Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on February 7, 2019

Bursa Malaysia Bhd
(Feb 4, RM7.30)
Maintain sell with an unchanged target price (TP) of RM5.85:
Bursa’s fourth quarter of financial year 2018 (4QFY18) results were in line with our expectations but below consensus forecast. 4QFY18 revenue declined 8.7% year-on-year (y-o-y) on the back of a 15.8% y-o-y drop in securities trading average daily trading value (ADV).

 

Weaker ADV expectations for 2019 (-15.4% y-o-y) and modest dividend yields of 3.7% (assuming no special dividend is declared in 2019) prompt us to retain our “sell” recommendation and TP of RM5.85 (22 times forecasts for 2019 (2019F) price-earnings ratio [PER]). The stock is trading at 27.5 times FY19F PER (+1 standard deviation above historical mean).

Bursa reported a 4QFY18 net profit of RM51.9 million (-6.4% y-o-y, -+3.2% quarter-on-quarter [q-o-q]) and FY18 earnings of RM224 million (+0.5% y-o-y). Full-year earnings were in line with our estimate, representing 101.3% of our estimate but marginally below consensus (94% of consensus). 4QFY18 revenue declined 8.7% y-o-y with the 15.8% y-o-y decline in securities with ADV to RM1.95 billion being the key drag.

However, more modest 4.7% and 3.4% declines in derivative trading and non-trading-related revenue streams respectively resulted in a less pronounced contraction in overall revenue versus the 15.8% decline in ADV.

On a q-o-q comparison, earnings improved 3.2% q-o-q despite a 9.5% q-o-q decline in securities ADV as stronger securities trading volumes (+6.4% q-o-q) and lower staff cost (-18.6% q-o-q) were sufficient to offset the q-o-q drag from the lower securities ADV. In terms of revenue composition, securities trading revenue comprise 50.7% while non-trading-related revenue and derivative trading revenue comprise 34.5% and 14.8% respectively.

Despite a mild recovery in securities trading ADV in January 2019 to RM2.05 billion from RM1.95 billion in 4QFY18, it remains sharply lower than 2018’s RM2.40 billion. This has prompted us to retain our 2019 and 2020 ADV forecasts of RM2.03 billion and RM2.05 billion respectively, and also implies downside risk to consensus 2019 earnings forecast which currently indicates growth of 6.2% versus our forecast which indicates an earnings contraction of 4.9%.

The high base effect of 2018’s pre-14th general election ADV, coupled with significantly weaker foreign equity flows in 2019 on the back of prevailing concerns of domestic political stability, is likely to lead to sharply lower ADV trends in 2019 versus 2018. This prompts us to forecast a 15.4% y-o-y decline in 2019 securities ADV.

A final dividend per share (DPS) of 11.6 sen was declared, bringing 2018 DPS inclusive of an eight sen special DPS to 33.6 sen. We are forecasting a DPS of 27 sen for 2019, equating to a modest yield of 3.7% and close to a 100% dividend payout ratio. The group has been declaring special dividends over the past two financial years, implying an average payout ratio of 115% per year.

Assuming a similar payout ratio in 2019, this would still equate to a relatively modest yield of only 4.2%.

Despite our assumption of an ADV contraction of 15.4% y-o-y for 2019, our earnings forecast suggest a milder impact on bottom line (-4.9% y-o-y) as stronger derivatives volume growth and initial public offering pipeline should help drive a stronger recovery in derivatives trading revenue and listing fees that should help to partially offset weaker securities Additionally, well contained staff costs and lower depreciation should also help to cushion an earnings contraction on lower ADV trends.

Maintain “sell” and unchanged TP of RM5.85. Weaker ADV expectations in 2019 and dividend yields declining to below its five-year mean of above 4% (assuming no special dividend is declared in 2019) prompt us to retain our “sell” call. Our TP is based on -0.5 standard deviation to its historical mean PER of 25 times, given the weaker earnings trend forecasted for 2019 and modest dividend yields.

The stock’s current valuation of 27.5 times is at +1 standard deviation above its 10-year historical mean PER of 25 times. — UOB KayHian, Jan 31

      Print
      Text Size
      Share