Cukai Makmur).

“Meanwhile, we assume its derivative and other income was flattish YoY in 2Q22F while its operating cost rose 3% YoY,” he said.

Additionally, he estimates Bursa’s net profit of RM114.1 million for the first half of 2022 (1H22F), which is largely in line with CGS-CIMB’s expectation (53% of its full-year forecast) but below market expectation (46.6% of Bloomberg consensus estimates).

However, the research house maintains its financial year of 2022 to 2024 (FY22-24F) earning per share (EPS) forecasts.

“Our target price remains at RM6.59, which is pegged to a five-year historical average price earning of 21.1 times on FY23F EPS,” he added.

CGS-CIMB also has upgraded Bursa from “reduce” to “hold” recommendation and expects its share price to be supported by its high FY22F dividend yield of 3.8%.