This article first appeared in The Edge Financial Daily on February 3, 2020

Bursa Malaysia Bhd
(Jan 31, RM5.55)
Maintain neutral with a lower target price of RM5.90: Bursa Malaysia Bhd posted its financial year 2019 (FY19) net profit which was a shade below our expectations at 94% of our full-year estimates, but was within consensus’ at 95.1%. The variance was due to our underestimation of other operating expenses.

Its operating revenue for fourth quarter FY19 (4QFY19) improved slightly by 1.3% year-on-year (y-o-y) and 4.4% quarter-on-quarter. The quarter saw better securities and derivatives trading revenue which grew 1.9% y-o-y and 7.3% y-o-y respectively.

While revenue improved, total operating expenses grew 14.2% y-o-y to RM65.9 million. The main reason was the higher IT expenses which rose 26.2% y-o-y to RM10.1 million.

Operating revenue for FY19 fell 8.2% y-o-y while total revenue contracted 8.6% y-o-y. It was weighed down by lower securities and derivatives trading revenue which decreased 12.4% y-o-y and 5.8% y-o-y respectively. The annual average daily traded value went down 19.3% y-o-y to RM1.93 billion. Meanwhile, for the derivatives market, the lower derivatives trading revenue was due to lower guarantee and collateral management fees.

Bursa Suq Al-Sila’s (BSAS) trading revenue fell 6.3% y-o-y for FY19 due to a 30.2% y-o-y decline for 4QFY19. We understand that the lower BSAS trading revenue was due to the impact of its volume-based pricing despite growth in its average daily volume.

We are revising our FY20 and FY21 earnings forecasts downwards by 11.3% and 9.4% respectively to take into account the higher operating expenses.

The uncertainties surrounding the global economy continue to have an effect on Bursa’s earnings. Furthermore, the recent outbreak of the Wuhan virus has weighed heavily on the market. We believe that these external uncertainties will not dissipate in the near future. Therefore, we believe that Bursa’s prospects remain unexciting. — MIDF Research, Jan 31