Better earnings expected for Bursa Malaysia in 2H19 on new IPOs

AmInvestment Bank says its earnings are anticipated to be better, if FTSE Russell retains Malaysia in its index


BURSA Malaysia Bhd is expected to post improved earnings in the second half of this year (2H19) after a disappointing first six months, if FTSE Russell decides to continue retaining Malaysia in the FTSE World Government Bond Index in September.

The planned new initial public offerings (IPOs) in the coming months could also bring life to the laggard market.

AmInvestment Bank Bhd said Bursa’s earnings for the July-December period is anticipated to be better, if FTSE Russell retains Malaysia in its index.

“We gather the pipeline for IPO deals has been decent. We understand there are three Main Board and seven ACE Market applications that are pending approvals.

“In addition, three Leading Entrepreneur Accelerator Platform Market listings have been approved with a total market capitalisation of RM15 billion,” it said.

AmInvestment Bank added that the deals are envisaged to not only assist Bursa in generating listing fees, but also create more trade transactions for the securities market.

The investment bank maintains its ‘Hold’ recommendation for the stock market operator, but a reduced target price (TP) of RM6.50 from RM7.15.

MIDF Research said Bursa’s earnings in 1H19 were affected by the external events and environment, as the FTSE Bursa Malaysia KLCI (FBM KLCI) continued to be a laggard compared to its regional peers.

“However, the broader FBM70 and FBM Small Cap Index have shown some robustness. As such, we expect Bursa’s earnings should improve slightly in 2H19,” it added.

MIDF Research maintains its ‘Neutral’ call on Bursa with a revised TP of RM6.90, from RM7.20 previously.

Meanwhile, Kenanga Research noted that 1H19 has demonstrated a retraction in market appetite for Malaysian securities and derivatives, although sentiment is thought to be sidelined by the US-China tensions, uncertainty in the European region owing to Brexit and unfavourable commodity prices.

“Still, there could be a chance for a turnaround from 2H19 onwards as we detect a returning sense of confidence — of which our strategist points towards rising trading valuations and premiums of our benchmark indices against regional markets.

“We maintain our view that the weakness in sentiment could be bottoming based on our cyclical studies.

“In the near term, we reckon potential developments that could support our view are potential mergers and acquisitions with foreign parties re-igniting foreign trading interest; the easing of trade war tensions; and budget talks spurring sentiment,” it said.

Kenanga Reserach maintains its ‘Market Perform’ recommendation and TP of RM6.85 for Bursa.

Bursa’s net profit fell 20.4% year-on-year (YoY) to RM46.34 million in the second quarter of 2019 (2Q19) due to lower operating revenue across both the securities and derivatives markets.

The company posted a lower earnings per share of 5.7 sen for the three-month period compared to 7.2 sen a year ago.

Bursa declared a first interim dividend of 10.4 sen per share for the financial year ending Dec 31, 2019, to be paid on Aug 30.

Quarterly revenue dropped 11.8% YoY to RM123.96 million due to lower volumes traded on the exchanges.

“Despite these external headwinds, the securities market performance for 2H19 is expected to be resilient. The month of June 2019 saw foreign investors turn net buyers in the securities market, with the trend continuing into July 2019,” Bursa CEO Datuk Muhamad Umar Swift had said.

The counter closed 21 sen or 3.13% lower at RM6.50 last Friday, giving it a market capitalisation of RM5.26 billion.