We reckon that 2Q results (out 28 July) could be a quarterly record high at RM80m, bringing the 1H20 sum to RM145m (+55% YoY). This should be driven by robust 2Q ADV of RM3.8bn (+49% QoQ, +86% YoY) but partially offset by weaker ADC QoQ. There are encouraging signs of ADV sustaining for the rest of the year as retail participation continues to chalk new highs and their net buying momentum hasn’t diminished despite moving from full MCO into RMCO. Raise FY20 earnings by 10% (FY21-22 relatively unchanged). Reaffirm BUY with higher TP of RM9.84 (30x PE on FY20 EPS).

Could be a record 2Q. Bursa is slated to announce its 2Q20 results on 28 July. We expect strong earnings delivery with 2Q20 core PATMI estimated at c.RM80m (1Q20: RM64.7m, 2Q19: RM46.3m), bringing the 1H20 sum to RM144.7m (+55% YoY; 1H19: RM93.2m). If our estimates are right, 2Q20 core PATMI would be a quarterly record high.

Key results drivers. Our expectation for a strong 2Q showing is premised on robust ADV of RM3.76bn during the quarter (+48.5% QoQ, +85.9% YoY). For the 1H20 period, ADV amounted to RM3.12bn (+52.8% YoY; 1H19: RM2.04bn). The strong Securities segment should however see a partial offset in 2Q from weaker Derivatives as ADC fell -20.8% QoQ (1H20 ADC is still up +54.9% YoY). To recap, Securities contributes c.50% to revenue while Derivatives makes up c.15% (using FY17-19 figures).

Robust ADV to sustain. While we are mindful that liquidity can evaporate as fast as the flush came in, there are encouraging signs this may be sustained, at least for the remainder of 2020. Despite having moved into the RMCO stage, retail participation continued to chalk new highs; their average participation as of mid-July stood at 48.3%, even higher than during the full MCO stage (Mar-Apr) of 26-35%. This brings YTD average retail participation to 34.1% vs 2019’s 25% (10-year mean: 24%). Also, retail net buys of RM1.25bn in June mirrored the level seen in Apr (heavy retail buying from an entire month of being locked down at home; RM1.27bn). YTD ADV (as of 15 July) stands at RM3.28bn and if sustained, would very well trump the highs of 2017 (RM2.31bn) and 2018 (RM2.39bn).

Forecast. We revise upwards our FY20/21 ADV assumption from RM2.41/2.47bn to RM2.88/2.56bn. Note that our FY20 assumption is lower than the YTD ADV of RM3.28bn, as we prudently assume some degree of downward normalisation in 2H20. We have also imputed higher staff cost as rationally, there should be higher staff bonus payout with record earnings in the offing for FY20. All in, FY20 earnings forecast is raised 10% but relatively unchanged for FY21-22.

Maintain BUY, TP raised to RM9.84. Following the earnings increase, our TP is raised from RM8.95 to RM9.84 (30x PE tagged to FY20 EPS). The PE target corresponds to its previous high, justified by Bursa’s potential record ADV and earnings. In addition, we reckon that in the current market climate, Bursa deserves a “scarcity premium”, being one of the very few listed-cos that are able to deliver earnings growth (FY20: +40.2% YoY) amid a global pandemic. We reaffirm our BUY rating on Bursa.

Source: Hong Leong Investment Bank Research - 17 Jul 2020