Investment Highlights

• We maintain our HOLD recommendation with an unchanged fair value on Bursa Malaysia (Bursa) of RM6.70/share. Our valuation is based on FY20 PE of 24.0x (5-year historical average PE).

• Bursa Malaysia will be releasing its 3Q19 results on 29 October (Tuesday).

• We expect earnings for 3Q19 to come in at around RM43 to RM44mil, bringing the 9M19 profit to RM137mil. 3Q19 PATAMI is likely to be softer compared to RM46mil in the 2Q19 premised on a lower daily average traded value (DATV) for the securities market. This is despite an improvement in the average daily contracts (ADC) for the derivatives markets supported by a higher number of contracts traded for CPO futures (FCPO) with the rise in volatility of CPO prices in 3Q19.

• On the securities market, DATV (on OMT basis) for equities was lower at RM1.85bil in 3Q19 vs. RM2.02bil in 2Q19. YTD up to 9M19, the DATV (OMT) for equities was only RM2.0bil vs. our expectation of RM2.2bil for the full year of FY19.

• As for the derivatives markets, 3Q19 witnessed a stronger ADC for FCPO but lower ADC traded for KLCI futures (KLCI). Nevertheless, ADC traded for all types of futures in 3Q19 was still higher at 58,700 compared to 51,112 in 2Q19. On the newer futures introduced, namely, the mini FTSE Bursa Malaysia Mid 70 Index, USD RBD Palm Olein and Gold Futures, the ADC traded are still significantly lower compared to FCPO and FKLI albeit improved transactions in 3Q19 over 2Q19.

• Bursa’s operating expenses are expected to be stable QoQ in 3Q19. Moving forward, we are anticipating a slight improvement in overhead expenses. This is due to the recent amendments to the Globex Services Agreement (GSA) executed between Bursa and CME in 2009 which included a revision to the tiered fee structure on the provision of Globex services by CME. Recall, Bursa Derivatives products were traded on CME Globex electronic trading platform. Hence, lower fees to be paid to CME for derivatives trading ahead will provide cost savings to Bursa.

• We are keeping our numbers for now and will be monitoring the Budget 2020 for any positive catalysts on the securities market.

Source: AmInvest Research - 11 Oct 2019