Investment Highlights

• We maintain our HOLD call and fair value on Bursa Malaysia (Bursa) of RM7.50/share which is based on an FY19 PE of 24x (5-year historical average PE). The stock continues to trade at a higher valuation (24.9x PER) compared to the average PE of stock exchanges of Singapore (SGX Exchange Ltd) and Australia (ASX Ltd) at 23.5x. We have revised our FY18 dividend/share estimate up after the declaration of a special dividend of 8 sen/share in 1HFY18 while the rest of our estimates remains unchanged.

• Bursa reported a lower 2QFY18 net profit of RM58mil (- 8.7%QoQ) contributed by a decline in securities trading and stable revenue. Securities trading revenue fell in 2QFY18 by 7.9%QoQ despite recording a slightly higher daily average trading value (DATV) (OMT) for equities in the quarter. This was due to a drop in the effective clearing fee rate and decline in market capitalization. This led to 1HFY18 earnings of RM122mil (+5.0YoY), which were within expectations, making up 50.5% of our and 50.8% of consensus estimates. 1HFY18 securities trading revenue climbed 5.6%YoY due to high DATV for equities contributed by foreign trades. Meanwhile, trading revenue for derivatives was lower in 1HFY18 due to lower average daily contracts (ADC) traded for FCPO.

• For 2QFY18, DATV (OMT) for equities was higher at RM2.73bil compared to RM2.71bil in 1QFY18 vs. RM2.32bil in 4QFY17. Month to date till 26 July 2018, it has tapered to RM2.0bil. For 1HFY18, DATV (OMT) for equities was RM2.72bil (1HFY17: RM2.49bil). Market velocity for 1HFY18 rose to 36% vs. 35% in 1HFY17.

• Effective clearing fee rate (ECFR) for the securities market in 1HFY18 slid to 2.23bps compared to 1HFY17’s 2.33bps. This was contributed by an increase in the trades by institutional investors. Foreign ADV traded surged to 724mil in 1HFY18 (1HFY17: RM530mil).

• Year to date (YTD) till June 2018, foreign fund flows to equities have turned negative, resulting in the cumulative total outflow of RM6.8bil. This was a reversal from a positive inflow of funds seen in the beginning of this year. May and June 2018 saw a substantial outflow of foreign fund to the amount of RM5.6bil and RM4.9bil respectively from the domestic equities market. The heavy net selling in equities by foreign investors (refer Exhibit 2 below) was attributed to the selldown of emerging market assets amidst the tightening in the US with the rise in Fed rates as well as due to concerns on the US-China trade war. In July 2018, foreign fund outflows from equities continued but were lower compared to May and June 2018. The outflow of foreign funds has tapered in July 2018. Month to date till 27 July 2018, the cumulative outflow of foreign funds was lower at RM2.0bil.

Source: AmInvest Research - 31 Jul 2018