Bursa’s reported 2Q19 PATAMI of RM46.3m added up to RM93.2m PATAMI in 1H19. This made up just 43.4% and 43.2% of ours and consensus forecasts. The shortfall was mainly due to significantly lower equity trading value, derivative trading volume and listing fees. We lower our FY19/20/21 forecasts by 8.5%/7.3%/7.0% to account for lower equity ADV and derivative contract trading volume. After accounting for lower earnings, our TP falls from RM7.54 to RM7.00 based on an unchanged PE multiple of 26.1x FY20 EPS. With limited upside from our new TP, we downgrade our call from Buy to HOLD.

Below expectations. Bursa’s reported 2Q19 PATAMI of RM46.3m (QoQ: -1.1%, YoY: -20.4%) added up to RM93.2m PATAMI in 1H19 (-23.6%). This made up just 43.4% and 43.2% of ours and consensus forecasts, respectively. The shortfall was mainly due to significantly lower equity trading value, derivative trading volume and listing fees.

Dividend. Declared 10.4 sen (2Q18: 14 sen) per share, going ex on 16/8/19. For 1H19, DPS amounted to 10.4 sen vs. 1H18’s 14 sen.

QoQ. In the absence of conference related revenue in 2Q19 vs RM5.0m in 1Q19 resulted in top line declining 2.0%. Combined with slightly lesser operating expenses, PATAMI was relatively flat at RM46.3m (-1.1%).

YoY. Top line decline of 11.8% resulted from weaker equity trading revenue (-16.3%) and derivative trading revenue (-14.4%) which were due to lower ADV (-23.3%) and average daily contracts traded (-7.7%), respectively. Coupled with relatively fixed cost structure, PATAMI was lower by 20.4%.

YTD. In addition to lower equity trading revenue and derivative trading revenues mentioned above, poorer listing and issuer services revenue (-18.6%) also resulted in revenue decline of 14.0%. Lower revenue has resulted in PATAMI decrease of 23.6%.

Outlook. While we expect 2H19 to benefit somewhat from the possible returning foreign capital, we expect FY19 ADV to decline by approximately 10% given FY18’s high-base effect, which recorded an ADV figure of RM2.6bn (driven by heightened trading post GE14). While we had initially anticipated better derivative trading volumes from increased FCPO trading (FCPO trading volumes typically spike when CPO price is low), 1H19 derivative volumes did not meet expectations. Additionally, we are further discouraged by increased competition in FCPO trading from Asia Pacific Exchange (Singapore), which is reporting encouraging daily FCPO volumes of >20,000 contracts despite its recent launch in May 2019 (for comparison Bursa averaged 76,000 contracts traded per day in 1H19)

Forecast. We lower our FY19/20/21 forecasts by 8.5%/7.3%/7.0% to account for lower equity ADV and derivative contract trading volume.

Downgrade to HOLD. After accounting for lower earnings, our TP falls from RM7.54 to RM7.00 based on an unchanged 26.1x of FY20 EPS. Our PE multiple is +1SD above its 3 year mean as we opine its recent Shariah status warrants a scarcity premium. Nonetheless, with limited upside from our revised TP, we downgrade our call from Buy to HOLD.

Source: Hong Leong Investment Bank Research - 2 Aug 2019