Bursa recorded 1HFY20 PATMI of RM151m (+62% YoY) which was slightly above expectations. DPS of 17sen was declared. Both Securities and Derivatives saw strong top-line growth of 60% and 44% for the 1H period. 2020 ADV (YTD: RM3.41bn) should comfortably surpass the highs of 2017 (RM2.31bn) and 2018 (RM2.39bn). We raise FY20 earnings by 3.2% and our PE target from 30x to 35x (tagged to FY20 EPS). TP raised from RM9.84 to RM11.85, maintain BUY.

Above expectations. Bursa recorded 2QFY20 PATMI of RM86.2m (+33.2% QoQ, +86.1% YoY), bringing the 1HFY20 sum to RM151m (+62% YoY). The latter formed 59% of our full year forecast (consensus: 57%) which we deem to be slightly above expectations. Note that we have prudently assumed a softer 4Q as retail trading could taper once the loan moratorium ends (30 Sept).

Dividend. 2Q dividend of 17sen was declared (SPLY: 10.4sen); ex-date on 14 Aug.

QoQ. Revenue showed a 20.4% increment as growth in Securities (+41.1%; on back of higher ADV by 48.6%) and Others (+7.6%; mainly BSAS and market data) was partially offset by lower Derivatives (-20.5%; ADC fell -20.9%). As opex was kept at bay (+0.1%), PATMI rose +33.2%.

YoY. Revenue rose +47.8% driven by increases in Securities (+87.4%; ADV soared +85.9%) and Derivatives (25.7%; ADC was up +33.3%). With revenue growth outpacing opex increase (+5%), PATMI grew at a much faster pace of +86.1%.

YTD: 1H revenue increase of +33.6% was driven by Securities (+59.7%; ADV up +53.7%) and Derivatives (+44.3%; ADC rose +57.1%). Given marginal opex increase (+3.7%), PATMI soared 62%, reflecting its relatively high operating leverage business nature.

Outlook. While we expected some downward normalisation in retail trading post MCO, this doesn’t seem to be the case as (i) average retail participation for June-July of 37.8% is higher than during the MCO (18 Mar to end-Apr: 32.5%) and (ii) retailers net bought RM2.96bn from June-July, exceeding Mar-Apr’s RM2.70bn (MCO months). Still, we are mindful that this may taper in 4Q once the loan moratorium ends (reducing “retail liquidity”), although its magnitude is anyone’s guess. On the flipside, sustained robust ADV into 4Q would be a clear catalyst. In any case, 2020 ADV (YTD: RM3.41bn) should likely trump the highs of 2017 (RM2.31bn) and 2018 (RM2.39bn).

Forecast. We fine tune 2020 ADV to RM2.99bn (+4%) partially offset by higher staff bonus; overall FY20 earnings is raised 3.2% (FY21-22 relatively unchanged).

Maintain BUY, TP: RM11.85. Bursa’s previous peak PE of 30.5x was in FY18, when it registered what was back then a record high ADV and earnings. With FY20 numbers comfortably set to surpass this, perhaps a higher PE valuation target could be warranted. Given such, we raise our PE target from 30x to 35x, leading to a rise in TP from RM9.84 to RM11.85 (pegged to FY20 EPS). For perspective, this target multiple is below HKX’s current FY20 PE of 43.7x but above SGX’s 19.5x and ASX’s 31.9x

Source: Hong Leong Investment Bank Research - 29 Jul 2020