KUALA LUMPUR (Dec 9): Hong Leong Investment Bank (HLIB) Research on Thursday (Dec 9) upgraded Bursa Malaysia Bhd to "hold" from "sell" as it reckoned that the negatives of the stamp duty hike had largely been baked in.

Its analyst Jeremy Goh said in a note Bursa's share price had fallen 14.8% since news of the stamp duty hike and his earlier downgrade to "sell".

However, he cut his target price (TP) from RM6.52 to RM5.95 for Bursa following an earnings cut due to lower average daily trading volume (ADV) assumptions.

“We note that the share price of Bursa averaged RM5.85 from the financial year ended Dec 31, 2017 (FY17) to FY18 when the ADV was chalking RM2.3 to RM2.4 billion with earnings at RM223 million to RM224 million — not too far off our TP of RM5.95 with FY22 ADV and earnings forecasts of RM2.5 billion and RM240 million respectively,” he said.

With the cut in ADV assumptions, he reduced his earnings forecasts for Bursa by 1% for FY21, 13% for FY22 and 16% for FY23.

Goh said the impending stamp duty hike will drastically increase trading cost — up 45% at a trade size of RM1 million.

“Larger traders (domestic institutions and foreigners) will be hit harder, impacting more than 60% of the local bourse’s demographics,” he said.

Citing the Hong Kong exchange experience, he said the bourse which announced a stamp duty raise earlier this year saw its monthly ADV fall 44% from February to November.

He also noted that the stamp duty hike will make Bursa the most expensive exchange to trade within ASEAN-5 (Malaysia, Indonesia, the Philippines, Singapore and Thailand) after running a comparison of trading cost for the exchanges, assuming a US$1 million trade size and homogeneous brokerage of 0.2%.

“Currently, Malaysia’s trading cost as a percentage of trade size is at 0.25% — at similar levels to Singapore (0.25%), Thailand (0.22%) and the Philippines (0.23%) — while Indonesia is the highest (0.33% assuming a sell trade). However, post stamp duty increase, Malaysia’s effective trading cost will become the highest in ASEAN-5 at 0.38% by our estimates,” he said.

According to him, the Hong Kong experience and comparison of trading cost within ASEAN-5 suggest that a contraction in ADV seems inevitable for Bursa once the higher stamp duty kicks in next year.

Evidently, he said the quantum of the hike is also higher for Bursa (50 basis points versus 30 basis points for the Hong Kong exchange) and will be further exacerbated by the cap removal.

“Taking these into consideration, we now expect [Bursa's] FY22 ADV to chalk in at RM2.48 billion, representing a 30% year-on-year decline but still a tad above the pre-Covid-19 highs of RM2.3 billion to RM2.4 billion in FY17 to FY18. Our FY21 ADV assumption is relatively unchanged at RM3.54 billion,” he said.

To recap, the Malaysian government in Budget 2022 increased the stamp duty stocks from 0.1% to 0.15%, while the RM200/contract cap is abolished, both effective Jan 1, 2022. At the same time, the sales and service tax of 6% on brokerage will be removed.

At 10.07am on Thursday (Dec 9), Bursa had risen two sen or 0.31% to RM6.42, valuing the group at RM5.2 billion.

Year to date, the counter had fallen 22.28%.