INVESTMENT HIGHLIGHTS

• Bursa recorded steady quarterly earnings at RM58.2m

• 1HFY18 ADTV surged by +10.6%yoy

• Cost-to-income ratio registered flat

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

• We maintain our NEUTRAL call with an unchanged TP of RM7.57

2QFY18 earnings within estimates. Bursa’s earnings in 2QFY18 came in strong at RM58.2m. Despite inching down by -2.2%yoy, the earnings in 2QFY18 displayed a stable trend to meet our FY18 forecasts. Cumulatively, 1HFY18 accounted for 51.4% and 50.8% of ours and consensus expectations. This was underpinned by robust trading activities in the quarter, with ADTV closing at RM2.7b. Recall that ADTV in 1HFY18 has increased by +10.7%yoy in comparison to last year. This has led to higher overall operating revenue at +3.6%yoy to RM279.1m. It is worth noting that this was Bursa Malaysia’s highest half year operating revenue since its listing in 2005.

Securities trading revenue climbed higher. It moved up by +5.6%yoy to RM146.5m in 1HFY18. We attributed the growth to higher ADTV recorded in the previous two quarters, underpinned by higher foreign trades. ADTV registered at RM2.7b in 1HFY18, growing by +10.8%yoy. The month of May saw the highest ADTV closed at RM3.6b, an increase of +22.9%yoy. The subsequent month of June saw ADTV eased, with the average closing below its quarterly mean at RM2.5b. However, ADTV in June still posted solid growth, climbing by +9.5%yoy.

Derivatives trading activities slightly down. In 2QFY18, the segment registered -3.7%yoy lower number of average daily contracts (ADC) traded at 56,000. Accordingly, this had led to an ADC fall by - 8.4%yoy in 1HFY18 in comparison to the same period last year. While the trend of derivatives trading revenue was seen flat in 1HFY18, we noted that the 2QFY18’s recorded marginal growth of +1.5%yoy. We believe this was underpinned by strong improvement in FKLI contracts traded, which grew by +38.7%yoy. Recall that FKLI contracts command higher trade fee than FCPO.

Cost to income ratio improved in 1HFY18. Operating expenses recorded slight improvement, inching down by - 1.2%yoy to RM123.4m. Total opex was down due to lower expenses in Globex fees (following lower number of derivatives contracts traded) and lower depreciation as some IT assets were fully depreciated. Accordingly, this has contracted the overall opex in 1HFY18 to record a cost to income ratio of 42.0%. The CTI ratio was higher in FY17 at 45.0%.

14sen dividend declared. The management declared a first interim dividend of 14.0 sen per share and a special dividend of 8.0 sen per share. The interim dividend represents 92.7% of total profits in 1HFY18.

Valuation. Given that earnings came in line with our expectations, we maintain our earnings forecasts for FY18 and FY19. Correspondingly, we maintain our NEUTRAL stance on Bursa with an adjusted TP of RM7.57. The unchanged TP is based on FY19EPS of 29.8sen pegged to PER of 25x. Accordingly, we estimate ADTV to average at RM2.52b and RM2.66b, in FY18 and FY19 respectively. We believe the market environment in FY19 should encourage more trading activities, provided that more clarity is available, in terms of major economic direction by the new government. However, we believe that this have been factored in by investors. In addition, there is a possible downside risk stemming from external sector namely the US-China trade spat.

Source: MIDF Research - 31 Jul 2018