1HFY20 PATAMI of RM151m (+62% YoY) came above estimates, arising from stronger-than-expected securities trading revenue especially in Q2. The high levels of trading volatility looks likely to persists in Q3. Due to its strong performance in the 1H we raised our TP to RM9.40 (from RM7.25) as we raise our earnings assumptions by 17%/4% for FY20E/FY21E. However, downgrade to MARKET PERFORM given that the exceptional volatilities likely to taper off in 4QCY20.

Above Expectations. 1HFY20 of PATAMI of RM151m came above our/consensus expectations, making up 63%/59% of respective full- year estimates. The positive deviation coming from the exceptionally strong ADV (daily average trading value) of 3.74b (vs the average daily trading value, ADV of RM2.5b). Not surprisingly an interim DPS of 17 sen was declared (vs expectation of 14 sen).

YoY, 1HFY20 operating revenue rose by 34% to RM330m thanks to surge in securities (+60%) and derivatives (+44%) trading revenue to RM188m and RM48m respectively. Securities ADV improved by 83% while volume increased by 151% given the Covid-19 pandemic, CPO volatility, surging trading interest in medical related products ie gloves and the easing of the MCO in early June. While not surprisingly foreign participation fell 9ppts to 21% YTD, this was mitigated by increase participation from retail investors (+8ppts YTD) to 33% vs 67% institution. Not surprisingly given the exceptional operating revenue cost-to-oncome ratio improved to 38% (-10ppt) despite opex that saw a +4% uptick to RM127m. Given the strong topline, PATAMI ended at RM151m (+62%).

QoQ, 2QFY20 operating revenue grew by 20% similarly on the back of stronger trading activities spurred by the abovementioned activities mitigated by falling trading revenue from derivatives (-20%). Securities ADV jumped 48% while volume surged 96%. Opex remained tight at RM63m (vs its average RM60-63m range).

Revived by retailers’ participation. We did anticipate high levels of volatility to persist as investors seek comfort in counters which are the least scathed by the Covid-19 pandemic and falling commodity prices. We expected on retailers taking on bets in the heightened activity, with rebounds from low bases appearing to be a favourite theme but we did not bet on the heightened participation (at 33% its best 10-Year performance) - which we believe alluded to retailers looking for better returns given the slew of OPR cuts recently and possibly funded by additional cash available as a result of the loan moratorium. While we expect volatility to continue to persist, we expect it to taper in 4Q given the soft economic data.

Post-results, we raise our FY20E/FY21E earnings by 17%/4% on more bullish assumptions in securities trading in Q3. Keeping with previous targeted payout ratio (c.91%), we raised our dividend payments for FY20E to 32sen (from 28sen previously).

TP raised but downgrade to MARKET PERFORM. In addition to our revised earnings, our FY21 PER valuation raised to 31.3x (from 25.0x) implying a 2SD above its 5-year mean giving the exceptional strong performances in Q2 and likely to persists into Q3. TP raised to RM9.40 (from RM7.25). Downgrade to MP given that its strong securities trading likely to taper off in Q4.

Source: Kenanga Research - 29 Jul 2020