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3Q21F NP likely the weakest since Covid-19

  • We estimate that Bursa’s net profit (NP) in 3Q21 likely declined by 48.7% yoy to RM62.5m, the lowest since the Covid-19 outbreak started.
  • This is based on the 48.3% yoy drop in 3Q21 ADTV of the equity market and the uninspiring 1.1% yoy increase in 3Q21 ADC of the derivative market.
  • Reiterate Hold on Bursa, given the expected decline in equity ADTV in 2H21F and FY22F; share price to be supported by CY21 dividend yield of 5.7%.
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Expecting double-digit decline yoy in Bursa’s 3Q21F NP

We expect Bursa Malaysia to release its 3Q21 financial results towards the end of Oct 21. We think Bursa’s 3Q21F net profit (NP) likely declined yoy at a double-digit rate as the average daily trading value (ADTV) of the equity market dwindled by 48.3% yoy to RM3.02bn in 3Q21, its lowest level since the Covid-19 outbreak started in 1Q20. This would negatively impact Bursa’s equity income, which is the largest component of its revenue. Equity income accounted for an average of 55.5% of Bursa’s total revenue in the past three years.

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A growth of only 1.1% yoy in the ADC of the derivative market

The growth in average daily contracts (ADC) of the derivative market was also uninspiring, up by only 1.1% yoy to 70k contracts in 3Q21. As such, we expect a lethargic growth in Bursa’s derivative income in 3Q21. Derivative income is the second largest contributor to Bursa’ revenue, with an average share of 13.7% in the past three years.

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Estimating a 48.7% yoy drop in 3Q21F NP

We estimated a NP of RM62.5m for Bursa in 3Q21F, based on the assumptions that 3Q21F equity income dwindled by 48.3% yoy and 3Q21F derivative income increased by 1.1% yoy, in line with the trends in the trading volume/value in the equity and derivative markets. This would translate to a decline of 48.7% yoy and 29.7% qoq. It would be Bursa’s lowest quarterly NP since 4Q19 following the outbreak of Covid-19 in 1Q20.

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9M21F NP likely to be in line with our expectations

Based on our estimated 3Q21F NP, the 9M21F NP for Bursa would be at RM272.8m. We regard this as in line with our expectation as it accounts for 73% of our full-year forecast.

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Reiterate Hold on Bursa

We reiterate our Hold call on Bursa as we expect the equity ADTV to be lower in 2H21F and FY22F, which could lead to a downtrend in Bursa’s NP. However, we think that Bursa’s share price would be supported by its attractive dividend yield of 5.7% in FY21F. Also unchanged are our FY21-23F EPS forecasts and target price of RM7.48, which is still pegged to a target CY22F P/E of 25.8x (1 s.d. above its 5-year average). We prefer Public Bank for exposure to Malaysia’s financial services sector.