Bursa’s 9MFY20 results came above expectations on continued strong performance of its trading revenue especially in the 3Q. Nevertheless, the latest October data shows tapering trading activities, implying that a peak may have been formed in 3Q, in our view. We revised down our TP to RM9.00 based on a lower FY21E PER of 27.5x but retain our MARKET PERFORM recommendation. Current dividend yield of 4.7% appears attractive and could be enhanced by a possible special dividend payout given its exceptional performance.

Above expectation. 9MFY20 PATAMI of RM273m came above market expectation at 86% of full year estimate due to the exceptionally strong Equity Daily Average Trading Value (ADV) of RM5.7b in 3QFY20. No dividend declared as expected.

Trading revenue continued to prevail with 9MFY20 surging ahead by 86% to RM418m driven by both the securities (+101%) and derivatives markets (39%). The equities Daily Average Trading Value (ADV) continued to reach record height at RM4b (+107% YTD). Not surprisingly, the participation rate from retail investors was higher at 37% (FY19: 25%) with institutional investors at 63% (FY19: 73%). Foreign participation fell to 17% (FY19: 30%). Meanwhile, funds raised from new listings and secondary market fell 35% to RM2.8b. Finally, cost-to-income ratio improved to 35% (9MFY19: 48%) as the jump in operating income more than offset the 11% rise in opex

QoQ, 3QFY20 operating revenue continued to surge, by +33% underpinned by the securities market revenue jumping +46% to RM161m while revenue from derivatives was flat. Investors continued to flock into the market given the low-interest rate environment and the gradual reopening of the economy. Equities ADV saw a +53% jump while volume increased +58%. As explained above, CIR fell 5ppt to 31% despite the 15% uptick in opex given the strong income.

Tapering volume. We believe 4Q will see a gradual tapering of trading activities. Already, October’s ADV and Average Trading Volume thus far declined by 23% and 34% MoM, respectively. The volatilities seen in the last two reporting quarters where investors sought comfort in counters unscathed by and those benefiting from the pandemic appear to be receding while potential uncertainties surrounding the economic recovery ahead will likely dampen further trading activities, in our view.

Post-results, we raise our FY20E earnings by 28% as we raise our FY20E ADV to RM4.0b (from RM3.0b). Our targeted payout ratio (c.91%) is maintained; thus, FY20E DPS is enhanced to 40.0 sen (from 32.0 sen previously). However, we do not rule out a special dividend payment ahead guided by previous years’ payout when Bursa was doing exceptionally well. Based on its current cash level of RM376m, we estimate that Bursa is capable of paying at least 9 sen/share for its special dividend.

TP revised with call maintained. Despite the earnings revision, we are lowering our TP to RM9.00 (from RM9.40) as we revised down our FY21E PER valuation to 27.5x (from 31.3x) implying 1SD above mean (from +2SD) given the tapering of trading activities. Dividend yield is attractive at 4.7% but would be higher if a special dividend is declared in 4QFY20. Maintain MARKET PERFORM.

Source: Kenanga Research - 28 Oct 2020