Bursa Malaysia (Bursa) has reported an adjusted net profit of RM92mil for the second quarter ended 30 Jun 2021 (2Q21), which was ahead of Macquarie Equities Research’s (MQ Research) expectation but in line with consensus. MQ Research notes in its report (29 Jul) that the higher retail participation boosted effective clearing fee, which helped offset a -25% decline in the average daily value traded. MQ Research raises its net profit estimations to reflect the higher clearing fee assumptions and maintains a target price of RM9.10 on Bursa.

2Q21: Ahead

• 2Q21 Adjusted net profit (NP) of RM92m (-25% quarter-on-quarter (q/q), +7% year-on-year (y/y)) was 30%/26% of MQ Research/consensus FY21 expectations. Earnings before interest, tax, depreciation and amortization (EBITDA) margins fell to 65% (1Q21: 74%), while cost to income ratio rose to 41%. This was partly a function of securities average daily value traded (SADV) falling -25% q/q, as well as staff costs increasing +10% q/q on higher bonus provisions.

Takeaways

• What MQ Research liked: Retail participation averaged 39% in the quarter on relatively low value, high volume trade which helped lift the effective clearing fee to 2.75bps (FY20 average: 2.60bps). This is the third consecutive quarterly increase in the effective clearing fee and it comes despite a 24% decline in volumes and a 25% decline in SADV.
• What MQ Research did not like: MQ Research did not like the lack of visibility on the Sales and Service Tax (SST) provisions. Recall that Bursa is potentially subject to additional SST charges. Bursa provisioned RM13.6m in FY20 and has provisioned about RM7m in 1H21. There is no visibility on when or if exemptions will allow for writebacks.
• What was interesting: New individual Central Depository System (CDS) account openings decelerated to 147k in 1H21 (vs 176k in 2H20), but are still relatively high. 1H20 new CDS account openings by individuals were only 88k. According to management, the majority of retail participants’ forays into the stock market remain profitable; which is a positive indicator for sustained market participation going forward. MQ Research anticipates the healthy retail participation in the market could amplify upward corrections in the market as the economy reopens.

Earnings and Target Price Revision

• MQ Research raises its effective clearing fee assumptions, lowers its consulting and marketing expense assumptions, which offset MQ Research’s lower SADV assumption of RM4.4bn. MQ Research raises FY21/22E NP by +6.5%/+7.0%, but raises FY21E Adjusted NP by +11% to account for the tax provisions. Maintain target price (TP) at RM9.10, with an unchanged 18x enterprise value (EV) to EBITDA multiple.

Price Catalyst

• 12-month price target: RM9.10 based on a EV/EBITDA methodology.
• Catalyst: Economic reopening, rebound in the market.

Action and Recommendation

• Maintain OP with RM9.10 TP. Bursa remains one of MQ Research’s top economic reopening plays, as a direct beneficiary from improved trading activity that will come in tandem with the V-shaped bounce in market sentiment MQ Research is anticipating.

12-month Target Price Methodology

• BURSA MK: RM9.10 based on a EV/EBITDA methodology

Source: Macquarie Research - 30 Jul 2021