Judging from 4Q22 Securities ADV of RM1.9bn (+19% QoQ, -24% YoY) and Derivatives ADC of 79k (-3% QoQ, +12% YoY), we estimate Bursa could post quarterly earnings of RM53m (+7% QoQ, -18% YoY) when results are released on 31 Jan. If accurate, this would be within our/consensus full year FY22 forecast at 101%/102%. With our previously proposed “post GE15 trade” already played out (share price rose by as much as 17%) and no further significant ADV boosting catalysts in sight, we downgrade our rating on Bursa from Buy to HOLD with TP of RM6.43 (22x FY23 PE). Bursa’s MC/ADV ratio of 2.74x (+0.8SD above 5Y mean) isn’t stretched but isn’t exactly attractive either.

4Q22 to see slight sequential reprieve. In 4Q22, Securities ADV saw a sequential recovery at RM1.94bn (+19.4% QoQ, -23.6% YoY), while Derivatives ADC stood at 78.9k (-2.5% QoQ, +12.0% YoY). Assuming Other revenue comes in within its recent quarterly run rate (RM54-57m), alongside sequentially unchanged opex, we estimate that earnings in 4Q22 could chalk in at RM53.4m (+6.6% QoQ, -17.7% YoY). If accurate, this would bring FY22 earnings to RM231m (-35% vs SPLY), accounting for 101%/102% of our/consensus forecast. Full year FY22 ADV of RM2.07bn came in close to our projected RM2.06bn (+0.6% variance). Bursa is set to release its 4Q22 results on 31 Jan, mid-day.

Post GE15 ADV rebound has played out. Shortly after last year’s Parliament dissolution in Oct, we envisioned that Bursa would experience a near term surge in ADV post GE15, resulting to share price upside potential and hence making it ripe for a trade (report link). This has played out as hypothesized with Nov’s ADV increasing +24.5% MoM, before easing -8.6% in Dec. Share price performance has also done its part, increasing by as much as +16.7% (hitting our RM7.00 TP on 24 Nov) since our upgrade report.

What’s next? MTD-Jan’s ADV is relatively unchanged MoM at RM1.96bn (+0.4%). While China’s reopening (8 Jan) and its resulting positive impact could help lift investor sentiment, we feel this is counterbalanced by the increasing probability of a US recession. A Fed pivot on its monetary policy direction (should a US recession happen) could be positive for ADV – however, we feel it is still too fluid to pen this as a base case. Accordingly, we cut our FY23/24 ADV assumption by -5%/-4% to RM2.2/2.3bn.

Forecast. Apart from lowering our ADV assumption, we have tweaked down operating expense resulting to a net reduction in FY23/24 earnings forecast by - 2.8%/-0.5%.

Downgrade to HOLD, TP lowered to RM6.43. With our previously proposed “post GE15 trade” already played out and no further ADV boosting catalyst in sight, we downgrade our rating on Bursa from Buy to HOLD. Our valuation horizon is rolled forward from mid-FY23 to end-FY23 but our ascribed PE multiple is cut from 24x (+1SD) to 22x (+0.5SD 5Y), reflecting the absence of significant ADV boosters. All in, our TP is lowered from RM7.00 to RM6.43. Bursa’s MC/ADV ratio of 2.74x or +0.8SD above 5Y mean isn’t stretched but isn’t exactly attractive either.

Source: Hong Leong Investment Bank Research - 19 Jan 2023