Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM198.6 was in line with our and market estimates, making up 103% and 100% of the full-year forecasts, respectively. The better results were attributed to higher derivatives trading revenue.

Dividends

As expected, a final DPS of 18.0 sen was declared bringing the total DPS for FY15 to 34.5 sen, implying a payout ratio of 93% (FY14: 92%).

Key Results Highlights

FY15 vs. FY14, YoY

The decent showing can be attributed to a slightly better operating revenue growth, at +3.5% (FY14: +7.1%)

Operating revenue grew primarily due to improved performance from the derivatives market at +22.0% (FY14: +0.5%) and the stable revenue segment at +4.3% (FY14: +6.1%) but mitigated by drop in securities trading revenue by 2.5% (FY14: +10.0%).

In tandem with the improved performance, the derivatives market contribution to total operating revenue also improved to 17.6% (FY14: 14.9%).

Stable revenue improved due to higher growth from the Bursa Suq Al-Sila (BSAS) trading revenue growth of 68.5% to RM16.8m, attributed to higher conversion of deposits to Murabaha.

Drop in D&A expenses of 6.1% led to total costs rising only by 3.3% and with total income rising by 2.9%, cost-to-income ratio (CIR) stabilized at 46.2%. 4Q15 vs. 3Q15, QoQ

Bursa’s net profit fell by 1.7% to RM50.6m as CIR spiked 3.8ppts to 48.0%. The spike was due to a surge in manpower expenses by 16.5%.

Total income rose by 5.2% to RM125.2m as operating revenue and other income improved by 2.6% and 52.1%, respectively.

Growth in operating revenue was capped by a 7.7% drop in derivatives market revenue although both revenue from securities market and the stable revenue segment rose 4.3% and 6.3%, respectively.

Outlook

No changes to our view.

Weak commodities prices, weak Ringgit, China’s economic slowdown and expectations of a gradual rise in US interest rate will continue to cast a long shadow over market sentiment.

The current choppy market environment is likely to stay, driving investors to the sideline or exit. For the whole of 2015, foreign net selling of the local bourse reached more than RM19b, which seemed to continue with another RM0.97b net selling in the first 19 trading days of 2016. To note, foreign net selling in 4Q15 was only at RM1.3b.

Challenging external headwinds still linger and our strategist is now forecasting the local bourse to hit 1,755- point by end-2016, lower than what was initially projected, at 1,775-points, amid: (i) weak corporate earnings growth (4%-8% YoY for FY16-FY17) coupled with (ii) weaker investment sentiment.

In turn, we are projecting the average trading value and volume for the equity market in 2016 to be lacklustre at RM1.94bn (-2.5% YoY, previous forecast: RM2.01bn or +3.0% YoY) and 1.98bn shares (+0.5% YoY, previous forecast: 2.3bn shares or +14.6% YoY). As for the derivatives market, we expect total volume for future contracts to improve by 1.2% YoY to 33.5bn contracts (previous forecast: 33.8bn contracts or -2.7% YoY).

Change to Forecasts

No change to our FY16 forecasts.

Rating

Maintain UNDERPERFORM

Valuation

As there are no change in earnings forecast, we maintained our TP of RM7.60, based on a FY16E P/E of 22.0x (-0.1 SD below its 5-year average P/E). This is also in line with the valuation multiples of its regional peers which are trading at a forward FY16E P/E of 20x.

Risks to Our Call

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

Lower-than-expected opex.

More IPOs.

Source: Kenanga Research - 3 Feb 2016