Double-digit yoy NP drop in 1Q22F likely
? We downgrade Bursa to Reduce from Hold as its CY23F P/E of 22.9x is
above 5-year average of 21.1x, while we project FY22F EPS to fall 39.4%.
? We expect Bursa’s 1QFY22F results to be below Bloomberg consensus
expectation but in line with ours.
? We expect Bursa to report 46.9% yoy decline in 1Q22F NP on expectation
that 1Q22F equity and derivative income will decline while costs rise 3% yoy.
Expecting weaker 1Q22F NP due to lower equity ADTV
Bursa Malaysia plans to release its 1Q22 financial results on 28 Apr. We expect it to
report a double-digit yoy decline in 1Q22F NP, taking a cue from the 48.5% plunge in
1Q22 average daily trading value (ADTV) in the equity market. The average daily
contracts (ADC) in the derivative market had also fallen 8% yoy in 1Q22. More than 60-
70% of Bursa’s revenue is generated from the trading in these two markets.
Estimating a 46.9% yoy drop in 1Q22F NP
We estimate a NP of RM64.4m for Bursa in 1Q22F (a decline of 46.9% yoy), based on
assumptions of: 1) a 48.5% yoy drop in equity income (similar to the drop in equity
ADTV), 2) an 8% yoy decrease in derivative income (on par with the slide in derivative
ADC), 3) flattish other income yoy, and 4) a 3% yoy rise in 1Q22F overhead. Although
our 1Q22F NP estimate would account for 30% of our full-year forecast, we see this as in
line (below market expectation at 26% of Bloomberg consensus full-year estimate), as we
envisage weaker 2H22F NP on anticipation of outflow of funds from the equity market to
fixed deposit (FD) in the event of a hike in FD rates, leading to lower 2H22F equity ADTV.
Will the general elections shore up the equity ADTV?
Bursa’s share price has risen 15.2% since 14 Mar 22, partly due to the market’s
expectation that the upcoming general elections (GE) would drive trading activities in the
equity market, in our view. However, in the past three GEs (in 2008, 2013 and 2018),
equity ADTV had in fact fallen by an average of 0.2% six months prior to the GE dates
and an average of 3.5% six months after. Should there be any positive impact from the
GE on the equity ADTV in 2022F, this would likely be offset by: 1) higher trading cost
from the revision of stamp duty structure, 2) the relaxation of movement controls, and 3)
near-term concerns from geo-political tensions and a hike in energy/raw material prices.
Downgrade Bursa to Reduce
We downgrade Bursa from a Hold to Reduce as its CY23F P/E of 22.9x is above its 5-
year average of 21.1x. Disappointing FY22F EPS (we project a 39.4% decline as we
expect a 34.1% drop in FY22F equity ADTV) is a potential de-rating catalyst. We think
Bloomberg consensus expectation for FY22F NP is too optimistic and missing this
expectation could also be a potential de-rating risk. We retain our FY22-24F EPS
forecasts and target price of RM6.59, which is pegged to its 5-year historical P/E of
21.1x. We prefer Hong Leong Bank for exposure to the financial services sector.