KEY INVESTMENT HIGHLIGHTS

• Blew past our expectation
• Strong PATAMI growth from higher trading revenue in 3QFY20
• Trading interest increased especially from retail segment, a key driver to earnings
• However, more of an exception rather than a “new” norm
• Earnings forecast revised upwards for FY20/FY21/FY22
• Positives priced in. Downgrade to NEUTRAL with revised TP of RM8.90 (from RM6.45)

Surpassed expectations. Bursa posted an even stronger quarter in 3QFY20. As a result, 9MFY20 PATAMI blew past our expectation for this year, reaching our full year estimate. The variance was due to our underestimation of the trading interest leading to higher than expected revenue growth.

Trading interest caused revenue strong growth. Bursa 9MFY20 PATAMI almost doubled following the performance of its 3QFY20 PATAMI where it more than doubled. Main driver was the strong revenue growth for both 9MFY20 and 3QFY20. Operating revenue in 9MFY20 grew +55.0%yoy as securities trading revenue grew +101%yoy. The higher securities trading revenue was due to higher trading interest especially coming from the retail segment. Average daily value OMT (ADV-OMT) rose +101%yoy to RM4.0b for 9MFY20, while the 3QFY20 ADV-OMT expanded +208%yoy and +52.0%qoq. Retail participation rate grew from 24% in 9MFY19 to 37% in 9MFY20.

Market capitalization fell on profit taking activities. Nevertheless, Bursa saw its market capitalization fell -2.1%yoy to RM1.64t as at 3QFY20. We believe that this was due to profit taking activities in September after the trading mania that ensued in the month of July and August. This is evident by the FBMKLCI registering a +0.3% change in the quarter.

Operating expenses well in check. Total operating expenses grew on a slower pace than revenue. It increased +10.6%yoy to RM199.4m. Amongst the contributor was a higher manpower cost which was due to higher provision of variable costs, increase IT maintenance and higher professional fees.

Potentially more volatility from increased uncertainty. We are not discounting that there could be more volatility to the market given the various uncertainties both domestically and externally, such as domestic politics and resurgence of Covid-19. This may bode well for its 4QFY20 earnings.

Earnings estimates. We are revising our FY20/FY21/FY22 earnings forecast upwards to RM336.8m/RM325.7m/RM302.1m to take into account the increase in trading interest.

Recommendation. We believe that the increase in trading interest this year is an exception rather than a “new” normal. However, we do believe that it will still carry onto next year. Having said that, we believe that it has already been priced in. Therefore, we downgrade our call to NEUTRAL (from TRADING BUY). We revised our TP to RM8.90 (from RM6.45). Our TP is based on pegging FY21 EPS to PER of 22x.

Source: MIDF Research - 28 Oct 2020