Investment Highlights

• We maintain our HOLD recommendation and fair value on Bursa Malaysia (Bursa) of RM7.50/share based on FY19 PE of 24x (5-year historical average PE). Our earnings projections are unchanged.

• Bursa is expected to release its 3QFY18 results on the 29th October. Its 3QFY18 earnings are likely to be lower than 2QFY18’s RM58mil owing to a decrease in trading revenue for equities. Besides, trading revenue for derivatives is also expected be softer QoQ. The average daily contracts traded (ADC) for KLCI futures (FKLI) which attract higher trade fees compared to Crude Palm Oil (FCPO) futures is likely to decline in 3QFY18.

• Quarter to date in 3QFY18, DATV (OMT) for equities was RM1.92bil. This was lower much lower compared to 1QFY18 and 2QFY18’s RM2.72bil and RM2.73bil respectively. By months, in July and Aug 18, it has tapered to RM2.24bil and RM2.31bil respectively from a high of RM3.62bil in May 18. With the slowdown in 3QFY18, year-to-date DATV (OMT) for equities is now RM2.56bil. This is in line with our estimate for the full FY18 of RM2.5bil.

• We estimate the market turnover (velocity) for 3QFY18 to be lower at circa 30.0% compared to 37.0% in 2QFY18 and 35.0% in 1QFY18.

• Year to date (YTD), foreign fund flows to equities remained in negative of RM9.3bil on cumulative basis up until 14 Sept 2018. On monthly basis, foreign fund inflows in July and Aug 18 were –RM1.68bil and – RM99mil respectively, reflecting net selling of equities by foreign investors (refer Exhibit 1 below). For Sept 18 up till 14 Sept 2018, the trend of outflow continued. A net foreign funds outflow of RM660mil from equities was recorded. This was a contrasting difference to the strong positive inflow of foreign funds of RM3.4bil and RM959mil seen in Jan 18 and Dec 17 respectively.

• Aug 18 saw a slight increase in the securities market foreign ownership to 23.6% from 23.5% in July 18. Meanwhile, the foreign shareholdings of Bursa’s stock has trended lower to 26.9% in Aug 18 vs. 27.5% in July 18 and 27.6% in June 18.

• For 3QFY18, we expect the ADC traded for FKLI to be lower QoQ. Conversely, the average daily contracts (ADC) traded for FCPO is likely to be higher in 3QFY18 vs. 2QFY18. Despite of the introduction of newer derivatives products, FKLI and FCPO continued to dominate making up 92.3% of the total derivatives transactions in Aug 18 (See Exhibit 5).

Source: AmInvest Research - 19 Sept 2018