6M19 PATAMI of RM93.2m (-24%) and interim dividend declared came within our expectation, but missed consensus. We anticipate market conditions to improve towards 2H19 as global uncertainties (i.e. US-China trade war, Brexit) ease towards 2H19 while our resilient domestic market as compared to regional players could attract more attention from global investors. Maintain MP and TP of RM6.85.

6M19 as expected. 6M19 PATAMI of RM93.2m came in within our expectation but below consensus, accounting for 48% and 43% of respective full-year estimates. We believe the consensus miss could be due to over-optimism in the recovery of trading volume. The interim dividend of 10.4 sen declared is also deemed to be as expected, and we anticipate a total payment of 24.0 sen for FY19.

YoY, 6M19 operating revenue declined by 14% to RM240.0m, owing to more cautious trading activities in securities (-20%), and on weaker SADV (-25%) and lower volume (-11%), as well as in derivatives (- 14%). PBT fell by 24% to RM127.6m as the overall cost-to-income ratio was toppish at 48.9% (+6.5ppt), due mainly to staff costs. As effective tax rate remained stagnant at 25.1%, 6M19 PATAMI registered at RM93.2m (-24%).

QoQ, 2Q19 operating revenue trickled down slightly by 2% on flattish trading revenue and lower stable revenue streams (i.e. listing and issuer services). Securities trading continued to drift with SADV and volume dropping sequentially by 2% and 7%, respectively. In tandem with the lower operating revenue, 2Q19 PATAMI reached RM46.3m (- 1%), with higher staff costs being offset by savings in technology costs and lower marketing spends.

A chance for rain? The recent two quarters have demonstrated a retraction in market appetite for Malaysian securities and derivatives. Sentiment is thought to be sidelined by the US-China tensions, uncertainty in the European region owing to Brexit and unfavourable commodity prices (i.e. CPO). Based on YTD-Jun 2019 readings, foreign outflows registered at RM4.66b. Still, there could be a chance for a turnaround from 2H19 onwards as we detect a returning sense of confidence of which our strategist points towards rising trading valuations and premiums of our benchmark indices against regional markets. We maintain our view that the weakness in sentiment could be bottoming based on our cyclical studies. In the near-term, we reckon that potential developments that could support our view are: (i) potential M&As with foreign parties re-igniting foreign trading interest, (ii) easing of trade war tensions, and (iii) budget talks spurring sentiment.

Post-results, our FY19E/FY20E earnings assumptions are slightly tweaked by +0.1%/+0.3% after incorporating 2Q19 data.

Maintain MARKET PERFORM and TP of RM6.85. Our target price is based on an unchanged 25.0x FY20E PER, trailing close to the stock’s 3-year mean. While the global economic outlook may continue to be clouded by uncertainties, we believe the stock could act as a solid proxy to the less volatile local market environment. Furthermore, the reclassification of BURSA into Shariah-compliant will widen its investment appeal to include more investors.

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 - 2 Aug 2019