Bursa reported 1Q22 PATMI of RM68m (+5% QoQ, -44% YoY) – this was within expectations at 27% of ours and consensus full year forecast. While the results were seemingly unexciting, 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 think in Aug Oct), we believe investors will eventually start angling on Bursa. We maintain our RM7.95 TP (25.5x FY22 PE) and BUY rating. We continue to like Bursa as an apolitical election play.

Within expectations. Bursa reported 1QFY22 PATMI of RM68m (+4.6% QoQ, -44% YoY) – this was spot on our estimates (see our results preview report on 14 Apr), forming 27% of ours and consensus full year forecast.

Dividend. None declared. Dividends are usually declared in 2Q and 4Q.

QoQ. Revenue was flat (-0.3%) as marginal dip in Securities (-3.1%; ADV +2.6% but with two fewer trading days) was offset by increase in Derivatives (+8.5%; ADC +10.1% driven by FCPO), while Others stayed flat (+0.3%). With the slight decline in opex (-3.8%), PATMI inched up +4.6%.

YoY. The -29.4% revenue decline was largely attributed to the steep drop in Securities (-46.7%) as ADV fell -48.8% from a high base SPLY – recall that 1Q21 ADV of RM5.08bn was the second highest quarterly showing in its history, driven by recovery optimism from the initial global vaccine rollout. Marginal increase in Derivatives (+3.4%) and Others (+5.0%) was insufficient to offset Securities’ decline at the topline. Coupled with a 4.6% rise in opex, PATMI decreased -44%.

Outlook. YTD ADV of RM2.50bn (up to 27 Apr) is broadly tracking within our FY22 assumption of RM2.48bn. Looking ahead, 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) 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 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 vie w 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 as the results were inline. 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: RM7.95. We continue to like Bursa as an apolitical election play, riding on the potential ADV upside. Our RM7.95 TP is based on 25.5x PE (+1.5SD above 5Y mean) tagged to FY22 EPS. We reckon our valuation yardstick isn’t excessive considering (i) it is inline with regional peers average of 25.3x 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 - 29 Apr 2022