INVESTMENT HIGHLIGHTS

• Bursa recorded strong quarterly earnings at RM63.8m

• Revenue from securities trading was the highest

• We make no changes to our FY18 and FY19 forecasts, earnings were in-line with expectation

• We maintain our NEUTRAL stance with an adjusted TP of RM7.57 as we rollover our valuation to FY19.

1QFY18 earnings were within estimates. As expected, Bursa’s earnings in 1QFY18 came in strong at RM63.8m, accounting for 26.9% of our FY18 full year forecast. However, it missed consensus at only 19.7% of full year estimates. Overall, the commendable earnings in the 1QFY18 were driven by its core trading business. This has led to higher overall operating revenue at +7.5%yoy to RM144.8m. Profits were also supported by lower overall expenses, which contracted -11.1%yoy in 1QFY18 to RM62.9m.

Bursa’s biggest revenue segment surged. Trading business which contributed approximately 65% of Bursa’s operating revenue, climbed higher by +13.5%yoy to RM76.3m in 1QFY18. We attributed the growth to higher ADTV recorded in the quarter at RM2.7b, growing by +15.9%yoy. The month of January saw the highest ADTV closed at RM3.2b, an increase of +84.3%yoy. Notably, the subsequent months of February and March saw ADTV eased gradually, reverting to its quarterly mean of RM2.7b. However, it is worth to note that ADTV in February remained in a growth trajectory, climbing by +10.9%yoy.

Derivatives trading was a drag…registering lower overall volumes of average daily contracts (ADC) traded at 54,000. This reflected a -12.9%yoy drop, leading to lower derivatives trading revenue of RM19.0m. According to the management, this was due to revision in guarantee fee and lower number of FCPO and FKLI contracts. Average Daily Contracts of FCPO contracted by -16.8%yoy to 44,157.

Impact on earnings. Given that earnings came in line with our expectations, we maintain our earnings forecasts for FY18 and FY19.

Valuation. Correspondingly, we maintain our NEUTRAL stance on Bursa with an adjusted TP of RM7.57, rolling over our valuation to FY19. The adjusted TP is based on FY19EPS of 29.8sen (adjusted following bonus shares issuance) pegged to PER of 25x. Looking at the projection for the whole year of 2018, we estimate ADTV to average at RM2.42b, with growth expectation of +4.6%yoy. Meanwhile in 2019, ADTV is expected to average at RM2.66b, an increase of +9.9%yoy respectively.

In terms of Bursa’s operation, we are encouraged to see the initiation of a few developments in 1QFY18 which we believe will stimulate higher trading activities. Some of these include the future establishment of stock market trading link between Bursa Malaysia and Singapore Exchange (SGX) and the introduction of Intra Day Short Selling (IDSS). We believe the development prospect is good for Bursa, providing new growth engine to profitability. However, we are taking a step back to take into account the potential industry’s headwinds such as geopolitical and market sentiment risks. Moving forward, we opine that ADTV will possibly trending down in the 2QFY18 based on the movement shown over the past years. Evidently, we saw consistent downtrend in June ADTV since CY10, with an average month-on-month drop of -9.7%. While we believe that while ADTV is likely to be softer in the next quarter, trading activities are expected to increase in 3Q providing support to Bursa’s earnings towards the end of FY18 leading to our ADTV estimates of RM2.42b.

Source: MIDF Research - 26 Apr 2018