While 1H18 results came in within expectations, a special DPS of 8.0 sen was a positive surprise. After a muted 2Q18 performance, we still expect a lacklustre 3Q18 with Securities ADV (SADV) at the RM2.7b level. In fact, 3Q18 SADV has started with a soft note, averaging at RM2.1b. Post model updates, we tweaked our FY18E/FY19E CNP by +1%/+1% for house-keeping purposes, resulting in marginally higher TP of RM7.35. Maintain MP.

Within expectations. BURSA reported 2Q18 net profit (NP) of RM58.2m (-9% QoQ; -2% YoY) which made up 50%/51% of our/consensus full-year estimates. While first interim dividend of 14.0 sen was in line, a special dividend of 8.0 sen came as a positive surprise to us. Previously, we had only expected the group to pay 29.0 sen interim dividend for the full year, based on a dividend pay-out of 94% (similar to the years with normal pay-out ratio).

YoY, 1H18 operating revenue grew by 4% led by the lion’s share trading revenue (+3%) on the back of the securities market higher ADV (+15%) and volume (+17%), despite the lower trading revenue from the derivatives market which declined by 5%. However, with the weaker “other income” segment (-24%, dragged by lower grant income and rental income), the overall top-line numbers improved by a narrower quantum of 2%. At the group’s bottom-line, with better cost- to-income ratio (CIR) of 42.4% (-1.4ppt) on the back of better operational efficiency, PATAMI improved by a wider quantum of 5%.

Meanwhile on QoQ basis, 2Q18 total income was weaker (-7%) owing to both softer trading revenue (-6%) and revenue (-11%). Note that this quarter’s SADV remained flat (+1%) with much lower volume (-18%). With operational deleveraging which resulted in a higher CIR of 43.1% (+1.4ppt), PATAMI dropped by 9%.

Another lacklustre 3Q18. Thus far, our strategist’s seasonal study that suggested a muted 2QCY has been proven correct alongside SADV that inched up by only 1% QoQ and 4% YoY to RM2.7b. In the forthcoming 3Q18, our strategist expect the lacklustre trading mood to continue as some investors may stay side-lined while waiting for the release of the new Government’s 100-day progress report or its First Budget. In fact, 3Q18 started with a soft note; with Securities ADVs hovering at RM2.1b as well as daily trading volume of only 2.47b shares (from beginning of July 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. We are long- term POSITIVE on the initiatives as all these would enhance the vibrancy and liquidity of the local market, especially 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 RM7.35 (from RM7.30). Post model update, we tweaked our FY18E/FY19E NP by +1%/+1% for house-keeping purposes. All in, we raised our TP to RM7.35, which is still based on an unchanged 23.0x FY19E PER (which is at the 3-year average forward 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 - 31 Jul 2018