A Wave of Change

We remain upbeat on Bursa Malaysia’s prospects over 2019-2020E as we believe that investor confidence would gradually improve driven by positive economic and fiscal reforms. Hence, we raise 2019-2020E net profit by 7.7% and 6.4% each as we price-in a higher ADV assumption of RM2.9bn (from RM2.6bn). On another note, upcoming 2Q18 results announcement may potentially see a higher dividend payout - we estimate up to 25 sen (2Q17: 23.3 sen). Maintain BUY rating on Bursa but with a higher TP of RM8.40.

After the Wave of Selldown, Stock Prices Are Recovering in 3Q18

The Malaysian market saw a massive selldown post-GE14, driven by the ‘fear trade’ as investors reacted negatively upon news of the country’s RM1trn debt and global trade war tensions. However, stock prices are recovering and trading volumes appear to be normalizing. Positively, we foresee efforts in reducing “inefficiencies and wastages” within the system, restructuring of the country’s debt, initiatives to boost FDIs/business growth as positive catalysts to the Ringgit and stock market.

2Q18 Likely to be Impressive; a Special Dividend Is on the Cards

Based on Bursa’s market data, we project a 2Q18 net profit of RM62m (+4.1% yoy; -2.8% qoq), on a 2Q18 revenue forecast of RM148.6m (comprising 53% securities trading revenue, 14% derivatives and 33% stable fee income). Key drivers in 2Q18 – RM2.88bn in securities market ADV (+2.5% yoy; -1.9% qoq), derivatives volume of 55,594 ADC (-3.3% yoy; +3.2% qoq). We also highlight the possibility of a higher dividend payout of 25 sen in 2Q18, based on an estimated 1H18’s net EPS of 15.6 sen and an available cash hoard of 30.9 sen as at Mar18.

Earnings Revisions – 2019E and 2020E Raised by 7.7% and 6.4%

We raise 2019E/2020E’s EPS by +7.7%/+6.4% as we factor-in a stronger equity market ADV of RM2.9bn (from RM2.6bn). We estimate that every additional RM0.1bn increase in the ADV, it will lift 2018E EPS by +2.5%.

Maintain BUY, Price Target Raised to RM8.40 (from RM8.00)

We maintain our BUY rating with a higher Price Target of RM8.40 (from RM8.00 based on 26x 2018E’s EPS), which is now based on a 27x P/E multiple on a revised CY19E EPS of 31.3 sen. We believe that investors are still warming up to the government’s positive reform agendas, of which will be key re-rating factor for the market. Downside risks – global trade tensions, downward revision in clearing/trade fees.

Source: Affin Hwang Research - 18 Jul 2018