BURSA MALAYSIA BHD

By CIMB Research Hold (No change) Target price: RM10.40

PRIME Minister Datuk Seri Najib Tun Razak announced the exemption of stamp duty on shares of mid- and small-cap companies traded on Bursa Malaysia with effect from March 2018 for three years, and the establishment of a stock market trading link between Bursa Malaysia and Singapore Exchange (SGX).

The abovementioned are in line with Bursa’s initiatives to develop the capital markets, creating a more facilitative trading environment as reduction of stamp duty lowers the cost of trading, and a regional marketplace with global access via a trading link with Singapore.

The purpose of the trading link with Singapore is to allow investors to trade and settle shares listed on each other’s stock market in a more convenient and cost-efficient manner.

Bursa will work with SGX, the industry and relevant regulatory bodies in operationalising the cross-border initiative.

“We are positive on this as it would help Bursa to reestablish the trading link with SGX following the decommissioning of Asean trading linkage on Oct 6, 2017.

“We believe the impact from the proposed Bursa-SGX link on Bursa would be minimal as most investors can now trade shares in overseas markets through brokers with regional presence, some via tie-ups,” said CIMB Research.

The above measures could be mildly positive for the market as they could increase the trading value of the equity market though CIMB Research thinks the impact would not be significant in the near term.

Based on the research house’s estimate, a 1% increase in the trading value of the equity market would raise Bursa’s financial year 2018 (FY18) to FY20 net profit by about 0.7%.

CIMB Research maintains its FY18 to FY20 earnings per share forecasts and target price of RM10.40, which is pegged to a target 2019 price-earnings ratio of 21.5 times or 1 standard deviation above its five-year average.