INVESTMENT HIGHLIGHTS

• Bursa’s 12MFY17 PATAMI of RM223.m was within ours and consensus’ estimates

• Its 4QFY17 earnings are boosted up by key segment

• We maintain our earnings forecast

• Downgrade to Neutral with unchanged TP of RM11.25

Results met our expectation. Bursa’s 12MFY17 net earnings of RM223.0m were in line with our expectation, coming in at 101.3% and 100.6% of ours and consensus’ full year estimates. Bursa’s PATAMI grew by +15.2%yoy due to higher securities trading revenue, which expanded by +21.9%yoy to RM259.6m. This is further supported by notable improvement in cost-to-income ratio to 45.0%, -1.6ppts yoy for FY17.

Trading segments showing its dominance. Bursa’s FY17 operating revenue saw an increase of +10.4%yoy to RM522.1m. This was in parallel with its 4QFY17 where operating revenue reached RM130.0m (+15.5%yoy). Securities trading activities primarily contributed to bulk of its topline improvement. We noted that the annual ADV traded (OMT) for FY17 was RM2.3b. Meanwhile, we saw upward support to FY17’s earnings from Listing and Issuer Services (+15.4%yoy) as well as Depository Services (+8.6%) segments. For FY17, ADC traded remained flat at 57, 816 contracts in comparison to the same period last year. However, the demand for FCPO continued to be strong recording a growth of +5.9%yoy to 49, 161 contracts.

Operating expenses was up by single digit. Operating expenses grew by +6.0%yoy to RM250.4m for FY17. It was mainly resulted by the increase in staff cost. Higher expenses were also seen in service fees and marketing. Despite the increase, cost-to-income ratio registered an improvement due to better growth rate in total revenue of 9.9% to RM556.8m in FY17 in comparison to total cost, which grew +6.0%yoy to RM 250.4m.

Impact on earnings. As the results came in within our expectations, we maintain our FY18 earnings estimates while introducing our FY19 earnings forecast.

Dividend. Bursa announced a second interim dividend of 18.5sen/share for FY17, which amounted to RM99.4. In totality, the amount of dividend paid out in FY17 is 38.5sen/share (53.5sen/share including special dividend). This implies a pay-out ratio of circa 93.0% (historically, 93-95%) of its FY17 earnings and a dividend yield of 3.5%.

Recommendation. We continue to like Bursa based on its consistent earnings generation, stemming from the robust trading activities. The encouraging earnings growth of FY17, we believe will enhance investors’ sentiment in the local stock market. While the expectations of bigger IPOs in FY18 are on the rise, we opine that the existing economical structure will provide greater support to higher trading activities (the biggest revenue contributor), as with initiatives such the Mid & Small Cap Research Scheme (MidS) and Leading Entrepreneur Accelerator Platform (LEAPS) market. In terms of the macroeconomic perspective, we continue to be optimistic based on the strengthening of local economy with 5.4% GDP growth expectation, according to our in-house economic team. However, the positives have already been priced in for now, with FY18 PER of 24.6x, which an unchanged TP of RM11.25. This is pegging its FY18 EPS of 44.3sen to PER of 25x. Therefore, this constitutes a Neutral call for Bursa.

Source: MIDF Research - 6 Feb 2018