FY18 PATAMI of RM224.0m and full-year dividends of 33.6 sen are within expectations. Currently, trading activities appear to be undermined by global developments but may regain footing in the longer term as their conclusions provide more clarity to investors. In the meantime, a leaner cost structure could provide confidence in the bourse’s operating efficiency. Maintain Market Perform and TP of RM7.60.

FY18 within. FY18 PATAMI of RM224.0m came within our/consensus expectations, making up 98%/97% of respective full-year estimates. An interim dividend of 11.6 sen was declared, bringing FY18 total payment to 33.6 sen. This is within our anticipated 34.0 sen total payment for the year (i.e. c.120% paid out from profit, closely similar to FY17).

YoY, 12M18 operating revenue was flattish at RM523.3m (+<1%), as higher securities trading activities (+2%; on 3% growth in SADV and 1% growth in volume) was offset by poorer derivatives revenue (-5%). Other operating revenues declined slightly (-<1%) mainly from fewer listings and lower issuer services fees (-3%), cushioned by higher market data activities (+5%). Operationally, the group was successful in improving its cost-to-income ratio to 43.9% (-1.1ppt) mainly on the back of lower technology services fees. However, due to a higher effective tax rate during the year of 25.2% (+0.5ppt), 12M18 PATAMI also demonstrated flattish results at RM224.0m (+<1%).

QoQ, 4Q18 operating revenue declined slightly to RM121.0m (-2%) mainly due to softer securities market trades. Despite seeing more trading days, the lower SADV during the period was likely dampened by weak sentiment arising from the growing friction in US-China trade wars. Still, thanks to leaner staff costs during the period (-19%), 4Q18 cost-to-income ratio retracted to 44.3% (-2.5ppt) and translated to a 3% growth in PATAMI at RM51.9m.

Still anxious from global developments. The recent fourth quarter deviated from the customary window dressing trend, which should have seen more active trading participation. It is likely that participants were faced with unfavourable risk-to-reward trading conditions, aggravated by uncertainties with the ongoing US-China trade wars and the pending conclusion of BREXIT. However, in the long-term, the domestic equity scene could provide attractive investment opportunities for local and foreign investors, mainly thanks to its low beta nature. In lieu of this, our market strategist seeks potentially oversold trading/investment opportunities, where solid fundamental values could be currently fogged by short-term trading anxiety. This particularly involves stocks that are highly pegged to domestic performances as opposed to foreign factors.

Post-results, we slightly trim our FY19E NP by 0.2% as we incorporate FY18 full-year financial results and statistics. In addition, we introduce our FY20E numbers.

Maintain MARKET PERFORM and TP of RM7.60. Our valuation is based on an unchanged 25.0x FY19E PER, which is close to the stock’s +0.5SD over its 3-year mean. The above-than-average valuation is due to the stock potentially acting as a safe-haven investment in weak market conditions and cloudy economic outlook; hence attracting a scarcity premium.

Risks to our call include: (i) higher/lower-than-expected trading volume in the securities and derivatives markets, (ii) higher/lower-thanexpected opex, and (iii) more/less initial public offerings.

Source: Kenanga Research - 31 Jan 2019