3Q17 Earnings Dip Qoq as Market Consolidates

Bursa Malaysia’s 3Q17 net profit came in at RM51.6m (EPS: 9.6 sen), inline with our expectation of a sequential decline due to the market consolidation effect on the equity business income. Nonetheless, the securities market remained the key earnings driver for 3Q17 and 9M17, accounting for approximately 87% of EBITDA, although equity trading revenue was down 21% qoq. No dividend was proposed in 3Q17, but we anticipate a final DPS of 25 sen. Maintain HOLD, PT unchanged at RM10.30 (based on 25.5x P/E target).

3Q17 Net Profit Pulls Back 13.3% Qoq as Equity Market Consolidates

Bursa’s 3Q17 net profit of RM51.6m (+17% yoy, -13.3% qoq) and 9M17 net profit of RM167.8m were in line with our expectations and consensus estimates. Though the equity trading revenue was down 21% qoq (as securities market ADV was down 23% qoq to RM2.16bn), the securities market division remains the key earnings driver for Bursa (partially cushioned by stable fee income, which was up 5.6% yoy for 9M17) and accounted for approximately 83.7% of 3Q17 and 9M17 EBITDA.

9M17 Derivatives Market Profit Down Due to Decline in Fees

Segmental profit contribution from the derivatives market was down 17% yoy for 9M17 (though was up 7.7% qoq, led by a recovery in the FCPO trading) due to a decline in the trade/clearing/guarantee fees. FKLI volumes were lower by 23% yoy (due to lack of volatility) and -9.6% qoq while FCPO volumes were +5.7% yoy and +4.6% qoq. On an average daily contracts (ADC) basis, 3Q17 stood at 56,848 (+0.7% yoy, -1.1% qoq).

Maintain HOLD With PT Unchanged at RM10.30 (at 25.5x P/E Multiple)

There are no changes to our 2017E-20E forecasts. Maintain HOLD on Bursa, with an unchanged 2018 Price Target at RM10.30 (based on a P/E target of 25.5x on 2018E EPS of 40.4 sen). Our assumptions remain unchanged, ie, 2017E securities market average daily value (ADV) of RM2.4bn (vs. ytd of RM2.35bn) and derivatives average daily contracts of 55.8k (vs. ytd of 59k). We are anticipating an estimated 4Q17 net profit of circa RM55m, based on a potential securities market ADV of RM2.3-2.4bn. Drawing from historical trends, we continue to expect more off-market trades to boost an otherwise lacklustre 4Q17’s on-market trading values. Upside risks: shift in funds from the bond market to equities, recovery in global economic data and corporate earnings, and a stronger pipeline of IPOs in 2017 (>RM20bn).

Source: Affin Hwang Research - 26 Oct 2017