Investment Highlights

• We maintain our HOLD recommendation with a revised fair value on Bursa Malaysia (Bursa) of RM7.15/share from RM7.00/share as we roll over our valuation to FY20. Our valuation is based on FY20 PE of 24x (5-year historical average PE). The stock is fairly valued trading at 23.2x PE, close to the average PE of the stock exchanges of Singapore (SGX Exchange Ltd) and Australia (ASX Ltd). We make no changes to our estimates for now as it is only the first quarter’s results.

• Bursa recorded a 1QFY19 net profit of RM47mil (-9.6% QoQ; -26.5% YoY). On YoY basis, earnings fell largely due to lower securities and derivatives trading revenue. 1QFY19 earnings were expectations, making up 20.2% of our and 20.7% of consensus estimates.

• 1QFY19 DATV (OMT) for equities slipped to RM2.1bil vs. RM2.7bil in 1QFY18 (4QFY18: RM1.9bil). Including direct business trades, DATV (OMT and DBT) for equities will be RM2.4bil for 1QFY19 (1QFY18: RM2.9bil), and this is in line with our assumption for FY19.

• Market velocity for 1QFY19 fell to 29% vs. 35% in 1QFY18.

• On a positive note, the effective clearing fee rate (ECFR) for the securities market in 1QFY19 improved by 0.1bps to 2.41bps. ADV traded by foreign investors declined to RM617mil in 1QFY19 (1QFY18: RM630mil).

• In 1QFY19, foreign fund flows to equities on a cumulative basis were an outflow of RM1.3bil (1QFY18: +RM2.2bil). Outflows have tapered from RM3.2bil in 4QFY18. QTD in 2QFY19 up until 25 April 19, the cumulative foreign funds into the domestic equity market was still an outflow of RM1.2bil.

• On derivatives, average daily contracts (ADC) fell 12.3% YoY in 1QFY19 to 47,359 contracts. The decline was contributed by lower FCPO and FKLI trades. The softer FCPO trades were impacted by weaker CPO prices. ADC for FCPOs dropped 16.4% YoY to 37,235 contracts while that of the FBM KLCI slipped 4.7%YoY to 8,518 contracts. There were trades on the new futures that were recently introduced, USD-denominated refined bleached and deodorised palm olein futures (FPOL) and the Mini FTSE Bursa Malaysia (Mid-70 Index Futures). Nevertheless, these two futures only accounted for 3% of the total contracts traded in 1QFY19.

Source: AmInvest Research - 30 Apr 2019