Judging from 1Q22 equities ADV of RM2.6bn (+3% QoQ, -49% YoY) derivatives ADC of 78k (+10% QoQ, -4% YoY), we estimate that Bursa could post quarterly earnings of RM68m (+5% QoQ, -44% YoY) when results are released on 28 Apr. Admittedly, this seems rather sequentially unexciting. Still, we continue to advocate the view that Bursa is a beneficiary of GE15 – past GEs have shown a positive impact to ADV on a YoY and MoM basis. With increasing probability of an early GE15, we believe investors will eventually start angling on Bursa. Our TP is raised from RM7.27 to RM7.95 (25.5x FY22 PE). We continue to like Bursa as an apolitical election play.

1Q22 seems sequentially unexciting. In 1Q22, securities ADV stood at RM2.60bn (+2.6% QoQ, -48.8% YoY) while derivatives ADC was 77.5k (+10.1% QoQ, -3.5% YoY). Assuming Other revenue continues its quarterly run rate at c.RM55m, and barring any unforeseen swings in cost structure, we estimate that earnings in 1Q22 could come in at RM68m (+5.2% QoQ, -43.7% YoY), forming 27% of our full year forecast. While we note the QoQ increase in ADC (and to a lesser extent, ADV), the impact to bottomline will be partially watered down by fewer trading days (61 vs 63). On a YoY basis, the estimated steep decline (-43.7%) is rather expected given the abnormally high base in SPLY (second strongest quarterly ADV in its history) due to recovery sentiment back then from the global vaccine rollout which drove trading euphoria.

Apolitical election play. YTD ADV of RM2.56bn is broadly tracking within our FY22 assumption of RM2.48bn (representing 103%). Nevertheless, we see upside potential to ADV in 2H22, fuelled by heightened trading around the impending general election (GE), which we are betting to happen between Aug-Oct (i.e. after the MoU expires but before the East Coast monsoon). Two out of the past three GEs (i.e. GE14-2018 and GE13-2013) have had a positive effect on ADV during the election year (YoY increase) and election month (+59-63% MoM surge) – the exception was GE12-2008 due to the onslaught of the GFC. For further insights on our study regarding ADV and elections, please refer to our previous report dated 16 Mar. Bursa’s market cap (and hence share price) has a strong correlation to its ADV at 79.4% based on monthly data post GFC. We view Bursa as an apolitical election play – it benefits via ADV boost but without the “political linkages” – making it a rather compelling investment proposition. Looking ahead post GE15, we reckon that the market would react positively (alongside rejuvenated ADV) should the election outcome see the victor secure a convincing mandate – a plausible scenario considering the recent state polls in Johor, Melaka and Sarawak.

Forecast. Unchanged pending Bursa’s 1Q22 results release on 28 Apr. Note that we have not explicitly pencilled in any potential ADV boost from GE15. Should this ADV boost play out as hypothesised, the ADV decline in FY22 should be less profound (we currently project RM2.48bn; -30% YoY).

Maintain BUY, TP raised to RM7.95. We continue to like Bursa as an apolitical election play, riding on the potential ADV upside. Although share price has risen +9% since our BUY upgrade on 16 Mar, we continue to see further upside down the road as investors eventually start angling on Bursa with increasing probability of an early GE15. Our target PE is raised from 23.3x to 25.5x (+1.5SD above 5Y mean) and consequently, our TP increases from RM7.27 to RM7.95. We reckon our valuation yardstick isn’t excessive considering (i) it is inline with regional peers average of 26.2x and (ii) Bursa’s 1Y forward PE hit a high of 27.3x (+2SD) in 2018, i.e. the year of GE14.

Source: Hong Leong Investment Bank Research - 14 Apr 2022