Our preliminary estimate of Bursa’s 1Q20 net profit works out to between RM53m-55m (~13-17% higher yoy), underpinned by a 1Q20 equity market average daily value (ADV) of circa RM2.5bn and derivatives average daily contracts (ADC) of approximately 82,000 contracts (81% CPO futures; 17% FBMKLCI futures; 2% others). We maintain our SELL rating on Bursa with a revised 12-month TP of RM3.40 (methodology changed: based on a 2020E P/E multiple target of 15x, at trough valuation).

A Lackluster Trading Outlook to Persist in 2020E-21E

In our view, despite seeing relatively high trading values in the equity (ADV of RM2.5bn; +3.7% yoy and +20.4% qoq) and derivatives markets (82,000 contracts; +73% yoy and +30% qoq) on Bursa Malaysia, we believe that investor sentiment will start to weaken in the coming months, as the reality of a recession starts to sink-in in 1H20, according to our Economist. Based on Affin’s latest GDP growth forecast of -3.5% for 2020, we expect a sharp contraction in private consumption spending especially in 1H20.

Bursa’s net profit in 1Q20 expected to be robust due to high volatility

Due to the high market volatility in 1Q20, of which had increased from 30% in Jan20 to 50% in Mar20, this has driven up Bursa’s overall trading values. Based on our estimates, Bursa could potentially see a 1Q20 net profit of RM53-55m (~13-17% higher yoy), which is underpinned by our 1Q20 revenue forecast of RM132.3m (comprising 50% securities trading revenue, 17.6% derivatives and 32% stable fee income). As a result, we have tweaked our 2020E net profit estimates by +17.4% to account for the robust 1Q20 revenue, while for 2021-22E, we make some minor adjustments of -3.2% to -4.4%.

Maintain SELL, PT Revised Down to Trough Valuation of 15x P/E

We reaffirm our SELL rating, while revising down our 12-month Price Target Price from RM4.50 (based on a 2020E P/E multiple target of 23x) to RM3.40 (based on a trough valuation P/E multiple target of 15x on 2020E EPS). Our assumptions for 2020E/21E/22E: i) an equity ADV of RM1.9bn/RM1.7bn/RM1.8bn; and ii) derivatives ADC of 58,000/ 52,000/55,000. Upside risks: higher-than-expected funds inflows; revival of investor confidence; increase in trade/clearing fees.

Source: Affin Hwang Research - 30 Mar 2020