Bursa Malaysia (Bursa) released its results for the first quarter ended 31 March 2021 yesterday, posting an adjusted net profit of RM125m, ahead of Macquarie Equities Research (MQ Research) and street expectations. MQ Research noted that retail interest has increased, though overall foreign ownership has fallen to a new low of 20.3% as of March.

Event

• Bursa reported adjusted net profit (NP) of RM125m (+1% quarter-on-quarter (q/q), +92% year-on-year (y/y)), which was ahead of MQ Research’s/street expectations at 40%/35% of FY21E forecasts. Revenue of RM228m (+1q/q, +57% y/y) topped MQ Research’s expectations with a record high effective clearing fee rate of 2.69bps (FY20: 2.60bps; MQ Research’s assumption: 2.60 bps).
• SADV (securities average daily value traded) rose to RM5.1bn (+5.2% q/q), driving trading revenue of RM150.9m (+0.8% q/q), which is a pretty good result considering 1Q21 had four fewer trading days vs 4Q20.
• Note that Bursa booked RM3.2m in provisions for sales and services tax (SST) as the tax is still being disputed with authorities. Recall that Bursa booked ~RM15m in 4Q20 for the full year FY20, bringing the total tax liability payable to ~RM18m. The amount may be written back if Bursa’s challenge is successful.

The Good, the Bad and the Way Forward

• What MQ Research liked: New retail CDS account openings rose sequentially to 86k in 1Q21 (4Q:76k, 3Q:100k). This suggests continued retailer interest going forward, which is key to SADV outperforming expectations. Retail participation averaging 39% in 1Q21, which remains substantially elevated vs the <25% pre-Covid average. Higher retail participation also drives up the effective clearing fee rate, due to smaller average trade sizes. According to Bursa data, 65% of new account openings were for individuals aged 25-44 years old.
• Professional fees dropped to RM716k, coming off the exceptionally high RM14m spent in FY20. Historically, said fees averages RM3m/annum. The surge in FY20 professional fees was partly linked to the technical glitch. Staff costs also normalised in 1Q21, down to RM39m (-7.5% q/q).
• What MQ Research did not like: While foreign selling has decelerated in recent months, overall foreign ownership has fell to a new low of 20.3% as of March. MQ Research remains cautious on upside from foreign participation, which has seen a long term (LT) structural downward trend, that has been exacerbated by the Covid-19 pandemic.
• What was interesting: Bursa saw RM3.6bn fundraising in 1Q21 (+342% y/y, -50% q/q), largely driven by secondary issues (95%). Bursa saw 6 initial public offerings (IPO) in 1Q21, with a pipeline of ~24 more IPO’s going forward.

Action and Recommendation

• As articulated in a previous report (read the excerpt here), MQ Research’s FY21 SADV assumption is RM4.9bn, which MQ Research thinks is achievable given the continued retail participation. Concerns on the initially-weak April SADV should be alleviated following a rebound in SADV to RM4.4bn month-to-date (MTD). MQ Research reiterates its Outperform (OP) recommendation on Bursa with RM10.40 target price (TP).

12-month Target Price Methodology

• BURSA MK: RM10.40 based on a EV/EBITDA methodology

Source: Macquarie Research - 28 Apr 2021