Investment Highlights

• We maintain our HOLD call on Bursa Malaysia (Bursa) with a revised fair value of RM10.35/share (previously RM9.70/share) based on an unchanged FY18 PE of 23x (5-year historical average PE). We have tweaked Bursa's earnings for FY18/FY19 higher by 7.4%/7.2% to factor in a higher daily average trading value (DATV) for equities.

• Bursa reported a higher net profit in 4QFY17 of RM55mil (+7.1%QoQ). The improvement was contributed by higher trading revenue for equities of 14.8%QoQ while trading revenue for derivatives increased marginally by 1.6%QoQ.

• Foreign fund flow into equity was stronger in 4QFY17 with a cumulative inflow of RM713mil compared to an outflow of RM560mil in 3QFY17. This was attributed to a strong foreign inflow of RM959mil in Dec 2017.

• Bursa's operating income for FY17 grew 10.4%YoY supported by higher securities revenue (+21.9%YoY), issuer and listing revenue (+15.4%YoY) and depository services revenue (+8.6%YoY). Nevertheless, these were partially offset by lower derivative trading revenue (-9.2%YoY) owing to a decline in market volatility as well as a drop in trading revenue for Bursa Suq Al-Sila (BSAS) (-3.7%YoY).

• For FY17, Bursa reported a stronger net profit of RM223mil (+15.2%YoY) contributed largely by an increased in securities trading revenue. FY17 earnings were within expectations, making up 101.8% and 100.5% of our and consensus estimate respectively.

• FY17 saw an increase in velocity for the securities market to 32.0% vs. 27.0% in FY16.

• DATV (OMT) in 4QFY17 for equities was higher at RM2.31bil vs. RM1.95bil in 3QFY17. For 12MFY17, DATV (OMT) for equities was RM2.31bil (+27.7%YoY) close to our estimate of RM2.25bil for FY17.

• Effective clearing fee rate (ECFR) for the Securities Market in 4QFY17 slipped to 2.19bps (3QFY17: 2.35bps). For FY17, it was 2.30bps, lower than FY16's 2.33bps.

• On new listings, there were 13 in FY17 compared to 11 in FY16. Total funds raised from new listings and secondary market rose 71.1%YoY to RM21.9bil in FY17.

• On derivatives, the average daily contracts (ADC) traded in FY17 declined slightly to 57,677 (-0.3%YoY). The FKLI, which attracted higher trade fees compared to the FCPO, had a drop in the number of contracts traded by 25.1%YoY while the average FCPO contracts rose 5.7%YoY in FY17. The decline in the overall total number of derivatives contract traded has contributed to a decline in the exchange's derivative trading revenue in FY17. Also, the decline was caused by a lower guarantee fee rate imposed on margins from 0.5% to 0.3% for derivative contract's open position in FY17.

• ADV for BSAS rose by 20.2%YoY supported by more active trading activities from the local and foreign participants. Although this has improved, trading revenue for BSAS fell due to the change in its pricing structure. It adopted volume-based pricing which provided discounts for larger size contracts of commodities traded to compete with the other service providers.

Source: AmInvest Research - 6 Feb 2018