Analyst expects Bursa’s 2Q results could be a quarterly record high at RM80m, bringing the 1H20 sum to RM145m

by SHAZNI ONG/ pic by TMR FILE

BURSA Malaysia Bhd is expected to post a stronger financial performance as the exchange operator benefits from the higher trading volumes driven by retailers in the second quarter (2Q) and since.

The stock closed at 13-year highs at RM9.80 yesterday as daily trading volume edge near record highs of 12.12 billion securities on Bursa. This does not take into account volumes on the derivative or Islamic markets.

Hong Leong Investment Bank Bhd analyst Jeremy Goh expects Bursa Malaysia’s 2Q results could be a quarterly record high at RM80 million, bringing the year’s first half (1H20) sum to RM145 million.

The earnings should be driven by a robust 2Q average daily value (ADV) of RM3.8 billion but partially offset by weaker average daily contracts (ADC) transacted on the derivative market quarter-on-quarter (QoQ), he added.

“Our expectation for a strong 2Q showing is premised on robust ADV of RM3.76 billion during the quarter. For the 1H20 period, ADV amounted to RM3.12 billion.

“The strong securities segment should, however, see a partial offset in 2Q from weaker derivatives as ADC fell 20.8% QoQ. To recap, securities contribute circa 50% to revenue, while derivatives make up circa 15% (using FY17-FY19 figures),” Goh said.

Goh observed there are encouraging signs of ADV sustaining for the rest of the year as retail participation continues to chalk new highs and their participation has not diminished despite moving from full Movement Control Order (MCO) into Recovery MCO.

“While we are mindful that liquidity can evaporate as fast as the flush came in, there are encouraging signs this may be sustained, at least for the remainder of 2020,” he said.

The average retail participation as of mid-July stood at 48.3% and was higher than during the full MCO stage (March-April) of 26%-35% he observed. This brings year-to-date (YTD) average retail participation to 34.1% versus 2019’s 25%.

“Retail net buys of RM1.25 billion in June mirrored the level seen in April (heavy retail buying from an entire month of being locked down at home; RM1.27 billion). “YTD ADV as of July 15 stands at RM3.28 billion and if sustained, would very well trump the highs of 2017 (RM2.31 billion) and 2018 (RM2.39 billion),” he said.

Goh raised Bursa’s financial year 2020 (FY20) earnings forecast by 10%, but left the figure relatively unchanged for FY21-FY22. The target price (TP) was increased from RM8.95 to RM9.84.

“In the current market climate, Bursa deserves a “scarcity premium”, being one of the very few listed-companies that are able to deliver earnings growth amid a global pandemic,” Goh said.

Affin Hwang Investment Bank Bhd expects Bursa’s 2Q to outperform 1Q due to the surge in trading values, largely coming from the equities market with ADV hitting a new high of RM3.78 billion for 2Q20 versus RM2.58 billion in 1Q20 and RM2.12 billion in 2Q19.

It has a TP of RM7.90 on the company based on 28 times private-equity target on 2021E earnings per share.

“Key assumption is based on an equity market ADV of RM2.5 billion for 2021E and derivatives ADC of 69,100 for 2021E,” the firm told The Malaysian Reserve in email correspondence.

RHB Investment Bank Bhd has a TP of RM11.20 on Bursa and expects a 2020 dividend per share of 34.2 sen — based on a 92% payout ratio — with a corresponding dividend yield of circa 4%.

“Robust trading has persisted into the first few weeks of July. We raise our 2020F securities ADV to RM3.3 billion on the assumption of continued strength in 2H20,” it said in a note yesterday.