FY17 NP came in within expectations and so was the total DPS of 53.50 sen. After a strong 4Q17, we expect positive spill-over to 1Q18 with Securities ADV (SADV) at the RM3.0b level. In fact, SADV has already gained traction since the beginning of January 2018 till date of writing; averaging at RM3.1b. While our FY18E NP is increased by 8% to account for higher SADV, we introduce our FY19E NP of RM262.2m (+3%). Maintain MP with a higher TP of RM11.00.

Within expectations. BURSA reported 4Q17 net profit (NP) of RM55.3m (+7% QoQ; +10% YoY), bringing FY17 NP to RM223.0m (+15%) which made up 98% and 100% of our and the consensus fullyear estimates, respectively. As expected, a second interim DPS of 18.50 sen was declared under the quarter reviewed, bringing YTD net DPS to 53.50 sen. Additionally in the quarter (on 27th Nov 2017), the group has also proposed : (i) a 1-for-2 bonus issue of up to 269.8m shares, and (ii) to establish and implement a new employees’ share grant plan (ESGP) of up to 4% of the group’s issued share capital to any eligible executive director and/or key employee, expected to be completed in 2Q18.

YoY, FY17 operating revenue grew by 10% led by the lion’s share trading revenue of 13% (on the back of the securities market higher ADV of +22% and volume of +52% despite the lower trading revenue from derivatives market which declined 9%). With the support of positive growth in “other income” segment (of 2% which was predominantly driven by higher dividend and rental income), the overall top-line numbers improved at a similar quantum of 10%. At the group’s bottom-line, with a better cost-to-income ratio (CIR) of 45.0% (-1.6ppts) on the back of better operational efficiency, PATAMI improved by a wider quantum of 15%. Meanwhile on QoQ basis, 4Q17 total revenue was stronger (+8%) with higher trading revenue (+11%) offsetting the softer stable revenue (-3% owing to lower revenue from listing, issuer and depository services). Note that this quarter’s SADV and volume improved by 19% and 26%, respectively. Despite a marginally higher CIR of 47.1% (+1.8ppts on higher staff cost), PATAMI improved by 7% on lower effective tax rate of 23.3% (-2.0ppts).

No smooth sailing but eventful 2018; with seasonally stronger 1Q18. Thus far, our strategist’s seasonal study that suggested a stronger 4QCY has been proven correct; alongside stronger SADV that improved 19% QoQ and 37% YoY to RM2.3b. For 2018, while the equity market may not be smooth sailing, we believe the spill-over effect of favourable seasonal factor coupled with the improved Buying Interest/Momentum should lend strength to the SADV in the short run, at least in 1Q18. In fact, this is already happening with better Securities ADV of RM3.1b as well as higher trading volume of 4.3b shares, from beginning of January 2018 till of date of writing. Key catalysts are: (i) undemanding valuation of FBMKLCI against regional peers attracting more foreign interest, (ii) favourable uptrend of Ringgit, and (iii) firmer crude oil prices. We are expecting SADV to close at RM3.0b with average volume staying at 4.1b in 1Q18.

Maintain MARKET PERFORM with a higher TP of RM11.00 (from RM10.35). Post model update, our FY18E NP has been increased by 8% to mainly account for higher SADV of RM2.8b (vs. RM2.4b previously) and volume of 3.5b (vs. 2.8b previously). Meanwhile, we introduce our FY19E NP of RM262.2m (+3%). All in, our TP is raised to RM11.00, still based on an unchanged 23.0x FY18 PER (which is at the +1SD above the 5-year average PER). Maintain MARKET PERFORM.

Source: Kenanga Research - 6 Feb 2018