This article first appeared in The Edge Financial Daily on April 10, 2020

Bursa Malaysia Bhd
(April 9, RM5.20) 
Maintain buy with a lower target price (TP) of RM6 (previously RM6.30). We expect strong performance in the equity and derivative markets to translate into robust first quarter ended March 31 earnings for Bursa Malaysia Bhd. The average daily value traded was at a five-year high, while volatile crude palm oil prices and the KLCI Index helped drive up their respective futures volumes to multi-year peaks. Trading activity is expected to moderate ahead of lower foreign participation but should still be supported by sentiment on the planned resumption of major infrastructure projects and economic recovery in the latter part of the year. At -1 standard deviation of its five-year and 10-year means, we believe Bursa’s valuation remains compelling for a stock with consistent dividends and a recurring revenue stream.

We are more optimistic about Bursa’s prospects in forecasted financial year 2021 (FY21F) and FY22F on assumption of sentiment improving after the Covid-19 fallout dissipates over time, supported by government stimulus packages and economic recovery.

Revisions to Bursa’s fee structure (such as listing and clearing fees) and a downscaling of its surveillance role would unlock its earnings potential.

We trimmed our FY20F to FY21F earnings by 4% respectively after incorporating lower listing fee revenue, translating into a lower TP. That said, current valuations which are at a five-year trough are still compelling for a business with a fairly stable dividend and recurring income stream.

Our sensitivity analysis shows that every 5% decrease in average daily trading value would lower Bursa’s FY20F net profit by about 4%. — AllianceDBS Research, April 9