9MFY19 broadly within expectations. We deem 9MFY19 PATAMI of RM140.3m to be broadly within both our and consensus expectations, making up 78% and 71% of respective full-year estimates. On 18 October 2019, we issued a preview note anticipating that 3QFY19 could register earnings between RM40m-RM44m which turned out to be below the reported RM47.1m. This deviation appears to be due to slightly better derivatives trading performance. No dividend was declared, as expected.

YoY, 9MFY19 operating revenue declined by 11% to RM357.5m, led by softer securities trading (-16%) from lower SADV (-23%) and volume (-7%). Derivatives trading also contracted (-10%). Cost-to-income ratio during the period rose to 48.3% (+4.6ppt) as cost cutting measures lagged behind the greater decrease in top-line. All-in, 9MFY19 PATAMI came in at RM140.3 (-19%).

QoQ, 3QFY19 operating revenue was stagnant with the lower securities trading (-5%) with softer SADV (-8%) and volume (-4%) offset by better derivatives trading revenue (+9%). PATAMI for the period improved slightly (+2%) thanks to better operating expenses, namely staff costs.

Finding solace in better days ahead. Many factors could have led to the dampened trading appetite over the past few quarters, such as: (i) paring down of contract values of various mega projects, (ii) ongoing disruptive US-China trade wars, and (iii) local currency weakness. Although the recently tabled Budget 2020 was generally positive for the market, we reckon that it was not enough to propel 2HFY19 ADV close to the prior period. This is due to the lingering pessimism as well as diminishing participation of foreign investors. Looking towards FY20, we are hopeful that there could be some improvement when the trade wars progressively ease with some clarity on the table. However, local market could still be tepid on the back of sluggish Ringgit. On the flipside, we believe that positive catalysts could come in the form of: (i) return of foreign investors, and (ii) potential revival of infrastructure projects.

Post-results, our FY19E/FY20E earnings assumptions are slightly tweaked by +1.9%/+0.3% after incorporating 3QFY19 data.

Maintain MARKET PERFORM and TP of RM6.00. Our target price is based on an unchanged 25.0x FY20E PER, trailing close to the stock’s 3-year mean. While the immediate outlook could be dim, we opine that current trading levels could have well accounted for that. To balance the weakness in market activity, we believe investors could still lean on BURSA for fair dividend yield of c.4% from average payout of c.90%. Keeping up with the trends in FY17 and FY18, we do not discount the possibility of special dividends to be paid this year.

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

Source: Kenanga Research - 30 Oct 2019