INVESTMENT HIGHLIGHTS

• FY18 PATAMI slightly disappointing

• Dragged by lower ADV and revenue in 4QFY18

• Better operating efficiency

• Second interim dividend of 11.6sen

• Tweaking FY19 earnings downwards

• Maintain NEUTRAL with adjusted TP of RM7.35 (from RM7.57)

Slightly below expectation. Bursa's FY18 net profit came in slightly short of our expectation at 94.3% of our full estimate due to the drag in revenue in 4QFY18. Meanwhile, it was 96.6% of consensus’ estimate.

Earnings dragged by lower 4QFY18 revenue. Bursa posted flattish PATAMI in FY18, growing at +0.4%yoy. Main contributor was the drag in total revenue in 4QFY18, where it fell -8.7%yoy and -0.7%qoq. Operating revenue declined -6.9%yoy in 4QFY18, resulting in only +0.2%yoy growth in FY18. The decline in 4QFY18 operating revenue was attributable to lower revenue from securities trading and derivative trading. These fell -10.1%yoy to RM58.1m and -4.7%yoy to RM19.1m respectively.

Lower trading activities in 4QFY18. The revenue drag could be due to the lower trading activities. ADV traded in 4QFY18 fell -13.4%yoy to RM1.93b. Comparatively, it was RM2.23b in 3QFY18. It is possible that this could be due to the general weakness in global equity markets as uncertainties heightened. Contributing factors were the continuing US China trade tension amongst others. Meanwhile, the 2019 Budget unveiled by the Malaysian Government failed to incite any excitement. On the derivative side, ADC traded in FY18 was 56,488 contracts, a decrease of 2.1%yoy. However, the Islamic capital market activity was better as BSAS annual ADV increased to RM24.3b in FY18 from RM19.6b in FY17.

Better operating efficiency was a moderating factor. Cost-to income ratio in FY18 improved -1.1ppts yoy to 43.9% despite the revenue contraction. This was achieved as total expense fell -3.6%yoy to RM241.3m. The leading contributor was reduction in technology cost where IT maintenance cost fell -6.4%yoy to RM18.3m, while certain IT assets had fully depreciated resulting in depreciation falling -7.7%yoy to RM22.0m. Staff cost contracted -1.6%yoy to RM135.3m.

Source: MIDF Research - 31 Jan 2019