Investment Highlights

• We maintain our HOLD recommendation with a lower fair value on Bursa Malaysia (Bursa) of RM6.15/share from RM6.70/share. Our valuation is based on FY20 PE of 24.0x (5-year historical average PE). We trim our FY19/20/21 earnings estimates by 7.7%/8.3%/6.1% to RM191mil/RM206mil/RM228mil respectively. This is after lowering our DATV assumptions for the securities market. We are now projecting a DATV of RM1.9bil/RM2.1bil/RM2.3bil respectively (previously: RM2.2bil/RM2.35bil/RM2.5bil) in FY19/20/21.

• Bursa reported a subdued net profit of RM47mil (+1.7% QoQ) in 3Q19. This was slightly above our expectation of RM43mil–RM44mil. A higher effective clearing fee rate (ECFR) has resulted in better-than-expected securities clearing fees as well as lower staff expenses.

• For 9M19, Bursa’s profit was RM140mil (-18.5% YoY). The lower cumulative earnings were largely due to a decline in securities trading revenue. Also, 9M19 saw lower derivatives trading and other operating revenue with the latter contributed by new requirements to amortise initial listing fees, lower perusal and processing fees. 9M19 earnings were below expectations, making up only 67.7% of our estimates while it accounted for 70.7% of consensus forecast. The shortfall to our expectation was largely due to lowerthan-expected securities trading revenue.

• 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. 9M18’s RM2.6bil and our expectation of RM2.2bil for the full FY19 attributed to lower institutional and retail trades.

• Market velocity for 9M19 fell to 28.0% vs. 34.0% in 9M18.

• ECFR for the securities market in 9M19 rose to 2.45bps (9M18: 2.24bps). ADV traded by foreign investors decreased to RM600mil for 9M19 vs. RM625mil in 6M19.

• In 3Q19, foreign fund flows to equities on a cumulative basis registered an outflow of RM3.2bil vs. –RM3.3bil in 2Q19 and -RM1.3bil in 1Q19. Foreign investors were net seller of equities in July, Aug and Sept 2019 (Exhibit 2).

• On derivatives, the average daily contracts (ADC) fell by 5.6% YoY in 9M19 to 52,644 contracts mainly driven by lower FCPO and FKLI trades arising from lower FCPO prices and volatility in the FBM KLCI.

Source: AmInvest Research - 30 Oct 2019