INVESTMENT HIGHLIGHTS

• Bursa’s 9MFY16 PATAMI of RM167.8m was within ours and consensus’ estimates

• Its 3QFY17 earnings are boosted up by key segment

• We adjust our forecast upwards for FY17 and FY18

• We upgrade to BUY with an adjusted TP of RM11.25

Results met our expectation. Bursa’s 9MFY17 net earnings of RM167.8m were in line with our expectation, coming in at 80.3% of our full year estimates. Comparatively, it equates to 75.6% of consensus estimates. Bursa’s PATAMI grew by +17.0%yoy due to higher securities trading revenue where it expanded +19.0%yoy to RM195.0m. This is further supported by notable improvement in cost-to-income ratio to 44.3%, -3.1ppts yoy for 9MFY17.

Supported by the growth in key segment. Bursa’s 9MFY17 operating revenue recorded an increase of +8.9%yoy to RM392.1m. This was in parallel with its 3QFY17 where operating revenue reached RM122.6 (+9.7%yoy). The topline improvement was primarily driven by higher securities trading activities. We noted that the annual ADV traded (OMT) for 9MFY17 was RM2.3b, the highest since FY07. Meanwhile, we also saw upward support to earnings from Listing and Issuer Services as well as Depository Services segments. For 9MFY17, ADC traded appeared almost flat at 58, 817 contracts in comparison to the same period last year. However, the demand for FCPO continued to be resilient recording a growth of +6.2%yoy to 49, 943 contracts.

Marginal increase in operating expenses. Operating expenses increased marginally by +1.4%yoy to RM183.9m for 9MFY17. It was mainly resulted by the increase in IT maintenance, +16.0%yoy due to new and renewal of maintenance contracts. Higher expenses were also seen in service fees and marketing. Despite the increase, cost-to-income ratio registered an improvement due to better total revenue at RM415.6m, +8.5%yoy for 9MFY17.

Impact on earnings. Although the results came in within our expectations, we believe an upward adjustment to our FY17 and FY18 earnings estimates are necessary. This is to take into account the expected increase of ADV traded (OMT) for FY17 and FY18.

Recommendation. We believe an upward adjustment to the FY17 and FY18 earnings is justified, given Bursa’s overall positive performance thus far. This is further supported by our in-house economic forecast, expecting a positive macroeconomic performance for the rest of the year and 2018. This view will translate to better stability in the Malaysian economy, which will further boost investors’ confidence. Additionally, trading activities in FY18 is expected to trend higher stemming from a long-term structural demand in the local market. As such, we upgrade our call on Bursa to a BUY with an adjusted TP of RM11.25. This is pegging its FY18 EPS of 44.5sen to its 5-year historical average of 25x (1-standard deviation below).

Source: MIDF Research - 26 Oct 2017