This article first appeared in The Edge Financial Daily on April 12, 2018
Bursa Malaysia Bhd
(April 11, RM7.29)
Maintain hold with a lower target price (TP) of RM6.90: On Nov 27, 2017, Bursa Malaysia Bhd proposed a one-for-two bonus issue to issue up to a total of 269.8 million new shares. The bonus issue went ex on Tuesday. Bursa stated that the rationale for the bonus issue is to increase the liquidity of its shares in the market and provide opportunities for greater participation by investors.
We cut our financial year 2018 (FY18) to FY20 earnings per share (EPS) forecasts by around 33% as we increase our assumed share base from 536.2 million to 806 million to factor in the 269.8 million new shares to be issued under the bonus issue. This also lowers our TP from RM10.40 to RM6.90, which is still pegged at a target FY19 price-earnings ratio of 21.5 times, derived from one standard deviation above the five-year average.
We are forecasting net profit growth of 7.6% in FY18. This is below the net profit growth of 15.2% in FY17, as we expect a narrower expansion in equity income. FY18 net profit could be underpinned by the projected 7.3% rise in total operating revenue (versus +9.9% in FY17). We are forecasting a slower 5.3% increase in FY18 equity income (+21.9% in FY17), as we do not expect FY17’s robust performance of the equity market to be repeated in FY18.
In 2018, Bursa expects the equity market to remain resilient, given the strong economic data and strengthening of the ringgit. However, the trading volatility may be influenced by domestic and external factors, including the geopolitical developments and the tightening of monetary policies in major economies. For the derivative market, the volatility in commodity prices and the underlying equity market could continue to affect the hedging and trading activities of the crude palm oil and index futures contracts, as stated by Bursa.
We believe Bursa will continue to focus on the following strategic focuses for the development of the capital markets: creating a more facilitative trading environment; facilitating tradable alternatives; reshaping market structure and framework; and achieving the status of regional marketplace with global access.
The bonus issue does not alter the valuation of Bursa and our rating for the stock. We retain our “hold” call on Bursa due to the expected slowdown in equity income growth in FY18. Potential upside/downside risks to our call are a pickup/decline in the trading values of the equity and derivatives markets. We prefer RHB Bank for exposure to Malaysia’s equity market. — CGSCIMB Research, April 10