INVESTMENT HIGHLIGHTS

• Bursa’s 1QFY17 PATAMI of RM56.6m (+13.4%yoy and +12.9%qoq) was within ours and consensus estimates

• Better operating revenue was mainly contributed by higher securities trading activity

• We make no changes to our earnings forecasts for FY17 as results were within estimates

• While maintaining our NEUTRAL call on Bursa, we revised our TP higher at RM11.00 as we roll over our valuation to FY18 and to reflect the surge in securities trading activity which we believe will continue in FY18

1QFY17 earnings within our expectation. The result fell within ours and consensus’ expectations, which accounted +27.1% and +21.7% of ours and consensus’ estimate respectively. The earnings registered were RM56.6m which translates to +13.4%yoy.

Securities ADV traded (OMT) hits a record high. The growth in earnings was mainly driven by better securities trading activity. Securities ADV traded (OMT) in 1QFY17 has surged sharply to a record high of RM2.38b (+20.0%yoy and +40.7%qoq) with a velocity of 34%, highest since 2QFY13. The active securities trading activity translated into a strong growth in this segment’s revenue of +17.7%yoy. The upturn was mainly driven by higher domestic institution and retail trades following the recovery of investors’ sentiment in the market.

Slow momentum in derivatives and BSAS activity. Although the overall operating revenue improved, we saw lower derivatives trading revenue (-5.6%yoy) following the revision of guarantee fee rate to 0.3% p.a. imposed on margin on contracts’ open positions (2016: 0.5% p.a.). We note that BSAS also recorded lower trading revenue resulting from lower trades due to strong local and global competition.

Impact on earnings. All in, we opine that Bursa’s performance in FY17 will start to pick up following favourable market growth outlook and the strengthening of Ringgit. This is coupled with the possible positive impact from the anticipated upcoming general election, given historical tendencies. However, we believe that any upside in the stock price is limited given that current price is already at a toppish level due to the recent price run-up.

Recommendation. Hence, we maintain our NEUTRAL call on Bursa at slightly higher TP of RM11.00 as we roll over our valuation to FY18. We peg our FY18 EPS to its 3-year historical average PER of 25x. We believe that the expected FY17 dividend yield of 3.6% should provide an additional incentive to hold the stock.

Source: MIDF Research - 27 Apr 2017