Bursa’s 3Q18 and 9M18 net profit came in at RM50.2m (-2.7% yoy; -13.8% qoq) and RM172.2m (+2.6% yoy). Overall, 9M18 results were below our and market expectations. The weaker equity market sentiment in 3Q18 was reflected by a decline in the total value traded of 12.7% qoq and in terms of average daily value (ADV), by -14.1% qoq. For 9M18, the operating profit contribution from the securities market (+5.5% yoy) remained the key driver (90% of group) while derivatives profits were down 6.1% yoy. We revise our earnings forecasts by -7.3%/-9.4%/-10% for 2018E/19E/20E as we factor in a lower ADV assumption of RM2.5bn for the equity market. Downgrade to HOLD from BUY, with a revised PT of RM7.65 (at a 27x P/E target).

9M18 Net Profit Up 2.6% Yoy; 3Q18 Net Profit -13.8% Qoq

Bursa Malaysia saw a 9M18 net profit of RM172.2m (+2.6% yoy), which was below our and consensus estimates due to a much weaker-thanexpected 3Q18 (net profit -13.8% qoq and -2.7% yoy) arising from moderation in both the securities and derivatives markets. The securities market division remained the key driver, accounting for 90-91% of the group’s 3Q18 and 9M18 operating profit. This was driven by a 9.9% yoy increase in total value traded (equities) of RM500bn for 9M18, which translated into an ADV of RM2.76bn (+10.4% yoy).

3Q18 – Derivatives-market Profits Down 15.6% Yoy and 18% Qoq

The derivatives market, which contributed RM9.5m (-15.6% yoy; -18% qoq) and RM34.4m to 3Q18 and 9M18 operating profit, was affected by a reduction of 0.1ppt in guarantee fees (under a gradual phase-out until 2019) and overall weak trading volumes for 9M18 (-5.7% yoy), which were dragged down by a 13% decline in FCPO contracts but mitigated by a 20% increase in FKLI contracts.

Downgrade From BUY to HOLD; PT Revised to RM7.65 From RM8.40

As we revise our securities market ADV assumption from RM2.8bn to RM2.5bn while lowering our derivatives volume traded assumption by another 3-6% for FY18-20E, our FY18-20E earnings are reduced by 7.3%/9.4%/10%. As upside to our revised Target Price of RM7.65 (based on an unchanged 27x P/E target on 2019E EPS; methodology unchanged) is fairly limited to 1.3%, we downgrade Bursa from a BUY rating to HOLD, noting that dividend yields are still attractive at 4.4-5.3%. Downside/upside risks: foreign funds inflow/outflow; deterioration/revival of investor confidence; weaker/firmer Ringgit.

Source: Affin Hwang Research - 30 Oct 2018