KUALA LUMPUR (Aug 2): Hong Leong Investment Bank (HLIB) Research has downgraded Bursa Malaysia Bhd to "hold" with a lower target price of RM7 (from RM7.54) after the stock market operator posted weak second-quarter earnings.
HLIB Research said in a note today that Bursa Malaysia's profit after tax and minority interest (PATAMI) of RM93.2 million in the first half of 2019 (1H19) only made up 43.4% and 43.2% of its and consensus forecasts.
The research house noted that the shortfall was mainly due to significantly lower equity trading value, derivative trading volume, and listing fees.
"While we had initially anticipated better derivative trading volumes from increased FCPO trading (FCPO trading volumes typically spike when CPO price is low), 1H19 derivative volumes did not meet expectations.
"Additionally, we are further discouraged by increased competition in FCPO trading from Asia Pacific Exchange (Singapore), which is reporting encouraging daily FCPO volumes of more than 20,000 contracts despite its recent launch in May 2019 (for comparison Bursa averaged 76,000 contracts traded per day in 1H19)," it said.
On Bursa's prospects, HLIB Research expects FY19 average daily value (ADV) to decline by approximately 10% given FY18's high base effect, which recorded an ADV figure of RM2.6 billion, driven by heightened trading post 14th general election (GE14).
"We lower our FY19/20/21 forecasts by 8.5%/7.3%/7.0% to account for lower equity ADV and derivative contract trading volume," HLIB Research added.
Similarly, MIDF Research also slashed its earnings forecasts for Bursa Malaysia by 11.8% and 5% for FY19 and FY20 respectively.
While MIDF Research recognised that Bursa's earnings were affected by external events and environment, with the FBM KLCI continuing to be a laggard when compared against its regional peers. However, the broader FBM70 and FBMSC have shown some robustness.
"As such, we expect Bursa's earnings should improve slightly in 2HFY19. Therefore, we maintain our Neutral call on Bursa with a revised TP of RM6.90 (from RM7.20). Our target price (TP) is based on pegging FY20 earnings per share (EPS) to a lower price-earnings ratio (PER) of 24 times," it added.