Period

1Q15

Actual vs. Expectations

1Q15 net profit of RM47m (+4% YoY) was within expectations, making up 23-24% of our and consensus’ full-year estimates.

Dividends

As expected, no dividends were declared – payout is usually in 2Q and 4Q.

Key Results Highlights

1Q15 vs. 1Q14, YoY

Bottom-line growth (+4%) was fuelled by higher operating revenue (+4%).

The 4% rise in operating revenue can be attributed to higher revenue from the derivatives market (+19%) where daily average trading volume for CPO futures rose 31%.

Bursa Suq Al-Sila (BSAS) trading revenue accelerated 110% due to higher conversion of Mudaraba and Wakalah products to Murabaha deposits.

Listing and issuer services revenue dropped 17% given absence of IPO and fewer corporate exercises.

Market data revenue shot up 18% on the back of higher no. of subscriptions.

With staff cost and D&A expenses falling 3% and 12%, respectively, cost-to-income ratio (CIR) improved to 47% (-2ppts). 1Q15 vs. 4Q14, QoQ

Versus a strong 4th quarter, net profit fell 11% as (i) operating revenue was flat and (ii) its effective tax rate returned to a normalized level of 26% (4Q14: 21%).

Operating revenue was mediocre owing to tepid trading revenue from the securities market (-2%). This is due to: (i) lesser number of trading days in 1Q15 vs. 4Q14 and (ii) the effective rate for clearing fee declined 0.12bpts to 2.31bpts.

CIR rose 1ppts as market dev. costs spiked up 126%.

Outlook

Prevailing uncertainties such as GST implementation, sovereign rating review and US Fed rate direction will continue to cast a long shadow over market sentiment.

Hence, we believe investors (especially within the retail space) are: (i) likelier to stay on the sideline and (ii) become more vigilant with their trading habits.

Overall, we expect lacklustre trading activities in the securities and derivatives markets over the short-term.

Change to Forecasts

No change to our forecasts.

Rating

Maintain MARKET PERFORM

Limited share price upside with lack of re-rating catalysts on the horizon.

Furthermore, we do not expect any special dividend payout in the next two years given its diminished cash reserves. That said, it is still a debt-free company.

Valuation

We arrive at a new TP of RM8.50 (previously: RM8.40) as we rollover our valuation to FY16. This is based on an unchanged PER multiple of 22.5x (-0.5SD below its 5-year average PER and in line with its regional peers).

Risks to Our Call

Lower-than-expected trading volume in the securities and derivatives markets.

Deferment of key IPOs in 2015.

Higher-than-expected opex.

Source: Kenanga Research - 23 Apr 2015