KUALA LUMPUR (May 5): Analyst turned less sanguine on stock market operator Bursa Malaysia Bhd, following the release of its first-quarter results, and several rated the stock as a "hold" with target prices (TPs) ranging from RM6.09 to RM6.54.

The stock exchange’s net profit for the first quarter ended March 31, 2023 (1QFY2023) fell by 17.35% to RM56.17 million, versus RM67.97 million for the same quarter a year earlier, due to lower securities market operating revenue.

CGS-CIMB maintained its "hold" call on Bursa, with a lower TP of RM6.54 from RM6.60, based on a price-earnings ratio (PER) of 20.7 times forecast for FY2024, which is below the five-year historical average, supported by a dividend yield of 4.2% forecast for FY2023.

“Despite projecting a lower average daily trading value (ADTV) for the equity market, which is the key determinant of Bursa’s revenue, of RM2.17 billion for FY2023 versus an average of RM2.84 billion in the past five years, we maintain our ‘hold’ call on Bursa given its undemanding valuation,” said analyst Winson Ng.

He also said Bursa’s net profit was below expectations at 23.5% of his full-year forecast, versus the 24.8% projection for FY2023, due to a higher-than-expected tax rate of 26.2% in 1QFY2023.

“However, 1QFY2023 earnings were largely within market expectations at 24% of the Bloomberg consensus estimate.”

Ng expects Bursa’s net profit for 2QFY2023 to be close to or below RM56.17 million for 1QFY2023, based on an expected equity ADTV of RM2 billion to RM2.1 billion in 2QFY2023.

Hong Leong Investment Bank (HLIB) Research also maintained its "hold" call, with a TP of RM6.09, based on 22 times PER pegged to FY2023 earnings per share.

Analyst Jeremy Goh said that while a slower ADTV is expected, it would be offset by a decline in average daily contracts and higher operational expenditure yielding an overall balanced risk-to-reward profile.

“After two prior years of ADTV contraction, we are hopeful for a mild reprieve in FY2023 - we have pencilled in RM2.17 billion. Note that in the past decade, ADV has never declined for more than two consecutive years,” he said in a research note on Friday (May 5).

“Granted, the ADTV of RM2.03 billion in the cumulative first four months of FY2023 is short of our FY2023 target, but we reckon this could see a modest pickup from mid-year, given expectations that the US Federal Reserve would halt its rate upcycle by then.”

He added that Bursa’s 1QFY2023 earnings accounted for 25% of his full-year forecast, and 24% of the consensus, which was deemed to be in line.

Bursa’s share price was two sen or 0.32% lower at RM6.28 in morning trade on Friday, valuing the local stock exchange at RM5.08 billion. 

https://www.theedgemarkets.com/node/665669