1Q17 NP came in within expectations. Absence of DPS was also as expected. Post model updates, FY17E NP has been tweaked by +4% and FY18E NP introduced. With market underlying buying interest remaining strong, trendfollowing could be a better investment strategy for now. As such, to better reflect the prevailing trend, we are ascribing a higher valuation to BURSA. Maintain MP with a higher TP of RM10.12 based on 23.0x FY18E PER.

Within expectations. BURSA reported 1Q17 net profit (NP) of RM56.6m (+13% QoQ, +13% YoY), which made up 26% of both our and the consensus’ full-year estimates. As expected, no dividend was declared under the quarter reviewed. We are expecting the group to pay 40.0 sen dividend for the full year, which is based on a dividend pay-out of 94% (similar of the last year pay-out ratio).

YoY, 1Q17 operating revenue grew by 7% driven by lion’s share trading revenue of 11% (which was on the back of the securities market’s higher average daily trading value of +21% and volume of +50%). This is despite the flat stable revenue dragged by lower listing and issuer services revenue. Meanwhile for the total income, with the support of positive growth in “other income” segment (+3%, which was predominantly driven by higher dividend and grant income), the overall number improved at the similar quantum of 7%. At the group bottom-line, with a better cost-to-income ratio (CIR) of 44.7% (- 2.6ppts) on the back of better operational efficiency, PATAMI improved by a wider quantum of 13%.

Meanwhile on QoQ basis, 1Q17 total income improved by 15% led by better trading revenue, particularly from the securities market (+37%). Besides the higher trading activities from the retail and domestic institutions with total average daily value (ADV) of RM1.9b, +52%, the return of foreign investors had also helped (+9% to ADV of c.RM484m). With stable CIR of 44.7% (+0.4ppts), 1Q17 PBT improved by 14%.

Trend is your friend. While market fundamental remains largely unchanged, the market has performed relatively strong in the 1Q17 (hence contributed to the decent 1Q17 results of BURSA) with positive spill-over effect seen to date. Coupled with our empirical research performed from the fundamental and technical perspective, we are of the view that the decent market performance is likely driven by better market sentiment and liquidity. With underlying buying interest remaining strong, our strategist suggests that trend-following s could be a better investment strategy for now. As such, to fairly reflect such a trend, we are ascribing a higher PER valuation to BURSA.

Maintain MARKET PERFORM with a higher TP of RM10.12 (from RM8.87). While we made no major changes to our earnings driver assumptions, our FY17E NP has been tweaked up by 4% post model updates. We also introduced FY18E NP of RM236.0m (+4%) with growth expected from better trading revenue (+2%) as well as stable CIC of 45.7%. As the group has entered into the mid-2017, we also roll over our valuation base year to FY18 to better reflect its prospect. All in, our TP is now at RM10.12 based on 23.0x FY18 PER (which is at the +1SD above the 5-year average PER). Maintain MARKET PERFORM. Risks to our call include: lower-than-expected trading volume in the securities and derivatives markets, higher-thanexpected opex, and less IPOs.

Source: Kenanga Research - 27 Apr 2017