Bursa’s reported 9M18 PATAMI of RM172.2m came in slightly below ours and consensus expectations at 71.0% and 71.7%, respectively. The shortfall was mainly due to higher-than-expected staff cost and lower-than-expected equity effective clearing rate. We lower our FY18/19/20 forecasts by 2.5/1.7/1.5% to account for lower effective clearing rate in FY18 and higher staff cost in FY19/20. We maintain our BUY call with a lower TP of RM8.00 (from RM8.15) after incorporating our earnings adjustments. Our TP of RM8.00 is pegged to an unchanged PE multiple of 27x FY19 EPS of 29.7 sen.

Below expectations. Bursa Malaysia’s reported 9M18 PATAMI of RM172.2m, slightly below ours and consensus expectations at 71.0% and 71.7%, respectively. The shortfall was mainly due to higher-than-expected staff cost and lower-than-expected equity effective clearing rate of 2.27 bpss in 3Q18 vs. our expected clearing rate of 2.30 bps in FY18. (FY17 clearing fee rate was 2.30 bps)

Dividend. None Declared (3Q17: None).

QoQ. PATAMI declined by 13.8% to RM50.2m predominantly due to lower equity trading revenue (due to high base effect in 2Q18 from the sharp sell-down by foreigners post GE-14).

YoY. Marginally lower PATAMI of 2.7% was due to higher staff cost, lower derivative trading and lower issuer services revenue from lower number of corporate exercises in 3Q18. This was despite 8.8% growth in equity trading revenue from higher ADV.

YTD. PATAMI growth of 2.6% was led by higher equity trading revenue contribution (+6.5). The increased equity trading revenue more than offset lower derivative trading and BSAS contribution as well as higher staff cost.

Outlook. We expect marginally lower ADV in FY19 given the high-base effect of 9M18’s ADV of RM2.76bn (driven by heightened trading post GE-14). Coupled with slightly higher expected derivative contract volume trading (from expected higher FCPO trading and introduction of palm olein futures ‘FPOL’), we expect FY19 earnings to remain flat vs FY18 (+1.2%). We expect Bursa to continue to carry out various initiatives to boost retailer participation (Bursa mid-cap research scheme, exemption of stamp duty of mid and small cap companies, waiver of trading and clearing fees for 6 months for new retail investors, etc.), which would in turn boost effective clearing fee rate given the maximum cap of RM1,000/contract traded. However, we understand this endeavour will take time to bear fruit and as such, we are reticent to forecast increased retail participation in the equity market just yet.

Forecast. We lower our FY18/19/20 forecasts by 2.5%/1.7%/1.5% to account for lower effective clearing rate in FY18 and higher staff cost in FY19/20.

Maintain BUY. We maintain our BUY call with a lower TP of RM8.00 (from RM8.15) after incorporating our earnings adjustments. Our TP of RM8.00 is pegged to an unchanged PE multiple of 27x FY19 EPS of 29.7 sen. We like Bursa as a proxy to Malaysia’s longer term reform prospects post GE14, operating leverage and decent dividend yield of 3.8%.

Source: Hong Leong Investment Bank Research - 30 Oct 2018