INVESTMENT HIGHLIGHTS

• Bursa’s 9MFY18 PATAMI of RM172.2m came in within expectations

• Recorded highest 9-month operating revenue and ADV traded in the Securities Market since listing

• No change to our earnings forecast for FY18 and FY19

• Maintain NEUTRAL with unchanged TP of RM7.57

Within expectations. Bursa's cumulative 9MFY18 earnings grew by +2.6%yoy to RM172.2m despite 3QFY18 earnings fell -2.7%yoy. This translated to 72.5% and 71.6% of ours and consensus full year estimates respectively. The 9MFY18 earnings growth was due to higher operating revenue which increased by +2.6%yoy to RM402.3m. Notably, Bursa had once again recorded a new high of nine-month operating revenue since listing and this was mainly supported by higher securities trading revenue which moderated the weak derivatives trading revenue.

Securities trading segment underpinned the growth. The revenue from securities trading respectively climbed +8.8%yoy in 3QFY18 to RM61.2m and +6.5%yoy in 9MFY18 to RM207.7m. This was due to the ADV growth momentum in July, August and September which increased by +19.2%yoy, +20.7%yoy and +2.0%yoy. We believe that there was possible an increased in trading interest after the sell down post GE14. ADV in 3QFY18 of RM2.2b was the highest for the past 7 years. While for 9MFY18, the growth was attributed to record high nine-month ADV of RM2.5b post listing, growing by +10.5%yoy which underpinned by higher foreign trades. Foreign ownership in Malaysian securities market stood at 23.6% as at September 2018 and it was relatively stable, ranging between 23.4% to 24.2% up to 3QFY18. Moving forward, we foresee continued momentum in this segment until end of FY18 period whereas the pace will be moderated in FY19.

Persistent drag on derivatives trading activities. The derivatives trading revenue both in 3QFY18 and 9MFY18 dropped by -4.8%yoy to RM18.8m and RM57.6m respectively. Recall that the underperformance had been seen in the previous two quarters. The decline in revenue was caused by a lower number of ADC registered at 55,779 in 9MFY18 which declined by -5.2%yoy as hit by the volatility of FCPO’s underlying. Accordingly, this had led to a drop of -7.0ppts yoy in FCPO, from 85% in the same period last year in which FCPO was a major contributor (circa 85%) of the total derivative trading volume in FY17.Similarly, BSAS revenue fell -12.9%yoy and -7.4%yoy in 3QFY18 and 9MFY18 to RM3.4m and RM10.8m respectively. We believe this trend might hold for a while given the current challenging geopolitical environment.

Earnings estimates. We maintain our FY18 and FY19 earnings forecast given the results were in line with our expectations.

Recommendation. We maintain our NEUTRAL call on Bursa with unchanged TP of RM7.57. The unchanged TP is based on FY19EPS of 29.8sen pegged to PER of 25x. The increased securities trading activities YTD have been positive for Bursa. However, we remain cautiously optimistic of the growth in FY19 due to ongoing internal and external uncertainties. Nevertheless, we believe that there are a few moderating factors such as potential paring down of government's stake in companies which may bring greater liquidity and volume to the capital market, and the continued expansion of its BSAS platform into African and Central Asian countries. These may provide support for Bursa growth next year.

Source: MIDF Research - 30 Oct 2018