9M16 NP came in within expectations. As expected, no dividend was declared. It is believed that internal and external economic challenges will continue to cast a long shadow over market sentiment; hence, suppressing trading sentiment. No change to our FY16E/FY17E NP estimates, hence our unchanged MP call and TP of RM8.80.

Within expectations. BURSA reported 3Q16 net profit (NP) of RM44.0m (-11% QoQ; -14% YoY), bringing 9M16 NP to RM143.5m (- 3.1%) which made up 75% and 70% of our and the consensus’ fullyear estimates, respectively. As expected, no dividend was declared for the reviewed quarter.

YoY, 9M16 operating revenue fell marginally by 0.6% with better performance in stable revenue (+3.3%) superseding the meagre growth in trading revenue (-2.7%, which was dragged by lower securities trading revenue (-5.4%) amid lower average daily trading value and volume but mitigated by improved performance from the derivatives market. Despite the decent growth in “other income” segment (+11.7%) which was predominantly driven by higher interest and dividend income (at +13% and +34%, respectively), total income was flat at RM383.0m. On a closer look at stable revenue, the decent performance was anchored by: (i) decent growth from Bursa Suq AlSila (BSAS; +7%), (ii) better listing and issuer services revenue (+3%) on higher initial and additional listing fees from the transfer of listing status and higher number of corporate exercises in 9M16, as well as (iii) improved market data and depository services at +6% and +2%, respectively. At the bottom line, with a slight uptick in cost-toincome ratio (CIR) at 47.4% (vis-à-vis 9M15: 45.6%), the group’s net profit fell by 3.1%, reflective of the marginally poor performance from the top line.

Meanwhile on QoQ basis, 3Q16 total income decreased 8.0% dragged by falling revenue in operating revenue (-9%) and softer revenue from other income (+2%). Looking at the lion’s share operating revenue, weaker trading revenue (-9%) was recorded due to poor sentiment in the securities market amid domestic and global market uncertainties. The weaker sentiment had also affected trading revenue from derivatives market, which fell by 12%. With CIR up by 2ppts to 48.4%, 3Q16 PATAMI declined at a double-digit rate of 11%.

Headwinds persist. US interest hike decision, concern over global economic growth as well as other lingering external and internal uncertainties are likely to cast a long shadow over market sentiment. Having said that our strategist is forecasting for the local bourse to hit 1,715-point by end-2016 and 1,755 by end of 2017 on the back of modest corporate earnings growth rates of ~2%-7% for FY16-FY17. With the mixed market outlook, we prefer to keep our conservative stance by forecasting average trading value and volume for the equity market in 2016 at RM1.86bn (-7% YoY) and 1.81bn shares (-8% YoY), respectively. As for the derivatives market, we expect total volume for future contracts to increase by 6% YoY.

NO change in TP and Call. No change in our FY16E/FY17E estimates thus, our TP is maintained at RM8.80. This is still based on a targeted FY17E PER of 22.0x (at its 5-year average P/E). MARKET PERFORM call maintained. Risks to our call include: Higher-than-expected trading volume in the securities and derivatives markets, Lower-than-expected opex, and More IPOs.

Source: Kenanga Research - 25 Oct 2016