Analysts mixed on Bursa Malaysia

Written by Financial Daily
Tuesday, 20 October 2009 10:37

CIMB Research has maintained a trading buy on BURSA MALAYSIA BHD [] in line with the research house’s bullish outlook for the local stock market. It has a bullish end-2010 FBM KLCI target of 1,400 points, noting that the potential catalysts for the local bourse are an expected rise in trading value, improved market sentiment, a rebound in effective clearing fee rate and stronger growth in the derivatives business.

Even so, CIMB Research has lowered its target price for the stock to RM10.60 from RM11 following Bursa’s recent nine-month result for the financial year ending Dec 31, 2009 that was below its expectations. “Bursa’s 9M09 net profit declined 10.6% year-on-year (y-o-y) to RM81.3 million, equivalent to 43.1% of our full-year forecast and 63.8% of consensus. The absence of a 3Q dividend (year-to-date dividend per share of 8.8 sen) was within expectations.

“Factoring in a market velocity of 36%-45% instead of 45%-50%, we cut our FY09-11 earnings forecasts by 12% to 18%, leading to a lowering of our target price to RM10.60 despite a higher target price earnings (P/E) of 33 times (10% premium over previous target of 30 times, based on three-year historical average) in view of the stronger-than-expected rise in the KLCI to 1,256.8,” it said.

“Although the target P/E is above the 24.8 times average for exchanges under our coverage, we believe that it is achievable given our bullish end-2010 KLCI target of 1,400 as Bursa traded at P/Es of 35 to 72 times in 2Q07 to 4Q07 when the KLCI was at 1,250 to 1,450,” it added.

CIMB Research said Bursa missed the research house’s forecast because of a lower-than-expected 3Q09 trading value.




Despite the 11.8% rise in the KLCI from end-June 2009 to end-September 2009, the average trading value dwindled to RM1.3 billion in 3Q09 from RM1.6 billion in 2Q09 as market velocity slowed from 48% to 36%, it said, adding that the drop was partly attributable to a low foreign participation, reflected by the percentage of foreign trading of only about 23% of total trading value in 3Q09 (vs 16% in 2Q09 and 35%-42% in 2005-08).

“After hitting a high of 29k contracts in 2Q09, the number of average daily contracts declined to 24k in 3Q09. This led to a 21.4% q-o-q drop in derivative income to RM9.2 million. However, we believe that the momentum will pick up again next year following Bursa’s collaboration with CME to promote its products in the international market,” it added.

Meanwhile, HwangDBS Vickers Research said Bursa is fully valued at RM8.49, pegging price-earnings ratio (PER) of 25 times on FY10F earnings per share (EPS) to arrive at its target value of RM6.55 for the stock.

“Bursa’s valuation remains expensive compared to regional peers. It is currently trading at 33 times PE vs HKSE’s 29 times and SGX’s 21 times,” it said.

“Average daily value surged to RM1.1 billion (+8% m-o-m), while volume rose to 803 million (+23% m-o-m) in the first two weeks of October 2009. But the momentum needs to be sustained in order to lift Bursa’s earnings going forward. Given that Bursa’s YTD average daily value and volume are RM1.1 billion and 965 million, respectively, we maintain our FY2009 to 2011F assumptions of RM0.99 billion to RM1.20 billion daily value, daily volume at 0.98 billion to 1.14 billion shares, and velocity at 35%,” it added.

Bursa closed at RM8.47 yesterday, down two sen.


This article appeared in The Edge Financial Daily, October 20, 2009.