This article first appeared in The Edge Financial Daily on January 29, 2018

Bursa Malaysia Bhd
(Jan 26, RM10.60)
Upgrade to buy with a higher target price (TP) of RM12: Bursa Malaysia Bhd’s (Bursa) equity market performance so far in January this year has surprised us as it kick-started the year strongly, registering an average daily trading value (ADV) of RM3.6 billion for the first 16 days of trading versus RM1.93 billion in first quarter of 2017 (1QFY17) and RM2.67 billion in 4QFY17. We believe that the market is poised for a stronger rerating in 2018 underpinned by inflows of foreign and domestic funds on expectations of a synchronised global economic recovery, a weaker US dollar (firmer ringgit) and an upcoming general election (driving thematic plays).

Based on Bursa’s market data, we project a 4QFY17 net profit of RM58.8 million (and full year at RM226.6 million), on a 4QFY17 revenue forecast of RM134.4 million (52.3% securities trading revenue, 13.3% derivatives trading revenue and 34.4% stable fee income). This is backed by a 4QFY17 securities ADV of RM2.62 billion (+19.4% quarter-on-quarter [q-o-q] and +36% year-on-year [y-o-y]) and derivatives average daily contracts (ADC) of 54,300.

The securities market traded at an estimated velocity of 43.2% for the 16 trading days in January, a level we have not seen since the last bull run in 2007 (market velocity at 50%). Hence, if we were to extrapolate the ADV potential of the market today to 50%, this would imply a potential ADV of RM4.3 billion and a blue-sky scenario price target of RM18.64.

We upgrade Bursa to “buy” from “hold”, with a revised 12-month TP of RM12 (from RM10.30), on a 2018 price earnings ratio of 26 times (from 25.5 times previously), as we revise up our 2018 to 2019 earnings forecasts by 14.6%/15.9% on the back of revised securities market ADV assumptions of RM2.8 billion and RM2.6 billion for 2018 and 2019 while assumptions for derivatives market and stable fee income remain relatively unchanged. — Affin Hwang Capital Research, Jan 26