Bursa reported 9MFY20 PATMI of RM273m (+95% YoY) which was above expectations, driven by robust ADV (9M doubled YoY). Despite ending of the automatic loan moratorium, we reckon that retailers will remain active in the market as (i) FD rates are low, (ii) banking data suggests that “moratorium money” had little significance in boosting retail trades to begin with and (iii) gloves (a retail favourite) will remain in flavour. Raise FY20/21/22 earnings by 22%/15%/4%. Maintain BUY, TP: RM11.45 (30.5x PE on mid-FY21 EPS).

Above expectations. Bursa reported 3QFY20 PATMI of RM121.9m (+41.4% QoQ, +158.9% YoY), bringing the 9MFY20 sum to RM272.9m (+94.5% YoY). The latter formed 100% of our full year forecast (consensus: 86%); needless to say, the results were above expectations.

Dividend. None Declared as Bursa Usually Divvy in 2Q and 4Q. YTD: 17 Sen (in 2Q).

QoQ. Revenue staged a 33.1% increment, mainly led by growth in Securities (+46.2%; on back of higher ADV by +52% and 3 additional trading days) and Others (+16.4%; mainly listing & issuer and depositary). Derivatives segment was flat (-0.1%) as slightly higher ADC (+1.5%) was offset by decline in revenue per contract (-6.3%). While opex chalked in higher (+15.3%), higher topline growth drove core PATMI to increase +41.4%.

YoY. Revenue doubled (+98.6%) from increases across the board: Securities (+188.4%; driven by ADV growth of +208%), Derivatives (+15%; ADC rose +16.8%) and Others (+18.1%; mainly from listing & issuer, depository and market data). With opex rising (+27%) at a slower pace than topline, PATMI rocketed +158.9%.

YTD. 9MFY20 revenue increase of 55% was driven by Securities (+101.1%; ADV +101.8%) and Derivatives (+33.8%; ADC +42%). After accounting for 11.1% rise in opex, PATMI almost doubled (+94.5%).

Outlook. We reckon that concerns of “retail liquidity” evaporating post automatic loan moratorium (ended 30 Sept) have been overplayed. In our view, while some downward normalisation in retail trades is expected (say to the mid -30% vs the peak of 43.7% in Aug), this would still be much higher than the 10Y mean of 24%. In fact, despite ending of the automatic loan moratorium, average retail participation thus far into Oct (till 26th) rose slightly to 40.1% vs 38.3% in Sept. We believe retailers will still be active in the market for 3 reasons. Firstly, with low FD rates (Aug 1M rate: 1.54%), equities still remain a viable liquid option to seek higher returns. Secondly, studies of banking data suggest that “moratorium money” did not play a significant role in boosting retail trades to begin with; i.e. despite individual loan repayments recovering from Apr to July (almost doubled), retail participation continued to increase over that same period. Thirdly, gloves (a retail favourite) is expected to remain in flavour given the rising global Covid count and possible higher KLCI weighting come Nov review.

Forecast. We raise FY20/21/22 ADV by 25.8%/17.7%/6.4% to RM3.76/ 3.01/ 2.56bn (FY20 YTD: RM4.03bn). Consequently, earnings forecasts are raised by 21.7%, 14.7% and 3.8% for FY20-22. Record earnings for FY20 is a forgone conclusion and despite the YoY decline for FY21-22, this is still projected to be higher than the previous peaks in FY17-18.

Maintain BUY, TP: RM11.45. For prudence, we lower our PE target from 35x to 30.5x (previous peak in FY18) and rolled forward our valuation horizon to mid-FY21. All in, our TP is moderated downwards to RM11.45 (from RM11.85). Maintain BUY, we believe that Bursa’s earnings are now on a structurally higher platform.

Source: Hong Leong Investment Bank Research - 28 Oct 2020