Judging from 4Q20 ADV of RM4.83bn (-16% QoQ, +170% YoY), quarterly core earnings could come in at RM100-105m, bringing FY20’s sum to c.RM370m (almost doubling YoY). A volatile recovery path in 2021, MCO2.0’s possible boost to retail participation and potential return of foreigners all spells well for ADV this year. We raise FY20/21/22 earnings by 11%/13%/16%. Maintain BUY with slightly higher TP of RM11.46 (from 11.45) based on 30x FY21 PE.

4Q20 likely lower QoQ but higher YoY; FY20 a record showing. Judging from 4Q20 ADV of RM4.83bn (-15.6% QoQ, +169.6% YoY), and barring any unforeseen swings in cost structure, core earnings for the quarter could come in at RM100 -105m (3Q20: RM121.9m). Using the lower end of this estimated range, FY20 earnings would end at slightly above RM370m, almost doubling from FY19’s RM189.2m. If met, this would surpass our previous forecast by 11.5% and consensus by 4.9%. 4Q20 results are tentatively due for release on 2 Feb 2021.

Ride the volatile recovery path. We hold the rather consensus view that 2021 will be a vaccine led recovery year. However, we expect heightened volatility along this recovery path as there will likely be a lot of opposing news flow between positive vaccine rollouts and a still rising Covid count (both domestically and globally); volati lity could be amplified further by the recent reintroduction of RSS. We believe 1H21 will very much be a “trading market”, as investors actively rotate back and forth between recovery plays and gloves. As such, despite the high ADV base last year (RM4.21bn; +118% YoY), it may be possible for this figure to sustain in 2021; ADV for the MTDJan remained robust at RM5.11bn (Dec 2020: RM5.0bn).

MCO2.0 to boost retail participation? Earlier concerns on “retail liquidity” evaporating post automatic loan moratorium (ended 30 Sep 2020) has been proven untrue. In fact, average retail participation rose to 40% (value: RM1.92bn) in 4Q20 vs Sep’s 38.3% (value: RM1.8bn). Looking ahead, with more people locked down at home during MCO2.0 (13-26 Jan; we believe it may be extended to at least 4 weeks), this could prompt retailers to enter the market in a more aggressive manner. This phenomenon (strange as it may sound), was witnessed during the previous MCO where retail participation rose from 27.1% pre-MCO1.0 (Jan to mid-Mar) to 32.5% (during MCO1.0 from mid-Mar to end-Apr).

Envisioning the return of foreigners. While foreign ADV traded on Bursa rose 21.9% YoY in 2020, its participation rate fell from 29% to 17% (on back of higher share taken by domestic retail investors from 25% to 37%). Foreign investors have been net sellers on Bursa in 6 of the past 7 years (2020: -RM26.4bn, highest outflow). With foreign shareholding now at a low of 20.7% (back to the GFC trough), the base appears much more palatable to envision their re-entry, especially so if they turn “risk on” amid a vaccine driven recover climate.

Forecast. We raise FY20/21/22 ADV by 11-15% to RM4.21/3.36/2.94bn to reflect actual FY20 numbers and a higher base for FY21-22 from more vibrant market participation. Consequently, FY20/21/22 earnings are raised by 11.5%/12.8%/15.9%.

Maintain BUY, TP: RM11.46. Despite the earnings upgrade, our TP only inches up slightly from RM11.45 to RM11.46 as this is offset by the rolling over to a lower earnings base from mid-FY21 to FY21. Our applied PE multiple of 30x reflects: (i) +1.5SD above 5Y mean; we reckon this is justified as FY21 earnings are projected to come in higher than FY18s’, which was the previous peak earnings valuation and (ii) inline with the average (30.7x) of its peers (SGX, HKX, ASX and NZX). Bursa’s MC/ADV ratio of 1.35x is close to -2SD, suggesting inexpensiveness on this front.

Source: Hong Leong Investment Bank Research - 19 Jan 2021