Cutting ADTV for 2023-24F
- Equity ADTV fell 42.2% yoy to RM1.74bn in 3Q22, 21.4% lower than the preCovid-19 level of RM2.22bn average from 1Q17 to 4Q19).
- We estimate Bursa’s 3Q22 net profit fell 38.8% yoy in 3Q22F, assuming equity income declined 42.2% yoy but derivative income rose 12.1% yoy.
- Reiterate Hold as we believe the slide in equity ADTV is priced in, given the decline in its P/E valuation (from 24x in Mar 22 to 19.5x in Oct 22).
Further slide in equity ADTV in 3Q22
The average daily trading value (ADTV) in Malaysia’s equity market headed further south as it fell 22.3% qoq to RM1.74bn in 3Q22. Equity ADTV also declined by 42.2% yoy in 3Q22, the fifth consecutive quarter of 40-50% yoy declines. Moreover, 3Q22 equity ADTV was 21.4% lower than the pre-Covid-19 level of RM2.22bn (12-quarter average from 1Q17 to 4Q19). On the flip side, average daily contracts (ADC) in the derivative market rose by a strong 12.1% yoy (+3% qoq) in 3Q22.
3Q22F net profit likely declined 38.8% yoy
We estimate Bursa’s net profit was RM48.9m in 3Q22F, down 38.8% yoy, based on the following key assumptions: 1) a 42.2% yoy fall (-18.8% yoy) in 3Q22F equity income; 2) a 12.1% yoy rise (but -4% qoq) in 3Q22F derivative income; 3) a 3% yoy (+1.3% qoq) increase in 3Q22F operating cost; and 4) a tax rate of 28%. At our 3Q22F net profit forecast, Bursa’s 9M22 net profit of RM176.3m would be within our expectations but below consensus’ (78.5% of our full-year forecast and 75.3% of Bloomberg consensus’).
Lower EPS forecasts and target price
We cut our FY23-24F EPS forecasts by 9-13% as we lower our projected equity ADTV by 13-19%. To derive our projected FY23-24F equity ADTV, we now expect flattish (yoy) market capitalisation for the equity market in 2023F, followed by 2% growth in 2024F (compared to our previous forecasts of 8% growth p.a. for 2023-24F) and market velocity of 27% (vs. 29% previously). The changes are to reflect the more cautious sentiment in the market given the potential recession in the US and Europe. The EPS cuts lower our target price (TP) for Bursa from RM7.00 to RM6.60 despite the roll-over of the TP to end-2023F.
Our TP is derived from the average 5-year historical P/E of 21.5x (on FY24F EPS of 31 sen).
Reiterate Hold on Bursa
We maintain our Hold call on Bursa as we believe that the slide in equity ADTV is priced in given the decline in its valuation. Its 12-month rolling forward P/E fell from 24.4x in Mar 22 to 19.5x on 11 Oct 22, which was below the 5-year historical average of 21.5x. In addition, the stock is supported by a dividend yield of 4% for FY22F. We prefer RHB Bank for exposure to Malaysia’s financial services sector. We believe in the worst-case scenario, Bursa’s share price could fall to RM3.40-4.73 (24-45% downside) if its P/E falls to the troughs of 11x during the Covid-19 outbreak and 15.3x during the global financial crisis.
