Mixed outlook for Bursa shares, earnings in FY17

PETALING JAYA: Analysts have mixed views on Bursa Malaysia Bhd, which reported lower net profit and revenue for the financial year ended Dec 31, 2016 (FY16) last Friday.
MIDF Research, which maintained its “neutral” call with an unchanged target price of RM8.95, is more bullish on the stock and advocates investors to hold the stock due to attractive FY17 dividend yield of 4%.
It noted in its report yesterday that Bursa Malaysia was still able to pay a higher dividend payout in FY16 despite its earnings performance being “rather dull”, with a proposed final dividend of 17 sen per share for FY16, representing a distribution of 94.2% of net profit.
“We retain our existing forecast numbers at this juncture on the expectation of earnings improvement of 6.6%. We anticipate its FY17 securities average daily value (ADV) traded (on market trade/OMT) would come in at RM1.97 billion (versus RM1.81 billion in 2016),” it said.
“This will be backed by higher securities market activities following favourable macro growth outlook and the return of foreign funds into local market thus far, albeit moderately. In addition, it is widely expected that an election will be held this year – we have seen markets tend to perform well when the electorates go to the poll,” it added.
AmInvestment Bank, which maintained its “hold” call with an unchanged fair value of RM8.70, is “cautiously optimistic” with a year-end 2017 KLCI target of 1,745, which is a modest 6.3% upside from end-2016 of 1,641.
“We expect 1H2017 to be volatile for the securities market on the potential for further hikes in US Fed Rate, and another round of MSCI Index rebalancing which is likely to further lower Malaysia’s weightage in the index.
“In 2H2017, the above negative events would have surpassed and with greater clarity on (US) President (Donald) Trump’s policies, we expect an improvement in securities market trading activity,” it said in its report.
It expects market volatility to continue to be supportive of derivatives market transactions and maintained its forecast and securities market daily average trading value assumption of RM1.85 billion and average daily contracts for derivatives of circa 58,000 in FY17.
Meanwhile, Affin Hwang Capital foresees an unexciting earnings outlook for Bursa Malaysia, given the flat securities trading ADV and derivatives trade fee growth which appears to be moderating in 2017.
“Though investor sentiment may gradually improve with new initial public offering issues in 2017, we are keeping our assumptions for 2017-19E unchanged on the securities market (with an ADV of RM1.9 - 1.99 billion) and derivatives market (with an ADC growth of 2% year-on-year), unless there are more corporate exercises (such as bonus issues, capital repayments) to stimulate investor’s risk appetite,” said Affin Hwang Capital, which maintained its “sell” call with unchanged price target of RM7.
Bursa Malaysia shares fell 11 sen or 1.24% to close at RM8.75 yesterday.