PETALING JAYA: Bursa Malaysia Bhd may see another sequential earnings decline for the third quarter (Q3) of 2021 but things could improve the following quarter.

       The reopening of economic activities and the increase in foreign interest are factors that could boost average daily volume trades (ADV) going forward.

       HLIB Research expects the Q3 results to be announced on Oct 29 to register a 46% drop in core earnings year-on-year (y-o-y) to RM66mil.

       That will bring the nine-month 2021 amount to RM276mil (flat y-o-y), which is in line with its forecast.

       In Q4 of 2021, it expects ADV to be around the low-RM3bil mark, which is its assumption for financial year 2022 (FY22) as well (RM3.11bil). This should be driven by the continued “reopening recovery” sentiment and the traditional year-end window dressing phenomenon.

       Foreign shareholding in Malaysian equities had scraped the bottom of the barrel at 20.2% (July-August), before inching up to 20.4% in September. It said after 25 months of consecutive net selling by foreigners, the tide finally turned in the August to September period where they net bought RM1.92bil.

       These are some encouraging preliminary signs that foreign participation may be returning, as foreign ADV has been trending up from RM521mil in July to RM652mil in September (month-to-date or MTD-October: RM588mil) and their participation rate rose from 17.3% in July to 21% to 22% in the August to September period (MTD-October: 18.5%).

       Despite an unchanged earnings forecast, it has lowered its target price from RM9.91 a share to RM8.93. It has also rolled forward earnings per share (EPS) from FY21 to mid-FY22 (lower earnings base).

       The research house said it continues to like Bursa’s outlook, backed by ADV recovery prospects in Q4. There is also potential for another round of special-dividends. To recap, the previous earnings upcycle in FY17-FY18 saw two consecutive years of special dividends, on top of a decent normal yield of about 4%.

       Bursa is also the cheapest exchange with a price earning ratio of a 21% discount to regional peers. It is maintaining its “buy’’ rating on the stock.