Investment Highlights

• We maintain our HOLD call and fair value on Bursa Malaysia (Bursa) of RM7.50/share which is based on FY19 PE of 24x (5-year historical average PE). While we remain positive on the local equity market, we continue to see the stock trading at a higher valuation (23.0x PER) compared to the stock exchanges of Singapore (SGX Exchange Ltd) at 20.9x PER and Australia (ASX Ltd) at 22.5x PER. We make no changes to our earnings estimates.

• Bursa reported a 1QFY18 net profit of RM63.8mil (+15.4%QoQ; +12.6%YoY). Earnings were within expectations, making up 26.3% of our and 26.8% of consensus estimates. It was higher than our net profit expectation of between RM59mil and RM60mil. Operating income was in line with our expectation. Nevertheless, due to lower operating expenses, its 1QFY18 earnings came in higher than expected. The stronger 1QFY18 earnings were attributed to a higher daily average trading value (DATV) for equities with a strong inflow of foreign funds to the securities market. Meanwhile, trading revenue for derivatives was lower in 1QFY18 as expected with a lower average daily contracts (ADC) traded for the FKLI and FCPO.

• For 1QFY18, DATV (OMT) for equities rose to RM2.71bil vs. RM2.32bil in 4QFY17 and RM1.95bil in 1QFY17. By month, in Feb and Mar 2018, it has tapered to RM2.67bil and RM2.30bil respectively from a high of RM3.20bil in Jan 2018. Market velocity for 1QFY18 was higher at 34.7% vs. 30.8% in 4QFY17 and 34.0% in 1QFY17.

• Effective clearing fee rate (ECFR) for the Securities Market in 1QFY18 was 2.31bps, close to 1QFY17’s 2.32bps.

• Year to date (YTD), foreign fund flows to equities are still positive, cumulating to RM3.3bil up until 24 April 2018. On a monthly basis, foreign fund inflows in Mar and Feb 2018 were -RM63.7mil and -RM1.1bil respectively, reflecting net selling of equities by foreign investors (refer Exhibit 2 below). This was in contrast to a strong positive inflow of RM3.4bil in foreign funds to the local equity market in Jan 2018 and RM959mil in Dec 2017.

Source: AmInvest Research - 26 Apr 2018