Lowering expectations; D/G to HOLD
Trading activities have been slow at just MYR2b equity ADV in Dec 2021 and Jan 2022 MTD. Retail participation has fallen to 30%-31% in Nov-Dec 2021 from 38-40% in Jan-Jul 2021 on lack of catalysts as gains in the small cap index (barometer of retail interest) reversed from Nov 2021. Into 2022, higher stamp duty on contract notes and policy risks may continue to dampen trading activities. We lower our forecasts, assuming MYR2.5b ADV in 2022. Our new TP is MYR6.05.
4Q21 equity ADV -47% YoY; 2021 -15% YoY
Equity ADV was MYR3.1b/MYR3b/MYR2b in Oct/Nov/Dec 2021, averaging MYR2.66b for 4Q21 (-47% YoY, -12% QoQ) and bringing 2021 ADV to MYR3.66b (-15% YoY; 2020: MYR4.31b). We estimate 4Q21 trading velocity declined to 34% (1Q: 70%, 2Q: 51%, 3Q: 40%), bringing 2021 to 48% (2020: 64%). Elsewhere, the number of derivative contracts traded was about flattish in 4Q21 at 4.43m (-2% YoY, +1% QoQ) as higher FCPO (+2% YoY, +3% QoQ) offset lower FKLI contracts (-26% YoY, -8% QoQ). Total contracts traded in 2021 was 18.4m (+1% YoY; FCPO: +7% YoY; FKLI: -23% YoY).
Lowering FY21-23E net profit by 3%-28%
We are cautious on the equity market due to weak earnings outlook and policy risks. Based on our YE2022 KLCI target of 1,710 [link], we project MYR1.95tr total exchange market value at YE2022 (YE2021: MYR1.79b). Assuming 32% equity trading velocity (pre-pandemic levels), we forecast MYR2.5b equity ADV in 2022 (vs. MYR3.4b previously). For derivatives, we continue to impute 2% growth in contracts in 2022. Based on released data for 4Q21, our revised assumptions for 2022, and Cukai Makmur in FY22, we cut FY21/FY22/FY23 net profit forecasts by 3%/28%/13%.
Lowering TP; but dividend capacity remains high
Based on an updated 10Y mean PER (unchanged) of 22x (previously 23x) on FY22E EPS, our revised TP is MYR6.05. With potential total return of – 1% (including 4.1% DY for FY22E based on 94% DPR), Bursa is now a HOLD. Positively, its cash balance remained strong at MYR351m (43sen/shr) endSep 2021. In Oct 2021, it sold off its remaining CME shares, beefing up its cash reserve by MYR86m (10.6sen/shr). It, therefore, can afford a higher DPR. Bursa will report on its 4Q21/FY21 results on 28 Jan.