Bursa’s 2Q18 and 1H18 net profit came in at RM58.2m (-2.2% yoy) and RM122m (+5% yoy). An interim (14 sen) and special (8 sen) dividend were proposed. Overall, 1H18 results were broadly within our and market expectations. Though 2Q18 saw another robust quarter, as reflected by a securities market ADV of RM2.88bn (+2.5% yoy), a lower effective clearing fee arising from larger-sized trades (a maximum fee of RM1,000 for trades >RM3.33m) capped the upside for higher revenue. For 2018E-20E, we remain bullish on Bursa’s outlook on the back of potentially improving investor confidence. Maintain BUY, PT of RM8.40 unchanged.

1H18 Net Profit Up 5% Yoy; Broadly With Expectations

Bursa Malaysia saw a 1H18 net profit of RM122m (+5% yoy), broadly within our expectations for a net profit of RM249.7m in FY18E (premised on an ADV assumption of RM2.8bn vs. 1H18 ADV of RM2.88bn). The securities division (accounting for 89% of the group’s 2Q18 operating profits) came in lower (2Q18 profit -1.9% yoy; -7.1% qoq) as a result of: i) a lower effective clearing fee at 2.15bps in 2Q18 vs. 2.34bps in 2Q17 and 2.31bps in 1Q18 (despite higher 2Q18 ADV of RM2.88bn vs. RM2.81bn in 2Q17 and 2.93bn in 1Q18); and ii) higher overheads (+6.6% yoy) due to increased staff costs. The 1H18 securities market operating profit was up 6.8% yoy on robust ADV (+8.6% yoy) and higher listing/issuer fees.

2Q18 – a More Robust Quarter for Derivatives-market Trading

The derivatives market contributed RM11.6m to 2Q18 operating profit, up 10.8% yoy due to higher revenue and margin earned from a spike in the FKLI trades (volume +40.4% yoy in 2Q18), offsetting a reduction in guarantee fees (under a gradual phase-out until 2019). For 1H18, derivatives profit was down by 1.9% yoy due to lower trade volumes (-8.4% yoy) and reduction in the guarantee fees by another 0.1ppt.

Maintain BUY; PT Unchanged at RM8.40 (based on a 27x P/E Target)

We reiterate our BUY rating, based on 2019’s Price Target of RM8.40 (at a 27x P/E target on 2019E EPS). We believe that Bursa’s outlook remains intact, noting potentially more foreign funds inflow as confidence in the new government’s fiscal and economic reforms grow, a firmer Ringgit and growing traction of the new capital-market initiatives announced (stampduty waiver on the mid/small-cap counters, intraday short-selling, volumebased incentives). Key risks: reversal in trading sentiment.

Source: Affin Hwang Research - 31 Jul 2018