Bursa reported FY19 core PATMI of RM189.2m (-16% YoY) which met both our expectations and consensus. Given stable cost base, lower FY19 earnings YoY was largely a function of revenue decline (mainly equities; -19.8% ADV fall). While Jan ADV showed improvement both MoM and YoY, we are cautious on its sustainability. Forecast is largely unchanged (±1%) but we take the opportunity to trim our applied PE multiple from 26x to 25x, tracking the Asian average. TP is lowered from RM6.29 to RM6.12. Maintain HOLD.

Within expectations. Bursa posted 4QFY19 core PATMI of RM48.9m (+3.7% QoQ, - 5.8% YoY), bringing the cumulative full year FY19 sum to RM189.2m (-15.6% YoY). The latter accounted for 102% of our full year forecast (consensus: 99%) which is within expectations. Note that FY19 core PATMI has been adjusted for -RM3.3m computer software impairment (all booked in 4Q).

Dividend. Declared 4QFY19 DPS of 10.4 sen, bringing the full year FY19 amount to 20.8 sen (vs FY18: 33.6 sen which includes 8 sen special dividend).

QoQ. Revenue showed a +4.4% increment from growth in both Securities (+6.0%; decline in ADV for OMT more than offset by higher DBT) and Derivatives revenue (+11.2%; ADC rose +6.7%). Additional 3 trading days QoQ also aided revenue increase for both segments. With opex up 8.5%, core PATMI (ex -RM3.3m computer software impairment) nudged up at a slower pace of +3.7%.

YoY. Revenue was flattish (+1.3%) as growth in Derivatives (+7.3%; ADC rose +7.7%) was largely offset by a dip in Others (-2%; mainly from lower BSAS ADV which fell -14.5%). Coupled with higher opex (+9.6%), core PATMI declined -5.8%.

YTD. Revenue declined -8.2% driven by (i) -12.4% fall in Securities revenue following -19.8% drop in ADV; recall that FY18’s ADV was boosted by heightened equities trading pre and post GE14, (ii) -5.8% decrease in Derivatives revenue (higher ADC for FCPO +1.6% more than offset by -9.6% fall in FKLI) and (iii) -3.2% decline in Others, largely from listing and issuer services (-10.1%; due to lower market cap base). With stable core opex (+0.7%), core PATMI fell -15.6%, reflecting the relatively high operating leverage nature of its business.

Outlook. We note that equities ADV has been robust post CNY holidays, averaging RM2.59bn in the past 3 days, likely from selling concerns associated with the nCoV outbreak. This brings Jan ADV to RM1.99bn (MoM: +16.2%, YoY: +3.1%). While chalking an improvement, we reckon it’s still in the early days to revisit our assumptions which entail ADV of RM1.92bn for FY20 (flattish YoY) before a subsequent 7.5% recovery in FY21. Furthermore, the sustainability of high ADV associated with a negative event may be short lived.

Forecast. Largely unchanged (±1% after updating FY19 numbers) as the results were inline.

Maintain HOLD, TP: RM6.12. Despite little change to forecast, we take this opportunity to cut the assigned PE multiple from 26x to 25x which corresponds to the average 1-year forward PE of Asian exchanges (i.e. SGX, HKX and Bursa) which has de-rated slightly of late. This lowers our TP from RM6.29 to RM6.12. While share price has fallen -6.7% YTD, we are still holding back our horses on the stock as we do not envisage a sustained revival in ADV just yet. Current PE of 23.2x and 22.5x for FY20-21, seems fair, near its 5-year mean of 22.8x.

Source: Hong Leong Investment Bank Research - 31 Jan 2020