FY19 PATAMI of RM185.9m (-17%) was within expectations, though the full-year dividend of 20.8 sen fell short with no special dividends. Currently, its price weakness and selldowns appeared to be spurred by unfavourable macro developments and earnings decline. Still, we believe 2020 could paint a better picture on perkier derivatives trading as well mega projects revival, presenting current price level as a buying opportunity. Maintain OP and TP of RM6.50.

FY19 within expectations. FY19 PATAMI of RM185.9m came in within expectations, making up 101% and 98% of our and consensus’ respective full-year estimates. However, we deem the interim payment of 10.4 sen (full-year 20.8 sen) to be below our 23.0 sen estimate (being a 91% payout against our 95% expectations) due to lack of special dividend.

YoY, FY19 operating revenue declined by 8% as securities trading and derivatives trading revenues slid by 12% and 6%, respectively. Securities activity saw weaker ADV (-21%) and volume (-4%) as investors’ confidence was rattled by US-China trade war. Cost-toincome ratio expanded to 49% (+5.1ppt) as the abovementioned lower revenue, greater IT expenses and higher marketing spend to reinvigorate market sentiment offset cost saving initiatives. This translated to a FY19 PATAMI of RM185.9m (-17%).

QoQ, 4QFY19 operating revenue improved by 4% thanks to better securities trading revenue (+6%). This came from more trading days during the quarter (64 days vs. 61 in 3QFY19) in spite of a dip in ADV by 4%. Despite the higher top-line, 4QFY19 PATAMI fell by 3% from higher marketing spends and impairments.

Bracing the high tides for calmer seas. Market confidence is constantly rocked by many unfavourable global events such as: (i) USChina trade war, (ii) geopolitical tensions, and recently (iii) new corona virus outbreak affecting tourism and travel-related counters. This has dampened the FBMKLCI to linger below 1550-levels. We view these factors as short-term dampeners to be overcome by possible revival of mega projects to likely improve market sentiment and rate cuts to boost spending. Plantation stocks and CPO future derivatives also received a much needed boost with a rally at end-December. Despite the negativity, overall securities YTD-30 Jan 2020 ADV still registered better than last year at c.RM1.99b (vs YTD-30 Jan 2019: c.RM1.90b). Bursa’s own efforts to sustain profitability includes growing its nonsecurities trading revenue streams by capitalising on data/information based products with a recent top-level internal management restructuring looking to flatten the group’s operating structure.

Post-results, we leave our FY20E assumptions mostly unchanged while introducing our FY21E numbers.

Maintain OUTPERFORM and TP of RM6.50. Our target price is based on an applied 27.0x FY20E PER (1SD below the stock’s 3-year mean). Though earnings came as expected, we suspect the sell-down postresults release was due to the YoY earnings decline. Nevertheless, we see this as a buying opportunity, premised on our stronger 2020 outlook which we believe could be conservative.

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 initial public offerings.

Source: Kenanga Research - 31 Jan 2020