CIMB Research retains Hold for Bursa Malaysia

KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Bursa Malaysia and target price of RM7.84 due to concerns over the contraction in derivative income and the slowdown in the growth of equity income in 2019. 

“We expect its share price to be supported by its attractive FY19F dividend yield of 3.9%. We prefer RHB Bank for exposure to Malaysia’s financial services sector,” it said on Thursday.

CIMB Research said Bursa Malaysia’s FY18 net profit was spot on with its FY18 forecast. It was also within the market’s expectations at 97% of the Bloomberg consensus estimate. 

However, the full year net dividend per share of 34 sen was slightly below its projected 36 sen.

The average daily trading value (ADTV) for the equity market fell by 16.7% on-year to RM1.93bil in 4Q18 (the lowest since 4Q16) due to lower market capitalisation and velocity.

 This caused the 10.1% on-year decline in the 4Q18 equity income. Coupled with the 5% on-year decrease in derivative income, this led to an 8.7% on-year contraction in revenue and 6.1% on-year decline in net profit in 4Q18.

Despite the 1.2% drop in revenue, Bursa’s net profit edged up 0.4% in FY18 thanks to lower operating costs. Equity income rose by 2.4% to RM265.8m in FY18, in line with the 3.4% increase in ADTV to RM2.4bil in FY18. 

For the equity market, the market velocity was sustained at 32% in FY18, on par with the level in FY17, but market capitalisation fell by 10.8% in FY18.

CIMB Research said the disappointment was the 4.8% drop in FY18 derivative income, which was the second consecutive year of decline. This was caused by the 2.1% slide in the average daily contract (ADC) to 56,488 for the derivative market (DM) in 2018. The drag for DM’s ADC was the 12.1% fall in the ADC for CPO futures.

“We retain our FY19-20F EPS forecasts and our target price (TP) of RM7.84. We continue to peg our TP to a target FY20F price-to-earnings (P/E) of 23.7 times which is two standard deviations above the five-year average.

“The high target P/E is supported by its strong dividend yield and monopolistic nature of its business,” it said.