Bursa posted 1H21 core PATMI of RM210m (+39% YoY), inline with our (64%) and consensus (60%) expectations. While ADV has been tapering since start of 2Q (Covid-19 and lockdown headwinds), we envision investors turning “risk on” again towards 4Q when the country experiences a reopening recovery – this should revive ADV. We lower earnings by c.3% as we now treat SST provisions as a core expense. Maintain BUY with lower TP of RM9.91 (25x FY21 EPS) – PE is at 28% discount to peers and Bursa offers exposure to eventual reopening.

Within expectations. Bursa reported 2QFY21 core PATMI of RM89m (-26.7% QoQ, +3.2% YoY), bringing the 1H21 sum to RM210.4m (+39.4% YoY). Note that we have decided not to classify SST provisions as an EI given that the deliberation is still ongoing by MoF; as such, such provisions may continue over the foreseeable term. Against our FY21 forecast, 1H21 core PATMI accounted for 64% (consensus: 60%) which we deem inline given our view that ADV in 2H will come in lower vs 1H (RM4.42bn); we have pencilled in ADV of RM3.54bn for FY21 (FY20: RM4.21bn).

Dividend. Declared 24 Sen DPS (1Q21: None; 1H20: 17 Sen), Entitlement: 18 Aug.

QoQ. Revenue declined -15.7% primarily driven by the fall in Securities (-23.6%; ADV fell -26.1%) while Derivatives (-0.8%) and Others (-0.1%) were relatively flat. With a 10.5% rise in opex, core PATMI fell -26.7%.

YoY. 9.7% increase in revenue was driven by all segments: Securities (+4.7%; despite flat ADV of -0.1%), Derivatives (+5.3%; higher ADC by +17.8% partially offset by lower revenue per contract by -12.1%) and Others (+24.4%; key growth drivers were listing & issuer services and depositary). Despite decent topline growth, rise in opex by 20.6% resulted to a smaller quantum increase in core PATMI (+3.2%).

YTD. 1H21 revenue was up 31%, driven by both Securities (+41.4%; on back of 41.7% ADV growth) and Others (+29%; mainly from listing & issuer services and depositary), but this was offset by Derivatives (-6.4%; despite higher ADC by 4%, there was a drag from lower revenue per contract by -8.5%). After accounting for 14.9% higher opex, this trickled to a 39.4% growth in core PATMI.

Outlook. Despite robust trading in 1Q21 (ADV: RM5.08bn), this began to taper since 2Q21 with the latest MTD-July number at c.RM3bn (weakest month YTD). We believe this is due to investors turning “risk-off” given the elevated Covid-19 cases domestically (highest in ASEAN on a per capita basis) and resulting lockdown measures. That said, we reckon that “risk-on” behaviour will eventually return and ADV to pick up towards 4Q21 once Malaysia experiences a reopening recovery, particularly when the National Recovery Plan enters Phase 3 (almost all industries will be operational by then). All in, we have imputed FY21 ADV of RM3.54bn, 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).

Forecast. Despite the results coming inline, we lower FY21-23 earnings by c.3% as we now treat the SST provisions as a core item.

Lower TP to RM9.91 but maintain BUY. Apart from the slight earnings cut, we also lower our PE target from 29x (peak PE) to 25x (+1SD to 5Y mean) to reflect the softer near term ADV; nonetheless we reckon that above mean valuations are still justified as ADV seems to be structurally higher vs pre-Covid days. All in, our TP reduces from RM11.82 to RM9.91. We maintain our BUY rating on Burs a as current valuations look compelling with PE at a -28% discount to peers (SGX, HKX, ASX, NZX) and the stock offers broad based exposure to Malaysia’s eventual economic reopening.

Source: Hong Leong Investment Bank Research - 29 Jul 2021