FY16 NP came in within expectations. As expected, a final DPS of 17.0 sen was declared. Fluctuation in Ringgit as well as the uncertainties arising from the policy of the Trump’s presidency will continue to cast a long suppressing shadow over market and trading sentiment. Our FY17E NP has been tweaked by +1% following house- keeping purposes. Maintain MP with TP marginally increased to RM8.86 (from RM8.80).

Within expectations. BURSA reported 4Q16 net profit (NP) of RM50.2m (+14% QoQ; -1% YoY), bringing FY16 NP to RM193.6m (- 3%) which made up 102% and 98% of our and the consensus’ full- year estimates, respectively. As expected, a final DPS of 17.0 sen was declared, bringing total DPS to 34.0 sen (representing a dividend pay-out ratio of 95%).

YoY, FY16 operating revenue decreased by 3% with marginal growth (+2%) from stable revenue negated by weaker trading revenue (-6%, which was dragged by lower securities trading revenue amid lower average daily trading value and volume. Despite the decent growth in “other income” segment (+11%) which was predominantly driven by higher interest and dividend income (+9% and +21%), total income still dropped by 2%. For the stable revenue, the decent performance was anchored by both: (i) higher growth from better listing and issuer services revenue (+1%) and (ii) better income from market data fees (+5%) as a result of higher number of subscribers for derivatives market data. At PBT level, coupled with a slight uptick in cost-to- income ratio (CIR) at 46.6% (vis-à-vis FY15: 46.2%), the group’s net profit dropped by 3%.

Meanwhile on QoQ basis, 4Q16 total income improved by 4% led by better other income (+47% due to dividend income that is usually earned every FY4Q) as well as marginal growth in Operating revenue (+1%).

Trading revenue declined (-2%) but was offset by better stable revenue (+5%). The weaker trading revenue was dragged by lower trading revenue from securities market (-5%) due to poor sentiment amid domestic and global market uncertainties while trading revenue from derivatives market was higher (+5%). However, with lower CIR of 44.3% (from 48.4%, a result of streamlining in human resource management), 4Q16 PATAMI improved by 14%.

Headwinds persist. Fluctuation in Ringgit, China’s economic slowdown, BREXIT impact as well as the uncertainties arising from the policy of the Trump’s presidency 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 1,732-point by end-2017, amid: (i) modest corporate earnings growth (-4% to 6% YoY for FY16-FY17) coupled with (ii) cautious investment sentiment.

Post earnings model update, our FY17E NP has been tweaked by +1% for house-keeping purposes. As a result, our TP has been marginally increased to RM8.86 from RM8.80. This is still based on a targeted FY17E PER of 22.0x (at its 5-year average P/E). Maintain MARKET PERFORM.

Risks to our call include: (i) Higher-than-expected trading volume in the securities and derivatives markets, (ii) Lower-than-expected opex and (iii) More IPOs.

Source: Kenanga Research - 06 Feb 2017