Period

1Q16/3M16

Actual vs. Expectations

Within expectations. The group reported 1Q16 net profit of RM49.9m which made up 27% and 24% of our and the consensus’ full-year estimates, respectively.

Dividends

As expected, no dividend was declared under the quarter reviewed.

Key Results Highlights

YoY, operating revenue increased by 5% with better performance in stable revenue (+11%) superseding the flat growth in trading revenue (+2%, which was dragged by lower securities trading revenue) coupled with the decent growth in “other income” segment (+7%) which was predominantly driven by higher interest income (+11%), total income grew by 5%.

On a closer look at the star performer- stable revenue, the decent performance was anchored by both: (i) higher growth from Bursa Suq Al-Sila (BSAS) growing 26% to RM13.3m), on the back of higher adoption of the Murabaha concept as well as (ii) better listing and issuer services revenue (+22%) on higher listing fees, higher number of corporate exercises and IPOs in 1Q16. At the bottomline, with cost-to-income ratio (CIR) stabilising at 47.3% (vis-à-vis 1Q15: 47.4%), the group’s net profit grew by 6%, reflective of the underlying strong performance from the top line.

QoQ, total income decreased by 1% as marginal growth at the operating revenue (+1) was negated by seasonally weaker performance in the “other income” segment (-25%).

Delving deeper at the operating revenue, decent growth contribution from stable revenue (+8%) was erased by weaker trading revenue (-3%, on the back of thinner average daily trading volume and value in the securities market, at -16% and -4% respectively). With stable CIR, the group’s net profit decreased by 1%.

Outlook

Fluctuation in commodities prices, 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.

Challenging external headwinds still linger and our strategist is now forecasting the local bourse to hit 1,725-point by end-2016, lower than what was initially projected at 1,755-points, amid: (i) modest corporate earnings growth (4%-8% YoY for FY16- FY17) coupled with (ii) cautious investment sentiment.

Meanwhile, we are keeping our conservative stance by forecasting average trading value and volume for the equity market in 2016 at RM1.87bn (-5% YoY) and 1.89bn shares (-4% YoY). As for the derivatives market, we expect total volume for future contracts to slow down by -5% YoY.

Change to Forecasts

Post our earnings model update, FY16E NP has been marginally tweaked by +3% for house-keeping purposes. Meanwhile, we also introduced our FY17E NP.

Rating

Upgrade to MARKET PERFORM

Valuation

Post revision, our TP has been increased to RM8.56 from RM7.60 as we rollover our valuation base year to FY17. Our valuation is based on a targeted FY17E PER of 22.0x (at its 5-year average P/E).

Risks to Our Call

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

Lower-than-expected opex.

More IPOs.

Source: Kenanga Research - 26 Apr 2016