• NEUTRAL with a lower MYR6.50 TP from MYR6.80, 1% upside and c.4% yield. 1H22 results came ahead of our estimates, but in line with consensus’ as 2Q22 securities average daily value (SADV) declined 17% QoQ, likely due to a weakened investor sentiment as concerns over inflation and the rising interest rate environment set in. As such, we adjust our SADV forecast downwards to account for the current market outlook as well as the performance this year. Current valuation appears fair with the stock trading at 23x FY23F P/E, which is near its 5-year mean (22x).

• 1H22 and 2Q22 results in a nutshell. Bursa Malaysia reported 1H22 net profit of MYR127m (-39% YoY) which represents 57% of our full-year estimates, and 53% of consensus’. However, the 39% YoY decline was a result of a weakness in securities trading revenue caused by slower trading activity. As a result of subdued securities trading activity during the quarter, 2Q22 net profit dropped 13% QoQ (-33% YoY). An interim dividend of 15 sen was declared for the quarter.

• Operational highlights. 1H22 operating revenue of MYR309m was down 26% YoY on the back of lower 1H22 SADV of MYR2.46bn (-46% YoY). Revenue from securities trading declined 45% YoY as a result. However, stable revenue items recorded a 4% increase, with particular strength seen in the IPO pipeline and market data segment. On the derivatives front, average daily contracts (ADC) fell 3.4% YoY due to lower Crude Palm Oil Futures (FCPO) trading activity. Elsewhere, Bursa’s 1H22 operating expenses declined 2% YoY, with notable savings on staff costs and other operating expenses. Despite this, the weaker operating revenue led to an 11ppt increase in the CIR to 45%, from 34% in 1H21.

• SADV on a downtrend. Inflationary pressures and a rising interest rate environment have likely dampened investor sentiment, causing SADV to fall 17% QoQ in 2Q22 (YoY: -42%). Also recall that in 1Q22, the high SADV numbers were partly fuelled by the inflow of foreign funds, as foreign investors sought refuge in the Malaysian market following Russia’s invasion of Ukraine. Taking into account the lower SADV in Apr-Jul 2022 along with the current challenging market outlook, we lower our FY22F and FY23F SADV to MYR2.37bn and MYR2.31bn (from MYR2.43bn and MYR2.41bn).

• FY22F earnings lifted by 2%, with the loss in operating revenue from the lowered SADV forecast offset by increases in stable revenue items. However, our FY23F is lowered by 3%, in tandem with the lowered SADV. We roll forward our base year to FY23F, and keep our target P/E of 22.5x to arrive at a TP of MYR6.50. Our TP includes a 4% ESG premium, in recognition of Bursa’s efforts to promote ESG adoption among publicly listed companies in Malaysia.

Source: RHB Research - 29 Jul 2022