Bursa reported 9MFY22 PATMI of RM178m (-39% YoY) which accounted for 78%/77% of our/consensus full year forecast. Drag in Securities (9M22 ADV -46% YoY) was the main reason for the decline. While external headwinds aren’t likely to dissipate anytime soon, we see a potential trading opportunity on Bursa given the impending GE15. Two out of the past three GEs (i.e. GE14 and GE13) saw ADV surge 55% and 52% over the 1M period after the polls vs 1M before. Bursa’s share price has a strong 78% monthly correlation to ADV. Maintain BUY with unchanged TP of RM7.00 (24x mid-FY23 PE).

Within expectations. Bursa reported 3QFY22 PATMI of RM50.1m (-15.7% QoQ, -37.3% YoY), bringing 9MFY22’s sum to RM177.6m (-38.8% YoY). The latter accounted for 78%/77% of our/consensus full year forecast, which is inline (see our recent results preview).

Dividend. None declared, usually in 2Q and 4Q. YTD: 15 sen vs SPLY: 24 sen.

QoQ. Revenue fell (-8.5%) following the decline in Securities (-16.5%; ADV -24% but partially cushioned by 4 additional trading days) and Others (-5%) but was partially offset by a moderate increase in Derivatives (+5.1%; ADC +5%). With lower top-line and a partial uptick in opex (+1.2%), cost-to-income ratio (CIR) rose from 47.6% to 52.4%, resulting to a -15.7% decline in PATMI.

YoY. The -20.1% revenue decline was largely attributed to the steep drop in Securities (-40.5%; ADV -43.9%) but partly offset by the increase in Derivatives (+22.8%; ADC +14.6% and revenue per contract +5.5%), while Others was flattish (-1.6%). With higher opex (+6.6%), CIR spiked from 39.3% to 52.4% and consequently, PATMI decreased -37.3%.

YTD. Revenue declined -24.6%, again attributed to the plunge in Securities (-43.6%; ADV -45.8%) but was partially buffered by improvement in Derivatives (+11.5%; ADC +2.2% and revenue per contract +8.5%), alongside marginal rise in Others (+2.8%). Coupled with marginal uptick in opex (+0.7%), CIR rose from 36% to 48.1%, causing PATMI to fall -38.8%.

Outlook. Coming off a decade low of RM1.34bn in Jul, monthly ADV saw some reprieve in Aug/Sep/MTD-Oct at RM1.74/1.76/1.70bn, bringing the YTD sum to RM2.08bn (SPLY/FY21: RM3.81/3.55bn). Investor risk aversion remains heightened given external headwinds stemming from Fed’s aggressive tightening, EU’s energy uncertainty, Russia-Ukraine war and China’s zero-Covid policy. While these external headwinds aren’t likely to dissipate anytime soon, we see a potential trading opportunity on Bursa given the impending polls (19 Nov). Two out of the past three GEs (i.e. GE14-2018 and GE13-2013) saw ADV surge 54.5% and 52.4% over the 1- month period after the polls compared to the 1-month period before. Bursa’s market cap (and hence share price) has a strong correlation to its ADV at 78% 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 this a rather compelling trade.

Forecast. Unchanged. Our FY22 ADV assumption of RM2.06bn (-42% YoY) implies a sequential recovery in 4Q22 at RM1.87bn – there is plausible upside to this should our post-GE15 ADV boost thesis pan out.

Maintain BUY, TP: RM7.00. We maintain our tactical BUY rating on Bursa with unchanged TP of RM7.00 (24x mid-FY23 PE; +1SD 5Y). With the election clock ticking, we believe investors will start angling on Bursa to ride on the potential near term ADV surge post polling.

Source: Hong Leong Investment Bank Research - 1 Nov 2022