Bursa Malaysia’s 1Q18 net profit came in at RM63.8m (EPS: 7.9 sen), within our and market expectations. In our view, the Malaysian equity market saw a very strong January effect in 1Q18 as reflected by an ADV of RM2.93bn (+15.4% yoy) while the securities-market trading revenue jumped 13.5% yoy and 18% qoq. For 2018E, we remain bullish on Bursa’s outlook, driven by a potentially robust equity market (our average daily value assumption is RM2.8bn vs. RM2.53bn in 2017) due to a stronger Ringgit, the run-up to the coming election, the recently introduced capital-market initiatives and corporateearnings expansion. Maintain BUY and Price Target of RM8.00 (ex 1- for-2 bonus issue) on a target 26x P/E on 2018E EPS.

1Q18 Net Profit Growth of 12.6% Driven by Equity-market Revenues

Bursa Malaysia’s 1Q18 net profit of RM63.8m (+12.6% yoy, +15.4% qoq) was in line with our and street estimates. The securities-market revenue (representing 78% of operating revenue) was up +13% yoy underpinned by stable fee income and securities-market clearing fees (which vary according to the market average daily value (ADV), which stood at RM2.93bn, +15.4% yoy). For the period, market velocity also surged to 35% vs. 34% in 1Q17 and 31% in 4Q17. The 1Q18 operating margin for the securities-market activities improved as well, from 78.6% in 4Q17 to 81% yoy.

1Q Derivatives Market - Lower Guarantee Fees and Decline in Volumes

On the derivatives market, two factors have been weighing down on profits, which came in at RM2.65m (-1.9% yoy; +3.4% qoq): i) the overall volume traded in 1Q18 of 3.3m, which was down 12.9% yoy and 2.1% qoq; and ii) a reduction in the guarantee fees (under a gradual phase-out until 2019).

Maintain BUY; PT Unchanged at RM8.00 (based on a 26x P/E Target)

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

RM8.00 based on a 26x P/E target on 2018E EPS. We remain upbeat on Bursa’s outlook, noting potential catalysts such as the BURSA-SGX Link (to be launched at end-2018), the recent capital-market initiatives announced (such as the stamp-duty waiver on the mid/small-cap counters, intraday short-selling, volume-based incentives, etc), a firmer Ringgit, a stronger pipeline of IPOs and the run-up to the coming general election. Key risks: reversal in trading sentiment; rising geopolitical risks.

Source: Affin Hwang Research - 26 Apr 2018