KUALA LUMPUR (Jan 7): CGS-CIMB Research is expecting Bursa Malaysia Bhd’s net profit for the fourth quarter ended Dec 31, 2021 (4QFY21) to decline year-on-year (y-o-y) and quarter-on-quarter (q-o-q) due to weak trading activities in the capital markets.

“We estimate Bursa’s 4QFY21F net profit at RM50.5 million, the lowest since 4QFY19 (before the outbreak of Covid-19), based on assumptions for y-o-y declines of 46.2% in equity income and 0.5% in derivative income, on par with a y-o-y drop in the equity ADTV [average daily trading volume] and derivative ADC [average daily contract].

“This would translate into declines of 51.9% y-o-y and 36.8% q-o-q for 4QFY21F net profit,” said CGS-CIMB’s analyst Winson Ng in a note dated Jan 6.

Based on CGS-CIMB’s projection, Bursa would have recorded a net profit of RM340.8 million for the whole financial year ended Dec 31, 2021 (FY21), which would be 9.1% lower than the research house’s previous projection of RM347.7 million.

“As such, we reduce our projected FY21F net profit by 9.1% as we cut our assumed equity ADTV by 11.2% for FY21F. However, our target price of RM6.59 is intact, as it is still based on a target FY23 P/E of 21.1 times (on par with the five-year historical average),” it said.

“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 billion in FY20F and pre-Covid-19 level of RM1.93 billion in FY19), due to 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," said Ng.

However, CGS-CIMB upgraded the Bursa stock to ‘hold’ from ‘reduce’ as it thinks that the decline in equity ADTV has been priced in.

“This is because its 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), pushing down its CY23F P/E 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 FY22F dividend yield is also decent at 3.7%. We prefer Hong Leong Bank Bhd for exposure to the Malaysian financial services sector,” Ng added.

Bursa is scheduled to release its 4QFY21 results on Jan 28.

At midday break on Friday, Bursa’s share price settled unchanged at RM6.39 with some 131,300 shares traded.

At RM6.39, Bursa has a market capitalisation of RM5.17 billion.