Bursa Malaysia’s net profit for the nine months to September 2016 (-3% on-year) was below expectations, accounting for 67% of CIMB Equities Research’s full-year forecast and 71% of consensus.
It said on Tuesday the lower earnings were mainly due to weaker-than-expected revenue, arising from lower equity market income.
The average daily trading value (ADTV) for the equity market fell by 9.8% on-year to only RM1.74bil in 3Q16 (US$417mil), the lowest since 4Q13.
The stock exchange operator’s equity income dipped by 5.4% on-year to RM163.9mil (US$39mil) in 9M16, dragged down by the 6.1% on-year decline in ADTV to RM1.85bil (US$445m).
The lower ADTV in 9M16 resulted from the drop in the market velocity from 29% in 9M15 to 27% in 9M16, which more than offset the 5.6% on-year rise in market capitalisation of the equity market to RM1.65 trillion (US$396bil) in September 2016.
CIMB Research said on the flip side, its derivative income rose by 4.4% on-year to RM66.8mil (US$16mil) in 9M16, supported by the 2% on-year increase in volume of average daily contracts (ADC) in the derivative market to 58.686 in 9M16.
By type of contract, CPO futures contracts expanded by 4.7% on-year in 9M16 but BMKLCI futures contracts dwindled by 7.9% on-year.
In 9M16, equity income contributed the biggest share of Bursa’s revenue (45.5%), although this was lower than the 47.8% contribution in 9M15.
This was followed by the 18.5% revenue contribution from derivative income in 9M16, which rose from 17.7% a year ago. Other contributors were listing fees (11% of Bursa’s 9M16 revenue), depository services (8.1%) and market data (7.4%),
“We cut our projected EPS forecasts by 8.4% for FY16F and 5-6% for FY17-18F as we lower our assumed ADTV by 6-10%. EPS cuts notwithstanding, we raise our target price (TP) from RM8.86 to RM9.00 due to rollover in TP to end-2017.
“Our target P/E remains 20 time, which is at a 5% discount to the five-year average P/E of 21.4 times,” it said.
In spite of the uncertainty surrounding equity market income, Bursa remains a Hold. It is however, positive on the prospects for derivative income as Bursa’s derivative products are trading on the Globex platform, which gives it access to international investors.
The upside/downside risks to CIMB Research’s forecast are a spike/dip in equity market trading value. It prefers BIMB Holdings for exposure to the financial services sector in Malaysia.
Source: News Republic