Period    3Q12

Actual vs. Expectations   Results came in broadly within our expectations. The reported 3Q12 net profit of RM37.0m was approximately 6% below our quarterly forecast of RM40.3m. The accumulated nine months net profit of RM115.8m accounted for 76.7% of the street's full year estimate and our forecast of RM151m.

Dividends   No dividend was declared as expected.

Key Result Highlights  QoQ, the total income was almost flat with a marginal increase of 0.2% to RM106.2m. However, the net profit declined 2.4% to RM37.0m due mainly to a higher effective tax rate of 29.1% as opposed to 26.4% in 2Q12. The flat total income was in line with the uninspiring equity trading revenue with the FBMKLCI gaining just 2.4% on average. The average daily trading value and volume were registered at RM1.6b (+7.9% QoQ) and 1.1b shares (-0.2% QoQ) respectively. Listing fees decreased by 10% to RM10.1m in 3Q12 compared to 2Q12 due mainly to the lower market capitalisation  of IPOs in 3Q12. Moreover, there was a shorter trading days of 61 days as opposed to 63 days in 2Q12.

 YoY, both the total income and net profit declined 1.0% and 4.1% respectively. Again, the lower profitability was in line with the lower average daily trading value of 8.1% (3Q12: RM1.6b vs. 3Q11: RM1.7b) despite a higher average daily trading volume of 19.5% (3Q12: RM1.1b shares, 3Q11: RM1.0b). 

 Accumulatively to date YoY, the total income declined marginally by 0.6% due to the abovementioned factors. However, the net profit grew marginally at 0.8% due to better cost controls with a staff cost to income ratio of 23.3% in 9M12 vs. 24.4% in 9M11. 

Outlook   While 3Q12 was somewhat disappointing in terms of market trading activities (probably due to the upcoming 13^th  General Election jitters), we continue to believe  that the market condition should improve in the coming quarters in line with our cautiously optimistic market view. Recall that we had recently revised our 12-month index level slightly lower to 1,745 from 1,750.

Change to Forecasts  Maintaining our FY12E and FY13E net earnings estimates of RM150.7m (+3.1% YoY) and RM175.6m (+16.5% YoY) respectively.

Rating  Maintaining OUTPERFORM as the proxy to capitalise on our optimistic market view.

Valuation    While we are maintaining our earnings estimates and OUTPERFORM rating, we have however revised our Target Price lower to RM7.30 (from RM7.70), which is based on 23.9x FY13 PER, the 3-year average Forward PER. The revision is to reflect the lacklustre trading activities on Bursa of late.

Risks   Much slower than expected market activities.

Source: Kenanga