1Q18 came in within expectations; so was the absence of dividend payout. After a strong 1Q18 performance, we expect a weaker 2Q18 with Securities ADV (SADV) at the RM2.4b level (from RM2.7b). It is infact already slowing down since early April 2018 till our date of writing; averaging at RM2.2b. Post model updates, we tweaked our FY18E/FY19E CNP by - 3%/-2% for house-keeping purposes. With a rollover to FY19E valuation, our TP is increased to RM7.30. Maintain MP.

Within expectations. BURSA reported 1Q18 net profit (NP) of RM65.7m (+19% QoQ; +16% YoY) which made up 26%/30% of our and the consensus full-year estimates. Meanwhile, absence of dividend payout is also as expected. Additionally in the quarter, the group had also completed the 1-for-2 bonus issue exercise which resulted in its number of ordinary shares increasing to 806.3m from 537.5m.

YoY, 1Q18 operating revenue grew by 8% led by the lion’s share trading revenue of 14% on the back of the securities market higher ADV (+14%) and volume (+19%), despite the lower trading revenue from the derivatives market which declined by 11%. However, with the weaker “other income” segment (-27% dragged by lower grant income and rental income), the overall top-line numbers improved by a narrower quantum of 6%. At the group’s bottom-line, with a better cost-to-income ratio (CIR) of 41.7% (-3.0ppts) on the back of better operational efficiency, PATAMI improved by a wider quantum of 16%.

Meanwhile on QoQ basis, 1Q18 total income was stronger (+7%) with stellar trading revenue (+13%) offsetting the softer other income (-48% on the seasonally weaker dividend income). Note that this quarter’s SADV and volume improved by 17% and 26%, respectively. With a well- managed CIR of 41.7% (-5.4ppts on lower staff costs), PATAMI improved by 19%.

A quiet 2Q18. Thus far, our strategist’s seasonal study that suggested a stronger 1QCY has been proven correct alongside stronger SADV that improved 17% QoQ and 14% YoY to RM2.7b. With the 14th General Election (GE14) fast approaching coupled with the Muslim fasting month falling in mid-May18 as well as FIFA World Cup in mid-Jun18, we believe trading volume or market interest could be lacklustre. Thus, 2Q18 is likely to be a weaker yet volatile quarter for the year. In fact, this is already forming with weaker Securities ADVs of RM2.2b as well as higher trading volume of 2.6b shares, from beginning of April 2018 till our date of writing. On the mid-to-long-term outlook; as part of the continuing initiatives to further enhance the vibrancy and liquidity in the equity market, a list of measures including liberalisations and incentives to supercharge the vibrancy of capital market has been introduced to date. While not much detail is being disclosed at the moment, we are POSITIVE on the initiatives as all these would enhance the vibrancy and liquidity of the local market, especially on retail participation, which would in turn enhance BURSA’s trading revenue. (Kindly refer to our report titled: Catalysing Local Bourse, dated 7th February 2018 for further details).

Maintain MARKET PERFORM with a higher TP of RM7.30 (from RM7.15). Post model update, we tweaked our FY18E/FY19E NP by - 3%/-2% for house-keeping purposes, while rolling over our valuation base year to FY19E. All in, our TP has been raised to RM7.30 which is still based on an unchanged 23.0x FY19E 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 Apr 2018