9M17 NP came in within expectations and so was the absence of dividend. Post earnings model updates, our FY17E/FY18E NP were tweaked lower by 1%. After a weak 3QCY17 performance where the key driver Securities ADV (SADV) plunged 26% QoQ to RM1.95b, we expect a recovery in 4QCY17 with SADV at the RM2.5b level. In fact, SADV has already gained traction since beginning of Sep 2017 till our date of writing; averaging at RM2.1b. Maintain MP with an unchanged TP of RM10.35.

Within expectations. BURSA reported 3Q17 net profit (NP) of RM51.6m (-13% QoQ; +17% YoY), bringing 9M17 NP to RM167.8m (+17%) which made up 73%/76% of our and the consensus full-year estimates, respectively. As expected, no dividend was declared under the quarter reviewed. We are expecting the group to pay a total DPS of 55.0 sen (YTD DPS: 35.0 sen).

YoY, 9M17 operating revenue grew by 9% led by the lion’s share trading revenue of 11% (on the back of the securities market higher ADV of +16% and volume of +30% despite the lower trading revenue from derivatives market which declined 10%). With the support of positive growth in “other income” segment (+3% which was predominantly driven by higher dividend and rental income), the overall top-line numbers improved at a similar quantum of 9%. At the group’s bottom-line, with better cost-to-income ratio (CIR) of 44.3% (-3.1ppts) on the back of better operational efficiency, PATAMI improved by a wider quantum of 17%.

Meanwhile on QoQ basis, despite higher stable revenue of 7% (which was driven by higher listing, issuance and depository services), 3Q17 total income was weaker (-9%) dragged down by softer trading revenue (-17%). Note that this quarter SADV and volume were down by 26% and 32%, respectively. Coupled with higher CIR of 45.3% (+2.5ppts on higher market and development expenses), 3Q17 PBT decreased by 13%.

Expecting better days ahead; with normalisation in 4QCY. Thus far, our strategist’s seasonal study that suggested a weaker 3QCY has been proven correct; alongside SADV plunging 26% QoQ and the FBMKLCI experiencing weaker than the 5-year trailing average performance in July 2017 and Sept 2017. Should our latest view (on seasonal recovery in 4QCY) which is supported by in-house empirical research continue to materialise, the overall market could improve, as 4Q and 1Q are normally relatively stronger. In fact, this is already happening with better Securities ADVs of RM2.1b as well as higher trading volume of 2.7b shares, from beginning of Sep 2017 till of our date of writing, For the 4Q, we are expecting SADVs to close at RM2.5b with average volume to stay at 2.9b. Key catalysts are: (i) attractive valuation of the Fwd. PER of FBMKLCI (which is only registered at a 4.1% premium over its selected regional peers; at the lower end of its historical range of ~4%-18%), and (ii) stronger market sentiment as suggested by the elevated valuation gaps between small- mid caps and the big cap, lending strength to BURSA’s financial performance.

Maintain MARKET PERFORM with an unchanged TP of RM10.35. While we made no major changes to our earnings driver assumptions, our FY17E/FY18E NP have been tweaked by -1% post model updates. All in, our TP remains unchanged 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 - 26 Oct 2017