Bursa Malaysia could post record earnings again in Q3: CGS-CIMB

PETALING JAYA: Bursa Malaysia, which is slated to release its quarterly financial performance on Oct 27, is expected to post a record net profit of RM128.2 million for third-quarter 2020 (3Q’20), representing growth rates of 172.1% year on year (yoy), and 48.7% quarter on quarter (qoq) against a 2Q’20 net profit of RM86.2 million, the previous all-time high.

In a note, CGS CIMB Research said its net profit estimate is based on the key assumptions that equity and derivative income expanded 200% yoy and 13.9% yoy respectively, and a 15% y-o-y increase in operating costs.

The key earnings driver will likely be the robust average daily trading value (ADTV) of the equity market, which spiked 200% yoy to an all-time high of RM5.8 billion in 3Q’20.

“This was 50% higher qoq vs. the previous record high of RM3.9 billion in 2Q’20. In addition, the average daily contracts (ADC) for the derivative market also increased by a strong 13.9% yoy in 3Q20, in our estimate,” it said.

The ADTV of the equity market declined from RM5.8 billion in 3Q’20 to RM4.3 billion in the first 14 trading days of October. However, the ADTV within this period was still above the ADTV of RM3.9 billion in 2Q’20.

The research house said it is retaining its earnings per share forecasts pending the results release. Valuation wise, it is continuing to peg its target CY21 price to earnings (PE) ratio for Bursa to two standard deviations (sd) above its five-year average but update the multiple to 31.7x from 30x previously.

With that, it has raised its target price to RM9.10, from RM8.60, and also upgraded its reduce call to a hold due to a strong 3Q’20 net profit and improvement in the equity market’s ADTV.

CGS CIMB said despite its 15.8% decline from a high of RM10.60 on Aug 8, its current valuation at CY21 PE of 31.4x is still 2 sd above its five-year historical average of 22.9x. On a regional comparison however, Bursa’s valuation is not attractive, as its CY21 PE is significantly above Singapore Exchange’s 23.3x, though lower than Hong Kong Exchange’s 34.7x.

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