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Tuesday, July 26, 2016

Brokers Report: Bursa Malaysia - Within Expectations

Maintain Market Perform with marginally increased target price (TP) of RM8.80

1H16 NP came in within expectationsAs expected, an interim DPS of 17.0 sen was declared. Fluctuation in Ringgit, China’s economic slowdown, BREXIT as well as the expectations of a gradual rise in US interest rate will continue to cast a long shadow over market sentiment; hence, suppressing trading sentiment. Our FY16E/FY17E NPs have been tweaked by +2% following house-keeping purposes. Maintain MP with TP marginally increased to RM8.80 (from RM8.56).

Within expectations. BURSA reported 2Q16 net profit (NP) of RM49.5m (-1% QoQ; 0% YoY), bringing 1H16 NP to RM99.4m (+3%) which made up 53% and 48% of our and the consensus’ full-year estimates, respectively. As expected, an interim DPS of 17.0 sen (representing 92% of dividend payout ratio) was declared under the quarter reviewed.

YoY, 1H16 operating revenue increased by 3% with better performance in stable revenue (+6%) superseding the meagre growth in trading revenue (+2%, which was dragged by lower securities trading revenue amid lower average daily trading value and volume). Coupled with the decent growth in “other income” segment (+12%) which was predominantly driven by higher interest and dividend income (+13% and +38%, respectively), total income grew by 4%. On a closer look at the star performer- stable revenue, the decent performance was anchored by both: (i) higher growth from Bursa Suq Al-Sila (BSAS; +18%), on the back of higher adoption of the Murabaha concept as well as (ii) better listing and issuer services revenue (+5%) on higher initial and additional listing fees from the transfer of listing status and higher number of corporate exercises in 1H16. At the bottom line, even with a slight uptick in cost-to-income ratio (CIR) at 46.9% (vis-à-vis 1H15: 46.3%), the group’s net profit still grew by 3%, reflective of the underlying decent performance from the top line.

Meanwhile on QoQ basis, 2Q16 total income decreased by 3% with softer revenue seen in both Operating revenue (-3%) and Other income (- 4%). Looking at the lion’s share- operating revenue, weaker trading revenue (-1%) was recorded due to poor sentiment in the securities market amid domestic and global market uncertainties. This is despite the higher trading revenue from derivatives market, which increased by 5%. However, with normalisation of CIR from the high base in 1Q16’s CIR (expenses incurred for conferences and exhibitions), 2Q16 PATAMI only dropped by 1%.

Headwinds persist. Fluctuation in Ringgit, China’s economic slowdown, BREXIT as well as the expectations of a gradual rise in US interest rate will continue to cast a long shadow over market sentiment. Challenging external headwinds still linger and our strategist is now forecasting the local bourse to hit 1,715-point by end-2016, lower than what was initially projected at 1,725-points, amid: (i) modest corporate earnings growth (2%- 9% YoY for FY16-FY17) coupled with (ii) cautious investment sentiment. Meanwhile, we are keeping our conservative stance by forecasting average trading value and volume for the equity market in 2016 at RM1.86bn (-7% YoY) and 1.81bn shares (-8% YoY). As for the derivatives market, we expect total volume for future contracts to increase by 6% YoY.

Post earnings model update, our FY16E/FY17E NPs have been tweaked by +2% for house-keeping purposes. Post revision, our TP has been marginally increased to RM8.80 from RM8.56. This is still based on a targeted FY17E PER of 22.0x (at its 5-year average P/E). Maintain MARKET PERFORM.

Risks to our call include: Higher-than-expected trading volume in the securities and derivatives markets, Lower-than-expected opex, More IPOs.

Source: Kenanga Research, 26 July 2016

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