Bursa’s 1QFY20 PATMI of RM65m (+33% QoQ, +38% YoY) was above both ours and consensus. On a QoQ/ YoY basis, both equities ADV (+41%/ +22%) and derivatives ADC (+37%/ +83%) grew strongly. While several negatives have marred the market since the start of 2020 (notably Covid-19), this has driven up ADV. If sustained, Jan-Apr ADV of RM2.53bn could trump the highs of 2017 (RM2.31bn) and 2018 (RM2.39bn). Raise FY20-21 earnings by 5-8% after imputing higher ADV and ADC. After ascribing a higher PE target of 25x, our TP raises to RM6.83 (from RM6.10). Bursa is what we would term a “circumstantial beneficiary” of Covid-19 given robust ADV, which could well sustain into the post-pandemic recovery phase as well.

Above expectations. Bursa recorded 1QFY20 core PATMI of RM64.7m (+32.5% QoQ, +38.2% YoY). This formed 31% of our full year forecast (consensus: 33%) which is above expectations. The positive results surprise stemmed from both higher than-imputed equities ADV and derivatives ADC.

Dividend. None as it usually declares in 2Q and 4Q.

QoQ. Revenue displayed a +18.6% increment from growth in Securities (+31.8%; on back of higher ADV by 41.3%) and Derivatives (+30.2%; driven by higher ADC by +36.5%) but slightly offset by lower listing and issuer services (-13.9%). As topline growth outpaced opex increase (+8.5%), this resulted in a much stronger PATMI jump of +32.5% (high operating leverage business nature).

YoY. Revenue rose +19.8%, aided by increases in Securities (+32.2%; ADV was up 22.2%) and Derivatives (+63.5%; ADC soared +83%) but marginally offset by lower BSAS trading (-25.2%; as BSAS ADV fell -3.8%). Again, with revenue growth outpacing opex increase (+9.6%), PATMI grew at a much faster pace of +38.2%.

Outlook. The market has been marred by several negative events since the start of the year: US-Iran tensions (Jan), Covid-19 outbreak (Jan, ongoing), domestic political shifts (Feb) and oil price plunge (Mar-Apr). Despite so, this boosted equities ADV, starting with selling pressures (Jan-Mar) and subsequent “bargain buying” (mid-Mar to Apr). Jan-Apr ADV stands at RM2.53bn, +21.3% higher vs SPLY. If momentum sustains, 2020 ADV could well trump the recent highs of 2017 (RM2.31bn) and 2018 (RM2.39bn). Also, higher volatility of CPO prices (1Q20: 29% vs 4Q19: 19% and 1Q19: 16%) and the KLCI (1Q20: 18% vs 4Q19 and 1Q19: both 7%) should augur well for derivatives ADC.

Forecast. We raise FY20-21 earnings by 5.3% and 8.3% respectively after imputing (i) higher equities ADV and derivatives ADC but (ii) some minor offset from conferences & exhibitions (we assume nil for FY20 due to Covid-19). Note that our ADV assumption of RM2.17bn (from RM2.0bn) is still conservative vs YTD showing of RM2.53bn. Should the latter sustain, there could be further upside to our forecasts.

Maintain BUY, TP: RM6.83. Along with the earnings increase, we also raise our PE target from 23.5x to 25x (tagged to FY20 EPS), leading to a higher TP of RM6.83 (from RM6.10). Our valuation yardstick of 25x is (i) almost +1SD above 5 year mean of 26.1x but (ii) rather inline with the mean of 24.1x witnessed during FY17 -18 period which saw strong ADV (as explained above), similar to current trends. Bursa is perhaps what we would call a “circumstantial beneficiary” of Covid-19, given robust ADV amid the volatility brought about by uncertainties. Looking ahead, Bursa could very well benefit post-pandemic as well, as ADV sustains itself driven by an eventual market recovery. Yield is also decent at 4.1% (FY20-21). Maintain BUY.

Source: Hong Leong Investment Bank Research - 11 May 2020