KUALA LUMPUR (April 17): AmInvestment Bank Research has upgraded Bursa Malaysia Bhd to a “buy” as the research firm expects its earnings for the first quarter of 2020 (1Q20) to come in strongly at RM67 million on the back of higher securities and derivatives trading revenue.
Accordingly, its analyst Kevin Ong has also revised its fair value on the counter upwards to RM6.40 (from RM6.05).
“The higher volatility in the near term will be a boon to the trading revenue of its securities and derivatives market,” Ong wrote in a note today.
On the securities market, daily average trading value (DATV) (on OMT basis) for equities rose to RM2.5 billion in 1Q20, compared with RM1.8 billion in 4Q19 and RM2.1 billion in 1Q19, said Ong, adding that market velocity jumped to 39% in 1Q20, from 4Q19’s 26% and 1Q19’s 29%.
Meanwhile, the average total contracts traded for derivatives surged by 35.7% quarter-on-quarter (q-o-q) to 85,578 in 1Q20, supported by higher average daily contracts (ADC) traded for FCPO (up 36.9% q-o-q to 69,194) and FKLI (up 48.9% q-o-q to 15,072).
Moreover, Bursa Malaysia’s operating expenses are expected to gradually improve after the internal restructuring to a flatter management structure effective Jan 1, 2020 with the departure of four senior management personnel to reduce staff cost and the recent amendments to the Globex Services Agreement which will provide savings in the teens on service fees to be paid to the CME for derivatives trading.
Ong is forecasting Bursa Malaysia’s net profit for the financial year ending Dec 31, 2020 (FY20) to be at RM211.1 million, while revenue is expected to be at RM512.4 million.
For FY19, its net profit fell 17% year-on-year to RM185.86 million, from RM224.04 million, as revenue was down 8.6% to RM502.49 million, from RM550 million.
Year-to-date, there have been seven new listings in the securities market (Main Market: 1, ACE Market: 2 and LEAP Market: 4).
“We expect potential IPOs (initial public offerings) to be deferred with the Covid-19 pandemic affecting investors’ sentiment and causing markets to be volatile,” said Ong.
2019 saw a total of 30 IPOs (Main Market: 4, ACE market: 11 and LEAP Market: 15).
As a dividend stock with an average payout of 92.6% in the past five years, excluding special dividends in FY17 and FY18, Ong opined that this will cushion the downside risk on its share price as investors lean towards dividend-yielding stocks in times of uncertainty.
“We are maintaining our dividend payout assumption of 91% for FY20 with a decent yield of 4.2%,” he added.
At 10.16am, the counter rose five sen or 0.85% to RM5.90, valuing the company at RM4.77 billion. Over the past year, the counter fell some 13.2% from RM6.81. Since the movement control order period, the counter has risen 33.7% from RM4.42.