Bursa expected to beat consensus expectations
KUCHING: With Bursa Malaysia Bhd’s (Bursa Malaysia) first quarter of 2017 (1Q17) results set to be released on April 26, its earnings are expected to beat consensus expectations thanks to a strong trend in equities.
Based on trading data for equities, the average daily volume traded increased to 2.71 billion shares in 1Q17, representing a 49.1 per cent growth year over year (yo-y) or 89.4 per cent growth quarter over quarter (q-o-q).
AllianceDBS Research Sdn Bhd ( AllianceDBS Research) noted that this development marked the highest sequential volume growth recorded in the past decade and was also brought about partially thanks to an expanding derivatives market that saw strong volume growth of 7.3 per cent y-o-y and 12.3 per cent q-o-q.
Additionally, the average daily value traded for equities surged to RM2.37 billion for the quarter which exceeded the research arm’s full-year average assumption of RM1.85 billion by 28 per cent.
With these robust trading volumes and surpassed value assumptions witnessed in 1Q17, there are strong expectations for Bursa Malaysia to easily beat consensus expectations for its earnings at this point.
Moreover, this uptrend in trading volumes and value assumptions are also expected to continue into the near-term at least as the research arm expects there to be lingering effects from the global liquidity driven-rally on reflation expectations that Malaysian equities has experienced following its lag behind regional peers in 2016.
“In this respect, we revise our 2017 average daily volume and values assumptions for the equity market to 2.08 billion shares and RM2.19 billion, respectively. Our target price (TP) is also increased to RM10.90 from RM10.00 to reflect this,” guided the research arm.
Alliance DBS Research maintains its ‘Buy’ valuation on Bursa Malaysia with a higher TP of RM10.90 which is Dividend Discount Model (DDM) derived and assumes a 94 per cent dividend payout and a 4.5 per cent longterm growth that implies a 26 fold earnings per share (EPS) for FY17.
Justifying their call, the research arm explained that the stock currently provides a decent four to five per cent yield and that any potential structural changes such as revision in its listing fees, fee structures and or streamlining of its surveillance role could unlock its earnings potential further.
However, sensitivity analysis performed by the research arm highlighted that every 1 per cent decrease in average daily trading value assumption would lower its FY17 net profit by 0.5 per cent.
“As such, key risks to our view are a weaker market sentiment.”