• Bursa Malaysia’s (Bursa) 3Q20 net profit came in at RM121.9m (+159% yoy; +41.4% qoq), while 9M20 net profit of RM272.9m (+94.5% yoy), was within our expectations (above consensus by 5.5%).
• The equity market’s ADV had since tapered off in September, and 4Q20’s net profit may potentially see a sharper contraction vs. 3Q20.
• Maintain HOLD on Bursa, with our TP revised down to RM8.54, based on a revised P/E multiple target of 27x (from 30x) on 2021E EPS.

Another record quarterly profits in 3Q20, driven by a strong equity market

Bursa continued to see another record quarter in 3Q20, underpinned robustly by securities market average daily value (ADV), which surged to an all-time-high of RM5.8bn (+209% yoy; +52% qoq) in 3Q20. This was also reflected by a spike in velocity to 85% in 3Q20 vs. 62% in 2Q20 and 27% in 3Q19, largely led by robust retail participation of >40% compared to a year ago, which was at 24-25%. 9M20 equity ADV rose 101.8% yoy to RM3.997bn, underpinned by a strong 3Q20 performance. Meanwhile, 9M20’s derivatives market saw an average daily contracts (ADC) of 74.4k, which surged 41% yoy (while 3Q20 ADC of 69.4k rose 17.5% yoy and up 2.4% qoq). All in all, 9M20 operating profit grew by 97% yoy, led by the securities market (+78% yoy, 91% of operating profits) and derivatives market (+53% yoy; ~10% of operating profits).

The Strong Rally Tapered Off in September, We Expect a Slower 4Q20

In our view, the strong market rally seen in July and August tapered off in September, driven by profit-taking activities in-line with the end of the loan moratorium period. In fact, we note that the equity ADV is now hovering around RM4.4bn in October compared to RM7.2bn in August and RM5.5bn in July 2020. Based on our expectation of the equity market’s ADV to hover around RM4.1bn while derivatives ADC is at 69k in 4Q20, this may potentially translate into a 4Q20 net profit of RM62m.

Maintain HOLD, With a Revised Target Price of RM8.54

We maintain our 2020E/21E/22E earnings forecasts, based on the following assumptions: i) equity market ADV of RM4.1bn/RM2.9bn/RM2.8bn; and ii) derivative market ADC of 68.9k/67.1k/58.9k. Though we maintain our HOLD on Bursa, we believe that the expiry of the loan moratorium period and concerns of political changes and potential upheavals would cap further multiple re-ratings for Bursa. Hence, we revise down our Target Price from RM9.50 (at 30x P/E target) to RM8.54 which is based on a revised P/E multiple of 27x (+1SD) over 2021E EPS. Meanwhile, upside/downside risks to our view include: i) sustained/decreased interest in rubber gloves, technology, oil & gas and ACE market stocks; ii) prevailing low / higher interest rates.

Source: Affin Hwang Research - 28 Oct 2020