INVESTMENT HIGHLIGHTS

• 1QFY19 earnings at lower bound of expectations

• Net profit decline due to lower revenue

• Weak capital market performance but Islamic capital market a bright

• Cost well contained

• Maintaining our FY19 earnings estimate

• Maintain NEUTRAL with adjusted TP of RM7.20 (from RM7.35) as we roll over our valuation to FY20

Lower bound of expectation. Bursa's 1QFY19 PATAMI came in at the lower bound of ours and consensus’ expectations. Its earnings came in at 20.1% and 20.6% of respective full year estimates.

Lower revenue was the main cause. Earnings for 1QFY19 fell - 26.5%yoy weighted by -16.0%yoy decline in total revenue. The main contributor for the revenue decline was the contraction in trading revenues. Securities trading revenue and derivative trading revenue fell - 22.6%yoy to RM59.0m and -13.8%yoy to RM16.4m respectively.

Islamic capital market a bright spot. ADV traded in 1QFY19 improved slightly from 4QFY18 at +7.7%qoq. However, on a sequential year basis, it declined -23.9%yoy to RM2.07b. It was dragged by - 35.2%yoy to RM941m decline in ADV from domestic institutions. However, ADV of foreign institutions dropped by -1.6%yoy to RM611m. Meanwhile, velocity was lower by -6ppts yoy to 29%. Fund raising activities also quieten down to RM0.4b from RM2.8b a year ago. On the derivative side, ADC traded in 1QFY19 was 47,359 contracts, a decrease of -12.3%yoy. Nevertheless, the Islamic capital market activity improved significantly. The BSAS ADV increased +39.6%yoy to RM31.6b, with the number of trading participants growing to 187 from 146 in 1QFY18. Value of listed sukuk was also steady at RM56.2b from RM57.0b a year ago.

Cost contained. Overall cost fell -1.4%yoy to RM62.0m. There was a contraction of -3.7%yoy in manpower cost, mainly contributed by lower variable components. Also, there was a decrease in service fees of RM0.9m to RM4.1m mainly due to lower Globex service fees payable to CME as a result of the decrease in number of derivatives contracts traded.

Earnings estimates. We maintaining our FY19 earnings forecast despite the less than stellar 1QFY19 results. This is due to the fact that we believe that the trading will improve in 2HFY19.

Source: MIDF Research - 30 Apr 2019