Investment Highlights

• We maintain our HOLD recommendation with a reduced fair value for Bursa Malaysia (Bursa) of RM6.50/share from RM7.15/share. Our valuation is based on an FY20 PE of 24.0x (5-year historical average PE). We continue to see the stock as fairly valued, trading at 25.0x FY20 PE with a premium accorded as it is one the few financial stocks that are syariah-compliant. We trim our FY19/20/21 earnings estimates by 11.3%/10.1%/6.9% to RM207mil/RM216mil/RM233mil by lowering our DATV and ADC assumptions for the securities and derivatives markets. We now assume a DATV of RM2.2bil/RM2.35bil (previously: RM2.4bil/RM2.45bil) for equities in FY19/20.

• Bursa posted muted 2QFY19 earnings with a net profit of RM46mil (-1.1% QoQ) due to lower trading and stable revenue.

• For 6M19, Bursa reported a profit of RM93mil, a decline of 23.6% YoY) largely due to lower securities and derivatives trading revenue. Its 6M19 earnings were below expectations, making up only 39.8% of our and 43.1% of consensus estimates. The deviation to our expectation was due to lower-than-expected securities clearing and derivatives trade fees.

• 2QFY19 DATV (OMT) for equities slipped slightly to RM2.0bil vs. RM2.1bil in 1QFY19. 6M19 DATV (OMT) for equities was RM2.04bil (6M18: RM2.72bil) and if direct business trades were included, DATV (OMT and DBT) for equities would be RM2.77bil for 6M19 (6M18: RM2.99bil). Market velocity for 6M19 fell to 29.0% vs. 36.0% in 6M18.

• Effective clearing fee rate (ECFR) for the securities market in 6M19 rose from 2.23bps to 2.42bps. ADV traded by foreign investors improved to RM625mil for 6M19 vs. RM617mil in 1Q19.

• In 2Q19, foreign fund flows to equities on cumulative basis registered a higher outflow of RM3.3bil vs. – RM1.3bil in 1Q19. Foreign investors were net buyers of equities in June 2019 which saw an inflow of funds of RM135mil. Nevertheless, in July 2019, an outflow of foreign funds of RM79.1mil from equities was recorded largely contributed by a selldown of securities, particularly towards the end of the month.

Source: AmInvest Research - 2 Aug 2019