Bursa Malaysia :Lower operating revenue from softer securities market trading activity in 2H2016 HOLD

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Bursa Malaysia :Lower operating revenue from softer securities market trading activity in 2H2016             HOLD

We maintain our HOLD call on Bursa Malaysia (Bursa) with an unchanged fair value of RM8.70/share by pegging the stock to a PE of 23x (5 historical average PE) on FY17 EPS.

Bursa reported a 4QFY16 net profit of RM50mil (+13.9%QoQ) which was higher than our expectation of RM43mil. The variance was due to other income being RM10mil higher than expected and OPEX lower than expected by RM6mil. Earnings for 12MFY16 came in at RM194mil (-2.5%YoY) against our expectation of RM186mil. Cumulative net profit was within our expectation, making up 104.0% of our estimate. For FY16, securities market revenue slipped by -8.6%YoY, largely due to weaker securities trading activity in 2H2016 which saw foreign fund outflows in November and December 2016. Also, there was an exit of foreign funds in May 2016 due to MSCI Index rebalancing. Daily average trading value (DATV) for the securities market (OMT) slipped to RM1.69bil in 4QFY16 compared to RM1.74bil in 3QFY16. For 12MFY16 DATV was lower at RM1.81bil for the securities market (12MFY15: RM1.99bil), and in line with our expectation. DATV for equities was higher in 1HFY16 compared to 2HFY16.

We maintain our cautiously optimistic outlook on the market with a year end 2017 KLCI target of 1,745, a modest 6.3% upside from end 2016 of 1,641. We expect 1H2017 to be volatile for the securities market on the potential for further hikes in US Fed Rate, and another round of MSCI index rebalancing which is likely to further lower Malaysia's weightage in the index. In 2H2017, the above negative events would have surpassed and with greater clarity on President Trump's policies, we expect an improvement in securities market trading activity.

QUICK TAKE

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ECONOMIC HIGHLIGHTS

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