Bursa’s 4Q17 net profit came in at RM55.3m (EPS: 10.2 sen) while full year registered at RM223m (+15.2% yoy), in-line with our and market expectations. The key driver in 4Q17 was primarily the securities market, whereby trading revenue jumped 31.8% yoy and 14.8% qoq. Bursa had also proposed a final dividend of 18.5 sen or a full year DPS of 53.5 sen (below our expectation of 60 sen). For 2018E, we remain bullish on Bursa’s outlook, driven by a potentially robust equity market (our average daily value assumption of RM2.8bn vs. RM2.53bn in 2017) due to the upcoming election, stronger Ringgit and corporate earnings expansion. Maintain BUY, PT RM12.00 (at 26x P/E target on 2018E EPS).

2017 Net Profit Growth of 15% Yoy on Robust Clearing and Trade Fees

Bursa Malaysia’s 4Q17 net profit of RM55.3m (+10.2% yoy, +7.1% qoq) and 2017 net profit of RM223m were in-line with our and street estimates. Bursa’s key revenue driver was from securities market revenue (+16.3% yoy) (including stable fee income and the variable securities market clearing fees), which contributed approximately 75% of 2017’s total operating revenue. Underpinning this was a much more robust 2017’s securities market average daily value (ADV) of RM2.53bn (+28.6% yoy), despite a marginal dip in the effective clearing fee rate by 0.03bps to 2.3bps. The 2017 operating margin for securities market improved as well from 75.2% to 78.4% yoy.

2017 Derivatives Market Revenue Affected by Lower Guarantee Fees

Despite a relatively flat derivatives trading volume in 2017, as implied by the average daily contracts (ADC) of 57,677 (-0.3% yoy), the overall weaker derivatives market revenue (-8.1 % yoy) and profits (-17.3 % yoy) was due to a reduction in the guarantee fees (under a gradual phase-out until 2019) and lower trade fees.

Maintain BUY. PT Unchanged at RM12.00 (based on a 26x P/E Target)

We Reiterate Our BUY Rating on Bursa, With a 12-month Price Target of

RM12.00 based on a 26x P/E target on 2018E’s EPS. Key catalysts - shift in a stronger Ringgit, a synchronized global recovery, a stronger pipeline of IPOs and corporate exercises and run-up to the upcoming general election. Our key assumptions of the securities market ADV remains unchanged at RM2.8bn and RM2.6bn for 2018E and 2019E. Key risks: reversal in trading sentiment; rising geopolitical risks.

Source: Affin Hwang Research - 6 Feb 2018