Bursa reported 1HFY22 PATMI of RM127m (-39% YoY) which accounted for 51%/53% of ours/consensus full year forecast. While the results were inline, the seemingly dimming ADV outlook – from US recessionary contagion fears and diminishing probability of an early GE15 – prompts us to lower our ADV assumption. Consequently, we cut FY22/23/24 earnings by 9%/6%/9%. With ADV evaporating, Bursa’s MC/ADV ratio for Jul has surged to +3.2SD above mean (a 10Y high). Put simply, while ADV has taken a beating, share price has not adequately corrected to reflect this. Downgrade from Buy to SELL with TP of RM5.65 (20x PE tagged to FY22 EPS).

Within expectations. Bursa reported 2QFY22 PATMI of RM59.5m (-12.5% QoQ, -33.2% YoY), bringing 1HFY22’s sum to RM127.4m (-39.4% YoY). This accounted for 51%/53% of ours/consensus full year forecast, which is inline.

Dividend. Declared DPS of 15 Sen (SPLY: 24 Sen).

QoQ. Revenue fell (-7.9%) following the decline in Securities (-17%; ADV -17.9% alongside 2 fewer trading days) but was partially cushioned by a slight increase in Derivatives (+4.6%; ADC at -0.6% but revenue per contract rose +8.8%), while Others stayed flat (-0.1%). Despite a slight cut in opex (-2.5%), cost-to-income ratio (CIR) rose from 44.8% to 47.6%, resulting to PATMI decline of -12.5%.

YoY. -22.8% revenue decline was largely attributed to the steep drop in Securities (-42.1%; ADV -43.2%) but was partially offset by increase in Derivatives (+9.1%; ADC -3.4% but revenue per contract rose +14.8%) and Others (+4.9%). Reduction in opex (-7.8%) was insufficient to offset top-line decline, which led to CIR increasing from 39.7% to 47.6% and a resulting -33.2% drop in PATMI.

YTD. Revenue decreased -26.4%, again attributed to the plunge in Securities (-44.7%; ADV -46.4%) but was partially buffered by improvement in Derivatives (+6.2%; ADC -3.4% but revenue per contract up +10%) and Others (+5%). Given only a slight reduction on opex (-1.9%), CIR surged from 34.6% to 46.2%, causing PATMI to drop -39.4%.

Outlook. Monthly ADV has been down trending since Jun-22 as investors stayed on the side-lines given external woes stemming from aggressive Fed monetary policy tightening, triggering US recession fears and contagion to the rest of the world. Worryingly, MTD-Jul ADV of only RM1.31bn (-31% MoM) is the lowest monthly showing in almost a decade (i.e. since Dec-12). Although we had earlier envisioned an early GE15 providing the much needed reprieve to ADV in 2H22, this possibility seems to be diminishing given recent political news flow. Management is cognisant on the lacklustre ADV climate and assures that it will manage costs prudently.

Forecast. With a dimmer near term ADV outlook, we cut FY22/23/24 ADV assumptions by -17%/-14%/-15% to RM2.06/2.31/2.39bn (YTD: RM2.22bn) and consequently, earnings are lowered by -9.4%/-5.9%/-8.7%.

Downgrade to SELL, TP: RM5.65. Apart from the earnings cut, we also lower our PE target from 25.5x to 20x (5Y mean), resulting to a lower TP of RM5.65 (from RM7.95). With ADV evaporating, Bursa’s MC/ADV ratio for Jul has surged to +3.2SD above mean – the highest level seen in the past decade. Put simply, while ADV has taken a beating, we reckon share price has not adequately corrected to reflect this. Downgrade from Buy to SELL.

Source: Hong Leong Investment Bank Research - 29 Jul 2022