We preview for BURSA to register FY19 NP around our expected RM183.3m (-18% YoY). 4QFY19 remained weak from lingering shortcomings but we opine there are fair recovery signs to refresh the trading landscape. Commodities prices are on the rise while macros and geopoliticals could be less disruptive. Banking on a recovery in sentiment, we upgrade BURSA to OP (from MP) with a higher TP of RM6.50 (from RM6.00) on higher valuations.

Sluggish 4QFY19 trading; another year closed without window dressing. From our extractions from Bloomberg, 4QFY19 average daily values (ADV) came in at RM1.79b (-7% YoY, -4% QoQ) vs. our expected RM1.95b. Full-year ADV stands at RM1.93b, slightly short of our expectation of RM1.97b. Much like the prior year (2018), market forces were tepid and failed to muster an anticipated window dressing during the final trading hours. The FBMKLCI also closed weaker at 1,588.76 pts (-6% YoY) against hopes that it could trail at technical support levels of 1,600. To recap, 2019 poor trading sentiment could be attributed to: (i) paring down of contract values of various mega projects, (ii) disruptive US-China trade wars, and (iii) local currency weakness.

2020 looks to be better. In the first few trading days for 2020 (YTD-13 Jan), the market was spurred by the rise of CPO prices during the tailend of 2019 (rising from RM2,000/mt to c.RM2,600/mt), painting a more robust ADV of RM1.88b (from RM1.84b in the same 2019 period). The boon to plantation counters could reinvigorate the sector from its previous lull. Coinciding with our strategist’s view, the construction sector may also see new excitement with the possible revival of mega-projects much needed to induce economic activity. Meanwhile, though US-China trade war tensions are still ongoing, its damage to market sentiment seems to be easing and may stir less discomfort to foreign investors. Our in-house FBMKLCI target for 2020 is 1,712.00 pts with USD/MYR rates at 4.100.

For numbers, we slightly tweak our FY19E/FY20E assumptions by - 0.9%/+0.6% from inputting 4QFY19 ADV numbers and updates to our FBMKLCI target. Anticipating FY19 to close with CNP of RM183.3m which is a 18% decline from FY18, mainly due to soft securities trading (c.50% of total revenue) landscape from the abovementioned reasons dampening total operating revenue (-9% YoY). The disparity and margin erosion comes from an overrun of operating expenses, despite efforts already in place to trim certain fixed cost items (i.e. staff, technology expenses). On a quarterly level, 4QFY19 is expected to come in at RM43.0m (-17% YoY, -9% QoQ) with the decline having much to do with ADVs not picking up, as mentioned above. We also anticipate dividends of c.11.6 sen to be declared, amounting to a full-year payment of 22.0 sen from a payout of c.95% (BURSA’s 4QFY19 results are earmarked to be released on 30th Jan 2020). With hopes for a better outlook in FY20, we opine for ADV to clock in at c.RM2.10b and for earnings to recover by c.5% from a healthier trading environment and higher FBMKLCI levels, leading to a FY20 NP of RM194.6m (+6% YoY).

Upgrade to OUTPERFORM (from MARKET PERFORM) and TP of RM6.50 (from RM6.00). Our target price is based on a higher applied 27.0x FY20E PER (1SD below the stock’s 3-year mean, from 25.0x). We anticipate greater investor activity justified from the above to translate to better sentiment for the stock, post-2019’s gloom, when stronger trading appetite is reflected in the group’s results. We also see downside to be cushioned by the presently fair dividend yield of c.4% from an average payout of c.95%, with chances for special dividend bonuses (based on past 2-year trends).

Source: Kenanga Research - 15 Jan 2020