Investment Highlights

• We reaffirm our HOLD call on Bursa Malaysia (Bursa) with an unchanged fair value of RM9.70/share based on an FY18 PE of 23x (5-year historical average PE). We maintain our forecast as Bursa's earnings kept pace with our expectation.

• Bursa reported a lower net profit of RM51.6mil (-13.3%QoQ) in 3QFY17 which was in line with our expectation for earnings of between RM50mil and RM51mil. The lower profit in 3QFY17 was due to a decline in the daily average trading value (DATV) for equities compared to 2QFY17.

• Although 3QFY17 was weaker, 9MFY17 net profit came in at RM167.7mil (+17.0%YoY), thanks to a stronger securities trading revenue in 1HFY17. Cumulative earnings were within expectations, making up 76.6% and 75.6% of our and consensus estimate respectively.

• 3QFY17 saw a lower DATV(OMT) for equities of RM1.95bil vs. RM2.62bil in 2QFY17. For 9MFY17, DATV (OMT) for equities was RM2.31bil (+24.8%YoY), close to our estimate of RM2.25bil for FY17.

• Foreign fund flows were strong in 1HFY17 with RM10.7bilof inflows into the local equity market on a cumulative basis. The highest level was recorded in March 2017 amounting to RM4.4bil. However, 3QFY17 saw an outflow of foreign funds totalling RM560mil.Foreign fund outflows of RM242mil and RM737milwere recorded in August and September 2017 respectively. This trend continued to extend into October 2017 with a month-to-date outflow of RM336mil.

• The effective clearing fee rate (ECFR) for the securities market in 3QFY17 improved marginally to 2.35bps (2QFY17: 2.34bps). For 9MFY17, the ECFR was 2.34bps, lower than 9MFY16's 2.36bps as trading in equities continued to be dominated by institutions, representing 77.0% of the total equity trades. This limited the ECFR’s rise.

• In 9MFY17, securities market trading revenue rose by 19.0%YoY contributed by higher DATV for equities. 9MFY17 saw an increase in market velocity to 32.0% vs. 27.0% in 9MFY16. On new listings, there were 10 listings in 9MFY17 compared to 9MFY16's 7 listings, resulting in higher listing and depository fees. Total funds raised from new listings and secondary market were up 125%YoY to RM18bil in 9MFY17.

• On derivatives, 9MFY17 average daily contracts (ADC) traded was flat at 58,817 (+0.2%YoY). The FKLI, which attracts higher trade fees compared to the FCPO, posted a drop in the number of contracts traded by 24.2%YoY while the average FCPO contracts traded rose by 6.2%YoY in 9MFY17. This led to a decline in derivatives trading revenue by 9.5%YoY for 9MFY17. Also contributing to the decline was a drop in the guarantee fee rate imposed on margins for derivative contract's open position.

• Despite of a higher ADV by 15.2%YoY, trading revenue for BSAS slipped 6.9%YoY due to volume-based pricing which provided discounts for larger size contracts of commodities traded. The volume discount incentives are expected to provide Bursa with the ability to compete with other service providers on pricing.

Source: AmInvest Research - 26 Oct 2017