This article first appeared in The Edge Financial Daily on January 20, 2020

Bursa Malaysia Bhd
(Jan 17, RM6.06)
Maintain sell with an unchanged target price (TP) of RM5.15: In our view, it remains a challenge for Bursa Malaysia Bhd to see more upbeat equity and derivatives trading in 2020 due to the prevailing headwinds such as geopolitical risks and risk of renewed trade tensions.

We also foresee the risks of continuous foreign fund outflows from our market due to expectations of higher returns in the US market in the run-up to the US presidential election; and a weak ringgit may continue to persist due to the high correlation of our ringgit with the Chinese yuan (expected to stay weak in 2020).

Based on Bursa’s market data, we project the fourth quarter ended Dec 31 of financial year 2019 (4QFY19) net profit of RM47 million (down 9.4% year-on-year; flat quarter-on-quarter) on a 4QFY19 revenue forecast of RM122 million (comprising 47% securities in trading revenue, 16% derivatives and 37% stable fee income). Based on the operating profit, the equity market accounts for the bulk of this at 90%, followed by the derivatives market at 10%. For 4QFY19, we expect a final dividend of 12 sen to be proposed.

We reaffirm our “sell” rating with a 12-month TP of RM5.15, based on an expected 2020 (2020E) price-earnings ratio of 23 times, set at -0.5 standard deviation of its past 10-year average of 25 times.

In our view, the 2020E equity and derivative markets will likely stay lacklustre in the light of a moderating economic climate and the possibility of more foreign funds outflows. — Affin Hwang Capital, Jan 17