Investment Highlights

• We maintain our BUY call on Bursa Malaysia (Bursa) with a lower fair value of RM9.40 per share (previously: RM10.70 per share). We trim our FY21/22 net profit by 3.5%/6.1% after lowering our DATV assumptions for the securities market to RM3.6bil/RM3.2bil from RM4.0bil/RM3.5bil. We peg stock to a lower FY22 PER of 25x (previously: 26x). Our stock valuation reflects a 3-star ESG rating.

• Bursa reported a lower net profit of RM89mil (-26.7% QoQ) in 2Q21. This was attributed to a decline in securities trading revenue while trading revenue for derivatives was stable QoQ with sustained average daily contracts traded (ADC). 2Q21 saw the daily average trading value (DATV) for onmarket trades (OMT) for securities slipping to RM3.8bil vs. RM5.1bil in 1Q21.

• 1H21 net profit came in at RM210mil. It grew 39.4% YoY, underpinned by stronger securities trading revenue (+41.4% YoY), BSAS trading revenue (+5.8% YoY) and nontrading revenue (listing, issuer and depository services fees), partially offset by lower derivatives trading revenue.

• The decline in derivatives trading revenue in 1H21 was contributed by the decrease in collateral management fee rate from 1.0% to 0.5% since 1 July 2020 and the drop in ADC for the FKLI.

• Cumulative earnings accounted for 57.2% and 60.2% of our and consensus estimates respectively. We deem this to be within expectation as we anticipate a lower DATV for the securities market in 3Q21 compared to 2Q21.

• Investor sentiment will be softer in 3Q21 from the continued lockdowns with Covid-19 cases rising further and political uncertainties. Nonetheless, investor sentiment is likely to improve, leading to stronger trading activities in the securities market in 4Q21 once herd immunity is achieved through vaccinations. The government intends to step up efforts to vaccinate 100.0% of Malaysian adults fully by October 2021. This compared to the earlier plan of fully vaccinating 80.0% of adults by 1Q22. More economic sectors will be opened once the vaccination target has been achieved. This is envisaged to lead to improved confidence in the securities market.

• 1H21 DATV for securities market stood at RM4.4bil (+41.4% YoY). By segment, DATV of domestic institutions, retail and foreign institutions in 1H21 climbed to RM1.9bil (+32.1% YoY), RM1.7bil (+70.3% YoY) and RM0.7bil (+16.4% YoY) respectively.

• 1H21’s net buy position of retail investors stood at RM8.2bil. The number of new retail investors’ CDS accounts climbed 67.0% YoY to 147,091 in 1H21.

• Trades from retail investors accounted for 39.0% of the DATV while that from institutions made up the remaining 61.0%.

• The DATV for Apr 2021, May 2021 and June 2021 was lower at RM4.0bil, RM4.0bil and RM3.3bil respectively compared to the first 3 months of 2021. In July 2021 (1–21 July), the DATV for the securities market continued to ease to RM3.1bil.

• 2Q21 continued to see an outflow in foreign funds from the securities market to a total of RM2.5bil cumulatively (Apr 2021: -RM1.1bil, May 2021: -RM161mil and June 2021: -RM1.2bil) vs. -RM1.7bil in 1Q21.
   
• There Were 14 New Listings in 1H21 Vs. 7 in 1H20.
   
• ADC for derivatives continued to be stable at 79,784 contracts (-0.7% QoQ) in 2Q21. For 1H21, the ADC traded for derivatives rose modestly by 4.0% YoY to 80,061, supported by the higher trading of FCPO. Meanwhile, the ADC traded for the FKLI fell by 20.2% YoY in 1H21.
   
• For BSAS, the ADV increased by 4.6% YoY to RM34.5bil, supported by the increase in trading participants. 1H21 saw the onboarding of 16 new participants (13 new local and 3 foreign i.e. 1 from Turkey and 2 from Kenya).

• Opex in 1H21 rose by 14.9% YoY largely contributed by provisions for variable staff cost (performance rewards for its employees in line with improved earnings). Also, it was due to provisions for the SST on digital services and expenses on corporate social responsibility (CSR). Bursa is still awaiting the decision from the authorities and the MOF on the chargeability of taxes for digital services. Hence, Bursa continued to set aside provisions for the SST (RM7mil and RM13.6mil in 1H21 and FY20 respectively). The exchange will further set aside 1% of its profit after tax as expenses for CSR.

• Foreign ownership of the securities market remained stable at 20.3% as at end June 2021. Meanwhile, the stock’s foreign ownership slipped to 19.1% in June 2021 vs. 19.8% in Mar 2021.

• Bursa has declared a higher interim dividend of 24 sen/share (payout: 92.0%) in 1H21 vs. 17.0 sen/shares in 1H20 (payout: 91.0%).

• With the recent retracement in its share price, the stock is trading at an attractive FY22 PE of 20x with decent dividend yield of close to 5.0%. We see value emerging on the stock with an upside potential of more than 15.0%.

Source: AmInvest Research - 29 Jul 2021