Bursa’s 4Q18 and FY18 net profit came in at RM51.9m (-6.2% yoy; +3.3% qoq) and RM224m (+0.4% yoy) respectively. The FY18 results were within Affin’s and market expectations. The market volatility during FY18 resulted in weak market sentiment that translated into lower equity average daily values traded towards 4Q18 (ADV at RM2.04bn, -22% yoy), though the year had kicked off vibrantly in 1Q18 (ADV of RM2.93bn). For FY18, the operating profit contribution from the securities market (+2.8% yoy) remained the key driver (89% of group) while derivative profits were down 5.2% yoy (due to lower fees). We maintain our HOLD rating on Bursa, with an unchanged Price Target of RM7.65 (at a 27x P/E target on the 2019E EPS). Though the market outlook is likely to appear lacklustre in 1H19 due to higher risk aversion, we believe that sentiment may recover in 2H19 with a potential easing in the global trade war tension.

FY18 Net Profit Relatively Flat Yoy; 4Q18 Net Profit +3.3% Qoq

Bursa Malaysia saw a FY18 net profit of RM224m (+0.4% yoy), which fell within Affin’s and consensus estimates. Meanwhile, 4Q18 net profit grew by 3.3% sequentially, from lower overheads at the derivatives market division. A final dividend of 11.6 sen was proposed (4Q17: 12.3 sen), with FY18 total dividends amounting to 33.6 sen (below our expectation of at least 40 sen) and lower vis-à-vis FY17’s 35.7 sen.

Trading Revenues Affected by Market Volatility

To recap, the securities market division benefited from high market volatility in 1H2018, especially in 1Q18 (35%) and 2Q18 (37%), which subsequently dissipated in 3Q18 (30%) and 4Q18 (28%). The lower effective clearing fee of 2.27bps (FY18) vs. 2.3bps (FY17) had weakened the overall securities market trading income despite a marginally higher ADV of RM2.57bn (+1.6% yoy) in 2018. On the derivatives front, revenues were affected by lower trade fees (due to a decline of 12.1% yoy in FCPO contracts; FKLI contracts up 22.8% yoy) and lower guarantee fees.

Maintain HOLD; PT Unchanged at RM7.65

We Maintain Our HOLD Rating on Bursa and Our Price Target of RM7.65 (based on a 27x P/E target on 2019E EPS), noting that the FY19E dividend yield is still attractive at 5.0%. Downside/upside risks: foreign funds outflow/inflow; deterioration/revival of investor confidence; weaker/firmer Ringgit.

Source: Affin Hwang Research - 31 Jan 2019