Bursa Malaysia Q1 earnings may come in 42% higher year on year: AmResearch

PETALING JAYA: AmInvestment Bank Research (AmResearch) is expecting first-quarter earnings for Bursa Malaysia to come in at around 42.2% higher year on year at RM67 million based on higher securities and derivatives trading revenue.

In a note, it said on the securities market, daily average trading value (DATV) for equities rose to RM2.5 billion in first-quarter 2020 (1Q’20) compared with RM1.8 billion in 4Q’19 and RM2.1 billion in 1Q’19.

The average total contracts traded for derivatives surged by 35.7% quarter on quarter to 85,578 in 1Q20, supported by higher average daily contracts traded for FCPO and FKLI by 36.9% qoq and 48.9% qoq to 69,194 and 15,072 contracts respectively.

In 1Q’20, foreign fund flows to equities on cumulative basis registered an outflow of RM7.6 billion against -RM3.2 billion in 4Q’19 and -RM1.3 billion in 1Q’19.

“The higher volatility in the near term will be a boon to the trading revenue of its securities and derivatives market,” the research house noted.

AmResearch said it is maintaining FY20 and FY21 DATV assumptions of RM2 billion and RM2.2 billion for securities market, and projecting a growth of 7.8% and 4.5% for FY20 and FY21 respectively for derivatives trading revenue. It is however, finetuning its earnings assumptions for FY20/21/22 by 3.8%/0.8%/0.9% respectively, as it factors in lower operating expenses and revenue from listing fees.

Year to date, there have been seven new listings in the securities market. However, potential IPOs are expected to be deferred with the Covid-19 pandemic affecting investors’ sentiment and causing markets to be volatile.

Additionally, Bursa’s operating expenses are expected to gradually improve.

“This is premised on the internal restructuring to a flatter management structure and the recent amendments to the Globex Services Agreement which will provide savings in the teens on service fees to be paid to the CME for derivatives trading,” it said.

As a dividend stock with an average payout of 92.6% in the past five years, the research house noted that this will cushion the downside risk on Bursa’s share price as investors lean towards dividend-yielding stocks in times of uncertainty.

As such, it is maintaining its dividend payout assumption of 91% for FY20 with a decent yield of 4.2%.

AmResearch is also upgrading its recommendation on Bursa to ‘buy’ from ‘hold’, with a revised fair value of RM6.40 from RM6.05 previously.

source https://www.thesundaily.my/business/bursa-malaysia-q1-earnings-may-come-in-42-higher-year-on-year-amresearch-DL2278115