Bursa Malaysia (Bursa) is set to announce its 4Q19 financial results on 30 January 2020. Our preliminary estimate of its 4Q19 net profit works out to RM47m (-9.4% yoy; flat qoq), underpinned by a 4Q19 equity market average daily value (ADV) of RM2.08bn (with on-market trades at an ADV of RM1.8bn) and derivatives average daily contracts (ADC) at 64,045 (80% CPO futures; 16% FBMKLCI futures; 4% others). Though it may not be an extraordinary 4Q19 for Bursa, a potential final dividend of 12 sen may likely attract some trading interest. We maintain our SELL rating on Bursa with a 12-month TP of RM5.15 (based on a 2020E P/E multiple target of 23x) due to our expectations of a lacklustre market outlook in 2020E-21E, with a high risk of further foreign fund outflows and a weak Ringgit forecast of RM4.20.

A Lackluster Trading Outlook to Persist in 2020

In our view, it remains a challenge for Bursa to see more upbeat equity and derivatives trading activities in 2020 due to prevailing headwinds such as geopolitical risks and risk of renewed trade tensions. Meanwhile, we also foresee the risks of continuous foreign fund outflows from our market due to: i) the expectation of higher returns in the US market in the run-up to the US Presidential election; and ii) a weak Ringgit may continue to persist due to the high correlation of our Ringgit with the Chinese Yuan (which is expected to stay weak in 2020).

Bursa’s 4Q19 Net Profit Expected to be Flat Qoq, But ~9% Lower Yoy

Based on Bursa’s market data, we project a 4Q19 net profit of RM47m (-9.4% yoy; flat qoq) on a 4Q19 revenue forecast of RM122m (comprising 47% securities 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 4Q19, we expect a final dividend of 12 sen to be proposed.

Maintain SELL, Price Target Unchanged at RM5.15

We reaffirm our SELL rating with a 12-month Target Price of RM5.15, based on a 2020E P/E of 23x, set at -0.5SD of its past-10-year average of 25x. In our view, the 2020E equity and derivative markets outlooks will likely stay lacklustre in light of a moderating economic environment and escalating geopolitical risks and the possibility of more foreign funds outflows. Upside risks: higher-than-expected funds inflows; revival of investor confidence.

Source: Affin Hwang Research - 17 Jan 2020