INVESTMENT HIGHLIGHTS

• Did not meet expectations

• PATAMI dragged by lower revenue

• Islamic capital market continued to be a bright spot

• Cost well contained

• Interim dividend of 10.4sen

• Revising downwards FY19 and FY20 earnings estimate by 11.8% and 5.0% respectively

• Maintain NEUTRAL with revised TP of RM6.90 (from RM7.20)

Below expectation. Bursa posted its 1HFY19 PATAMI which was below ours and consensus’ expectations at 40.0% and 41.0% of respective full year estimates. The variance was due to our underestimation of the weakness in revenue. Resultantly, PATAMI fell - 23.6%yoy.

Operating revenue dragged by lower trading revenue. Total revenue fell -14.0%yoy. The major contributor to the weak revenue was lower securities trading revenue which fell -19.6%yoy to RM117.8m. This was due to lower ADV-OMT which fell -24.9%yoy to RM2.04b. Meanwhile, derivative trading revenue also fell -14.1%yoy to RM33.3m on lower number of FCPO and FKLI contracts.

Islamic capital market continues to be the bright spot. The ADV traded in 1HFY19 was dragged by the -34.2%yoy to RM929m decline in ADV from domestic institutions. It was not much better for ADV from foreign institutions and retail which dropped by -13.5%yoy to RM620m and -16.7% to RM495m respectively. Velocity fell -7ppts yoy to 29%. Fund raising activities also improved in 2QFY19 vs 1QFY19 to register RM3.1b raised in 1HFY19. It was supported by higher fund raised from new listings (RM1.4b vs RM0.5b in 1HFY18. However, overall fund raised in 1HFY19 was -13.9%yoy.

Despite this, the Islamic capital market activity continue to improve as BSAS ADV grew +49.8%yoy to RM32.1b, with the number of trading participants growing to 199 from 146 in 1HFY18.

Contained cost. Overall cost fell marginally by –0.7%yoy to RM122.6m. Staff cost contracted -3.3%yoy to RM68.6m which was due to lower provision of variable cost. Depreciation was also lower as certain IT assets have been fully depreciated.

Earnings estimates. Given the weakness in revenue, we are cutting our FY19 and FY20 earnings estimates by -11.8% and -5.0% respectively.

Recommendation. We recognize that Bursa’s earnings were affected by external events and environment, with the FBMKLCI continued to be a laggard when compared against its regional peers. However, the broader FBM70 and FBMSC have shown some robustness. As such, we expect Bursa’s earnings should improve slightly in 2HFY19. Therefore, we maintain our NEUTRAL call on Bursa with a revised TP of RM6.90 (from RM7.20). Our TP is based on pegging FY20 EPS to a lower PER of 24x.

Source: MIDF Research - 2 Aug 2019