• Bursa Malaysia’s (Bursa) 2Q20 net profit came in at RM86.2m (+86% yoy; +33% qoq), while 1H20 net profit which stood at RM151m (+62% yoy) was above expectations. An interim DPS of 17 sen was proposed (2Q19: 10.4 sen).
• Equity market retail participation has been robust, increasing from 27% to 33% qoq. 2Q20 ADV of RM3.85bn (+74.2% yoy; +49.2% qoq) was at a record.
• Maintain HOLD on Bursa, with our 12-month TP raised from RM7.90 to RM9.50, based on a P/E multiple target of 30x on 2021E EPS.

Record 2Q20 net profit of RM86.2m, driven by strong retail participation

Robust trading activities in the equities market were reflected by a spike in velocity to 62% in 2Q20 from 39% in 1Q20 and 29% in 2Q19. This was driven by higher retail participation of 33% (of trading value) in 1H20 vs. 27% in 1Q20 and 24% in 1H19. This led to an improvement in Bursa’s securities market effective clearing fee of 9.8bps yoy and 5.5bps qoq to 2.68bps as at 2Q20. The securities market average daily value (ADV) surged to an all-time-high of RM3.85bn (+74.2% yoy and +49.2% qoq) in 2Q20 against RM2.58bn in 1Q20 and RM2.0bn in 2Q19. Meanwhile, the derivatives market average daily contracts (ADC) in 1H20 surged 56% yoy (while 2Q20 ADC was up 32% yoy but down 20.8% qoq). All in all, 1H20 operating profit grew by 59% yoy, led by the securities market (+45.5% yoy) and derivatives market (+63.9% yoy).

Can the rally continue in 2H20? A potential pullback in October?

In our view, the current market rally may face a possible pullback as liquidity might be withdrawn from the market come October, since the loan moratorium period would end by Sept20. Downside risks to the market are mitigated by: i) extension of the IDSS, RSS and intraday short-selling by prop-traders to 31 Dec 2020; ii) sustained interest in thematic sectors such as rubber gloves, technology, oil & gas and ACE market stocks; and iii) the prevailing low interest rate and system liquidity, which drives asset inflation.

Maintain HOLD, though Target Price revised higher to RM9.50

Bursa is trading at lofty P/Es of 27.3x for 2020E and 30.9x for 2021E. As we raise our 2020E/21E/22E earnings by 8.6%/11.5%/10.2%, our Price Target is adjusted to RM9.50 (premised on a peak P/E of 30x on 2021E EPS), from RM7.90 (based on a 28x P/E on 2021E EPS). Maintain HOLD. Our 2020E/21E/22E assumptions: equity market ADV of RM3.6bn/ RM2.9bn/ RM2.8bn (from RM3.0bn/ RM2.5bn/ RM2.5bn) and derivatives ADC of 69k/ 67k/ 59k. Upside/downside risks: recovery/decline in corporate earnings, special dividends, and lifting of the suspension on short-selling. (Please refer to our sensitivity analysis of the TP in Fig 5, page 3)

Source: Affin Hwang Research - 29 Jul 2020