KUALA LUMPUR (Jan 21): CGS-CIMB Research has maintained its "Hold" call on Bursa Malaysia Bhd with an unchanged target price of RM6.20, given the cautious outlook for the equity market in 2020.
In a note dated Jan 20, the research house estimates Bursa's equity income to increase from RM55.8 million in 3Q19 to RM58 million to RM59 million in 4Q19F mainly due to the recovery in the equity market average daily trading (ADTV) to RM2.05 billion in 4Q19, translating into 5.3% quarter-on-quarter (q-o-q) and 8.7% year-on-year (y-o-y) growth.
It noted that Bursa plans to release its 4Q19 financial results on Jan 30, 2020.
The research house noted that despite recovering in 4Q19, equity ADTV fell by 17% to RM2.15 billion in 2019.
"In view of this, we estimate Bursa's 2019 equity income declined by 12-13% to RM231 million (based on the above estimated RM58 million-RM59 million in 4Q19F), above our projected RM198.3 million for FY19," it said.
CGS-CIMB said the total trading volume for the derivative market staged a strong recovery in 4Q19, with growth of 12% q-o-q and 9.5% y-o-y mainly driven by crude palm oil futures contracts (+12.4% q-o-q and +23.7% y-o-y).
Despite the strong 4Q19, derivative volume declined by 1.6% in 2019.
It noted that the strong 4Q19 derivative volume likely drove Bursa's 4Q19F derivative income to above the 3Q19 level of RM18.4 million.
However, the research house estimates its FY19F derivative income was below FY18's level of RM76.7 million.
"Underpinned by the q-o-q recovery in equity and derivative income in 4Q19, we estimate Bursa's 4Q19F net profit to come in around our projected RM50.9 million (versus RM47.1 million in 3Q19)," the research house said.
This is made based on CGS-CIMB's assumptions that the equity and derivative trading income grew q-o-q at the same quantum as the q-o-q expansion in trading volume in the equity and derivative markets, and non-trading income and overheads were stable in 4Q19 versus 3Q19's levels.
"Based on this, we think that Bursa's FY19F net profit would be largely in line with our projected RM191.2 million," it said.
At 11.31am, Bursa shares remained unchanged at RM6.05, valuing it at RM4.89 billion.