1H17 NP came in within expectations. While first interim dividend of 20.0 sen was expected, a special DPS of 15.0 sen was a positive surprise to us. Post model updates, our FY17E/FY18E NP were tweaked up by +1%/+2%. While downside risks are mounting in 3QCY as evidenced in the recent dwindling of Securities ADV, it may not be all gloom and doom for 2017 as 1H17 stellar performances alongside normalisation in 4Q17 should make up the shortfall in 3QCY. Maintain MP with a higher TP of RM10.35.

Within expectations. BURSA reported 2Q17 net profit (NP) of RM59.5m (+5% QoQ; +20% YoY), bringing 1H17 NP to RM116.2m (+17%) which made up 51%/52% of our and the consensus’ full-year estimates, respectively. While first interim dividend of 20.0 sen was in line, a special dividend of 15.0 sen was a positive surprise to us. Previously, we had only expected the group to pay 40.0 sen of interim dividend for the full year, which was based on a dividend pay-out of 94% (similar of the last year pay-out ratio).

YoY, 1H17 operating revenue grew by 9%, led by lion share’s trading revenue of 13% (which was on the back of the securities market higher ADV of +32% and volume of +60% despite lower trading revenue from derivatives market of -12%). Meanwhile for the total income, with the support of positive growth in “other income” segment (+4%, which was predominantly driven by higher dividend and rental income), the overall numbers improved with a similar quantum of 8%. At the bottom-line, with a better cost-to-income ratio (CIR) of 43.8% (-3.1ppts) on the back of better operational efficiency, PATAMI improved by a wider quantum of 17%. Meanwhile on QoQ basis, 2Q17 total income was flat with better trading revenue (+3%) negated by lower stable revenue (-6%, with the absence of conference fees and exhibition related income that was previously recorded in 1QCY). However, with a better CIR of 42.8% (- 1.9ppts) recorded (on lower market development and promotions expenses), 1Q17 PBT improved by 4%.

Downside risks mounting in 3QCY with normalisation in 4QCY. Note that BURSA marked its highest 1H operating revenue since listing, driven by the exceptionally strong volume in securities ADV. However, since the end of June towards our date of writing, we noticed that Securities ADVs as well as the trading volumes are already showing signs of weakening with ADV averaging at RM1.8b alongside thinner volume of 1.8b shares. This is in line with our strategist’s view that the 3QCY could be the weakest quarter, supported by our in-house empirical research, which suggests uninspiring upside potential alongside the subsiding buying interest for Bursa Securities in 3Q. That said, it may not be all gloom and doom for 2017 as 1H17 stellar performances coupled with normalisation in 4Q17 should be sufficient to make up the shortfall in 3QCY.

Maintain MARKET PERFORM with a higher TP of RM10.35 (from RM10.12). While we made no major changes to our earnings driver assumptions, our FY17E/FY18E NPs have been tweaked up by 1%/2% post model updates. All in, our TP is now at RM10.35 based on an unchanged 23.0x FY18 PER (which is at the +1SD above the 5-year average PER). Maintain MARKET PERFORM. Risks to our call include: (i) lower-than-expected trading volume in the securities and derivatives markets, (ii) higher-than-expected opex, and (iii) less IPOs.

Source: Kenanga Research - 27 Jul 2017