Investment Highlights

• We maintain our HOLD recommendation with a lower fair value on Bursa Malaysia (Bursa) of RM7.00/share (RM7.50/share previously) based on FY19 PE of 24x (5- year historical average PE) after lowering our assumptions for DATV of equities and ADC of derivatives.

• Bursa will be releasing its 4QFY18 results on the 30 January. We project its 4QFY18 earnings to be softer by 4.0%QoQ at RM48mil compared with 3QFY18’s RM50mil. This is mainly due to a lower trading revenue for equities and derivatives for the quarter. In view of the weaker 4QFY18 on lower DATV for equities than expected, we have lowered our earnings estimate for FY18/19 by 9.1%/6.6% to RM220mil/RM237mil.

• 4QFY18 DATV (OMT) for equities fell to RM1.88bil compared with 3QFY18 and 2QFY18’s RM2.23bil and RM2.73bil respectively. On a half yearly basis, it was weaker in 2HFY18 than 1HFY18 resulting in the full FY18’s DATV of RM2.37bil, below our estimate of RM2.5bil. Nevertheless, this was still an improvement over FY17’s RM2.3bil. Thus far in 2019, the DATV for equities was RM1.9bil. We now project a DATV for equities of RM2.4bil for FY19 vs. RM2.65bil earlier.

• We estimate the market turnover (velocity) for 4QFY18 to be lower at circa 28.0% compared with 30.0% in 3QFY18.

• For 2018, foreign fund flows to equities on a cumulative basis recorded an outflow of RM11.7bil on a cumulative basis vs an inflow of RM10.8bil in 2017). Cumulative fund flows in 4Q18 were at negative RM3.2bil with outflows of RM719mil and RM1.0bil in Nov and Dec 2018 respectively. Nevertheless, in Jan 2019, we are seeing foreign fund inflows into the domestic equity market which is benefitting from the positive inflows of foreign funds into emerging markets. YTD up until 24 Jan saw cumulative foreign fund inflows of RM717mil into the domestic equity market.

• Securities market foreign ownership slipped slightly to 23.4% in Dec 2018 from 23.7% in Nov 2018. The percentage has been stable in 2H18. Meanwhile, the foreign shareholdings of Bursa’s stock fell to 25.6% in Dec 2018 vs. a high of 28.6% in March 2018.

• For 4QFY18, we expect the ADC traded for the FKLI to decline by 0.7%QoQ while that of the FCPO to shrink by 4.9%QoQ. On a full-year basis, it is likely to see to an improvement for the FKLI by 24.3% to 10,278 contracts in contrast to a drop in the FCPO contracts by 11.1% to 43,092 contracts in FY18. Market volatility will persist into 2019, and this bodes well for trading in derivatives for hedging.

• We expect a better 2019 compared to 2018 with the year-end FBM KLCI target of 1,820pts (18.5x PE), and we believe that the catalyst will be the return of global investors to emerging markets on a growing consensus of US rate hike cycle and the USD upcycle tapering off.

Source: AmInvest Research - 30 Jan 2019