ANALYSTS are mixed on Bursa Malaysia Bhd’s weaker earnings for its financial year ended Dec 31, 2019.

MIDF said Bursa’s FY19 results were slightly below expectations. Operating revenue in FY19 fell 8.2% yoy while total revenue contracted 8.6% yoy. It was weighed down by lower securities and derivatives trading revenue, which decreased 12.4% yoy.

The research house said the  uncertainties surrounding the global economy continue to have an effect on Bursa’s earnings. Furthermore, the recent outbreak of the coronavirus has weighed heavily on the market. 

MIDF said  these external uncertainties will not dissipate in the near future. It maintains its neutral call on Bursa with a revised TP of RM5.90 (from RM6.50). The  TP is based on pegging FY20 EPS to PER of 23x.

Bursa posted softer 4Q19 earnings of RM45.56 mil, down 3.3% from RM51.86 mil a year ago despite a marginal improvement in operating revenue . 

AmInvestment Bank said this was mainly  due to a higher operating cost as marketing and business development expenses rose,  coupled with a one-off impairment on computer software of RM3.3 mil.

On a full fiscal year basis, Bursa’s net profit came in 17% lower at RM185.86 mil from RM224.04 mil in the previous year while revenue fell to RM502.5 mil from RM550 mil.  

 “The lower cumulative earnings were largely due to a decline in securities, derivatives trading revenue and higher opex contributed by business development expenses,” said AmInvestment Bank. For FY19, Bursa also experienced  a drop in listing and issuer services fees and Bursa Suq Al Sila (BSAS) trading revenue.

AmInvestment has maintained its hold recommendation on Bursa with a lower fair value of RM6.05 from RM6.15. Its  valuation is based on FY20 PE of 24.0x (5-year historical average PE). The research firm has also fine-tuned its FY20/21 earnings estimates by -1.4%/-2.4% to RM203mil/RM223 mil.

In 4Q19, foreign fund flows to equities on Bursa on a cumulative basis registered an outflow of RM3.2 bil, similar to 3Q19. The outflow of funds was only slightly lower than 2Q19’s at -RM3.3bil. Foreign investors continued to be net sellers of equities in the last three months of last year. For 2019, foreign fund outflows were circa RM11 bil, almost matching that of 2018.

Affin Hwang said weak trading income, caused by prolonged trade tensions, geopolitical risks and outflow of foreign funds, has been the main factor for the decline in Bursa’s operating results. 

It added that higher investor risk-aversion was also reflected in a dip in the equity market’s velocity, from 32% in 2018 to 28% in 2019, while on-market equity average daily value (ADV) saw a pullback from RM2.39 bil (2018) to RM1.93 bil (2019). It has maintained its sell recommendation on Bursa  with an unchanged TP of RM5.15 (23x P/E target on 2020E EPS).

Meanwhile, RHB Research has  maintained its buy call on Bursa but with a lower TP of RM6.40 from RM6.80. Its TP is pegged to 25x 2020F EPS (0.5 SD above the three-year historical average of 24.4x). The research firm said the stock’s fair value would be RM5.40, which is close to the current traded price – implying that the share price downside is limited.   

It said the key downside risks for the stock are global economic fluctuations and geopolitical developments that have adverse effects on the market.

At noon today, Bursa shares were traded at RM5.65, down three sen from yesterday’s close with 1.13 million shares traded. – Jan 31, 2020

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