A downtrend in equity ADTV priced in
- We expect Bursa’s net profit to remain weak in 2Q22F, taking the cue from the 41.9% yoy drop in 2Q22 equity ADTV.
- We estimate a 2Q22F net profit of RM46.1m for Bursa, representing a yoy decline of 48.2%.
- We upgrade Bursa to Hold as it is trading below its 5-year historical average P/E of 21.1x. It is also supported by high FY22F dividend yield of 3.8%.
Expecting weak 2Q22F net profit due to lower equity ADTV
Bursa plans to release its 2Q22 financial results on 28 Jul 2022. We expect Bursa to report another quarter of double-digit net profit decline for 2Q22F given the lower average daily trading value (ADTV) in the equity market. The equity ADTV dwindled 41.9% yoy to RM2.24bn in 2Q22, representing the fourth consecutive quarter of 40-50% yoy decline. On a qoq basis, the equity ADTV fell 15.8%.
Anticipating flattish derivative income despite lower ADC
Meanwhile, the average daily contracts (ADC) declined 3.6% yoy (and 0.5% 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).
2Q22F net profit likely declined 48.2% yoy
We estimate that Bursa’s net profit declined 48.2% yoy to RM46.1m in 2Q22F, due to (1) a 41.9% yoy drop in equity income (in line with the decline in equity ADTV), and (2) higher effective tax rate of 33% in 2Q22 (vs. 25.4% in 2Q21) lifted by Cukai Makmur (CM, prosperity tax). Meanwhile, we assume its derivative and other income was flattish yoy in 2Q22F while its operating cost rose 3% yoy. Based on the above, we estimate a net profit of RM114.1m for 1H22F, which is largely in line with our expectation (53% of our full-year forecast) but below market expectation (46.6% of Bloomberg consensus estimates).
Maintain EPS forecasts and target price
We maintain our FY22-24F EPS forecasts. Our target price remains at RM6.59, which is pegged to 5-year historical average P/E of 21.1x (on FY23F EPS). Upgrade Bursa from Reduce to Hold We upgrade Bursa from Reduce to Hold as its FY23F P/E of 20.2x is now below its 5-year historical average of 21.1x. In addition, its FY23F P/E is also below the pre-Covid-19 P/E of 22.7x (the average 1-year forward P/E from Jan 17 to Dec 19). However, FY22F P/E of 23.7x is higher than the 5-year historical average and pre-Covid-19 level as FY22F EPS is brought down by CM taxation. As such, we think the downtrend in equity ADTV has been priced in. In addition, we expect its share price to be supported by its high FY22F dividend yield of 3.8%. We prefer RHB Bank for exposure to Malaysia’s financial services sector.