• Bursa’s 1HFY17 earnings within expectation

• Attributable to higher trade activities across all segments

• Special and Interim Dividend declared

• Launch LEAP Market, as alternative to fundraising

• Maintain forecast

• Reiterate NEUTRAL stance with TP of RM11.00

Earnings within. Bursa Malaysia reported PATAMI of RM116.2m for 1HFY17 (+16.9%yoy). The results came in within ours and consensus’ estimates at 55.6% and 52.3% of respective full year estimates. The earnings growth was mainly due to the increased in operating revenue +8.5%yoy. Interestingly in 1HFY17, Bursa Malaysia recorded its best half year operating revenue since its listing in 2005.

Higher trades in Securities Market. The positive jump in operating revenue was primarily driven by higher trading activities across all segments. Notably, the increase in trading revenue was mainly contributed by domestic trades. Additionally, the average daily trading value for Securities Market via OMT was up by +30.8%yoy to RM2.5b, due to renewed interest from foreign funds and improved market sentiments.

Strong net inflow of foreign funds. 1HFY17 saw a strong inflow of foreign funds at RM10.7b, +>100%yoy. The influx of foreign funds into the local market reflected investors’ confidence. Based on market capitalisation, it is worth noting that securities market foreign ownership has increased by +0.7ppt, from 22.3%.

Special/Interim Dividend. The company declared an interim and special dividend of 20sen and 15 sen respectively. Excluding the special dividend, the reward was consistent with Bursa’s historical dividend payout ratio of 90%.

LEAP Market. A new market for SMEs was just launched this week. SMEs will have another avenue to raise funds via a more efficient platform. Some of the potential issuers include Cloudaron Pte Ltd, Agrofresh International Group Sdn Bhd, Red Ideas Holdings Sdn Bhd and Plymer Link Sdn Bhd, with the first listing expected by end FY17. We foresee the new market will provide enhancement to Bursa Malaysia’s revenue, given the high demand and the opportunities stemming from the high number of SMEs in the local market (refer to Exhibit 1).

Maintain forecast. At this juncture, we believe there will be no impact in earnings from the introduction of the LEAP market, considering that it is still at an early stage. Despite the strong activities in securities trading, we view that it will start to taper in 2HFY17 given trading volumes have fallen sharply in July 2017. Notably, the trading values in June and July 2017 have been disappointing, declining by -23%mom and -22.7%mom respectively.

Recommendation. We maintain our NEUTRAL call for the stock given the recent decline in trading volume. However, we believe that this will be moderated by the expectation of continuing economic performance and more market catalysts. With no change to our forecast, our TP remains unchanged at RM11.00 based on pegging FY18F EPS to PER of 25x, which is 1 standard deviation below of its 3-year historical average.

Source: MIDF Research - 27 Jul 2017