Bursa Malaysia’s (Bursa) 2Q19 net profit came in at RM46.3m (-20.4% yoy; -1.1% qoq). Meanwhile, 1H19 net profit of RM93.2m (-23.6% yoy) was within Affin’s expectations, though below consensus estimates by 13%. It was another weak quarter, as reflected by lower market volatility of 29% in 2Q19 vs. 30% in 1Q19 and 37% in 2Q18. The prolonged caution in the market had resulted in a lower 2Q19 equity average daily value (ADV) of RM2.21bn (-23% yoy; -8.3% qoq). For the derivatives market division, while trading volumes were higher by 10.2% qoq, it was still lower by 6.1% yoy. The absence of a special DPS this time round may also reduce the attractiveness of Bursa as a yield play. Maintain SELL with an unchanged Price Target at RM5.40 (25x P/E target on 2020E EPS). In our view, the 2H19 equity and derivative market outlook is expected to stay bearish in light of a moderating economic outlook and the on-going US-China trade-war.

2Q19 Net Profit Declined by 20.4% Yoy and Marginal 1.1% Qoq

Bursa saw another weak quarter in 2Q19, as net profit came in at RM46.3m (-20.4% yoy; -1.1% qoq). 1H19 net profit also declined by 23.6% yoy, largely driven by a decline of 14% yoy in operating revenue though overall 1H19 expenses were flat yoy. The bulk of Bursa’s operating profits (90.6%), came from the securities market division which saw profits declining 19% yoy as a result of lower 1H19 securities market revenue (- 15.2% yoy; 1H19 ADV at RM2.3bn vs. 1H18 at RM2.9bn). Meanwhile, the derivatives division saw operating profit down 26% yoy arising from lower guarantee fees as well as contraction in trading volumes (-10.7% yoy).

Interim Dividend at 10.4 Sen; No Special Dividend Proposed

Bursa proposed an interim dividend of 10.4 sen (vs. 2Q18 at 14 sen), inline with a lower net profit. Meanwhile, special dividend was not proposed this time, in contrast to a 8 sen proposed in 2Q18. We believe that Bursa may be conserving its cash and likewise we slash our 2019-21E DPS forecasts from 26-29 sen to 21.6-22 sen (resulting in additional interest income earned for 2019E-21E from its existing cash hoard).

Maintain SELL; PT at RM5.40 (at 2020E’s 25x P/E Multiple)

Maintain SELL. Our Price Target is unchanged at RM5.40 (based on a 10-year mean P/E multiple of 25x on 2020 EPS). Our assumptions: i) an equity ADV of RM1.9-2.0bn and derivatives ADC of 48,000. Upside risks: strong foreign funds inflow; revival of investor confidence; firmer Ringgit.

Source: Affin Hwang Research - 2 Aug 2019