Bursa posted 1QFY21 core PATMI of RM125m (+6% QoQ, +93% YoY), which was slightly above ours (39%) and consensus (37%) expectations. While Apr ADV has tapered (MTD: RM4.01bn vs 1Q21: RM5.08bn), the YTD sum remains robust at RM4.82bn. Structurally higher retail participation (39.6%) offers a base for healthy ADV while possible return of foreigners could be the upside. Raise FY21 earnings by 3%. Maintain BUY with slightly higher TP of RM11.82 (from RM11.49) based on 29x FY21 EPS.

Slightly above. Bursa reported 1QFY21 core PATMI of RM124.6m (+6.2% QoQ, +92.5% YoY). Note that core PATMI figures were derived after removing provision for SST amounting to RM12.5m in 4QFY20 and RM3.2m in 1QFY21. Against our FY21 full year forecast, 1Q accounted for 39% (consensus: 37%) which is slightly above expectations due to lower-than-expected cost structure. We have conservatively pencilled ADV to average RM3.0bn for the remaining 9M of FY21 (vs 1Q21: RM5.08bn and YTD: RM4.82bn).

Dividend. No divvy this quarter, usually declared in 2Q and 4Q.

QoQ. Revenue was relatively flat (+1.4%), contributed by Securities (+0.8%; higher ADV +5.2% was offset by 4 fewer trading days), Derivatives (+3.2%; higher ADC +13.2% partially offset by lower trading days) and Others (+2.5%). Decline in opex by -16.1% (ex SST provisions) led to core PATMI increasing +6.2%.

YoY. Revenue surged 56.7% primarily driven by Securities (+93.3%; ADV doubled) and Others (+33.9%; increased in all segments) but was partially dragged by lower Derivatives (-15.7%; ADC down -6.1% alongside 3 fewer trading days). After accounting for rise in opex by +4.2%, core PATMI surged +92.5%, reflecting the high operating leverage nature of Bursa’s business.

Outlook. While Apr ADV (OMT) has tapered (MTD: RM4.01bn vs 1Q21: RM5.08bn), the YTD number remains robust at RM4.82bn (2020: RM4.21bn). In our view, the structurally higher retail participation rate (39.6% post loan moratorium vs 24% pre Covid 10Y mean) offers a solid base for healthy ADV while the potential return of foreigners, if it happens, (shareholding at a low of 20.3%) could provide an upside boost. We maintain our view that 2021 will be a vaccine led recovery year. However, speedbumps such as vaccine hiccups (e.g. concerns over AZ and J&J), Covid resurgence, geopolitical tensions (i.e. US-China) and fluid domestic politics will bring much volatility along this recovery path, possibly inducing heightened trading activity. All in, we have conservatively pencilled in ADV of RM3.54bn for FY21, which is lower than FY20’s exceptional RM4.21bn but still much better than the pre-Covid highs of RM2.3-2.4bn (FY17-18). Timeline wise, we expect ADV to soften QoQ in 2Q21 but regain momentum in 2H21 as “election trading” sets in, particularly amongst local investors, taking cue from the “state of emergency” which is slated to end on 1 Aug.

Forecast. Raise FY21 earnings by 3% (after tweaking ADV slightly higher) while FY22-23 is relatively unchanged (<1%).

Maintain BUY, TP: RM11.82. We maintain our BUY rating on Bursa with slightly higher TP of RM11.82 (from RM11.49) based on 29x PE tagged to FY21 EPS. Our applied PE multiple is (i) +2SD above 5Y mean, justified by an earnings base that is higher than its pre-Covid peak earnings (i.e. FY18 which saw PE rerating to that level) and (ii) inline with its regional peers average (SGX, HKX, ASX and NZX).

Source: Hong Leong Investment Bank Research - 28 Apr 2021