Investment Highlights

• We maintain our HOLD recommendation with an unchanged fair value on Bursa Malaysia (Bursa) of RM7.00/share based on FY19 PE of 24x (5-year historical average PE). Valuation remains high with the stock trading at 25.4x our FY19 EPS estimate which is above the average PE of stock exchanges of Singapore (SGX Exchange Ltd) and Australia (ASX Ltd) of 23.7x. We have tweaked our FY19/20 earnings marginally by -1.4%/-1.2% after adjusting our CI ratio assumptions.

• Bursa reported a 4QFY18 net profit of RM52mil. This was slightly above our expectation of RM48mil due to lowerthan-expected operating expenses. Staff costs were surprisingly lower in 4QFY18. Nevertheless, for the full FY18, earnings were flat at RM224mil (+0.4%YoY). Securities trading revenue rose in FY18 due to an increase in DATV (OMT) for equities but was offset by lower trading revenue from derivatives and BSAS with the latter impacted by the implementation of volumebased pricing. Cumulative earnings were within expectations, making up 101.9% of our and 94.7% of consensus estimates.

• 4QFY18 DATV (OMT) for equities fell to RM1.9bil vs. 3QFY18 and 2QFY18’s RM2.2bil and RM2.7bil respectively. On a half-yearly basis, it was weaker in 2HFY18 than 1HFY18, resulting in the full FY18’s DATV to end at RM2.4bil, 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. For FY19, we have imputed into our forecast a DATV assumption for equities of RM2.4bil.

• Market velocity for FY18 was 32.0% similar to FY17.

• Effective clearing fee rate (ECFR) for the securities market in FY18 slipped to 2.27bps compared to FY17’s 2.30bps. This was due to an increase in the trades by institutional investors (see Exhibit 5). Foreign ADV traded surged to RM647mil in FY18 (FY17: RM506mil).

• For 2018, foreign fund flows to equities recorded an outflow of RM11.7bil on cumulative basis vs. an inflow of RM10.8bil in 2017. Cumulative fund flows in 4Q18 were a 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 the emerging markets. YTD up until 24 Jan saw cumulative foreign fund inflows of RM717mil into the domestic equity market.

Source: AmInvest Research - 31 Jan 2019