Bursa Malaysia Bhd
(Feb 6, RM8.75)
Maintain hold call with an unchanged fair value of RM8.70: Bursa Malaysia Bhd reported a fourth quarter financial year 2016 (4QFY16) net profit of RM50 million, which was higher than our expectation of RM43 million. The variance was due to other income being RM10 million higher than expected and operating expenditure lower than expected by RM6 million.

Earnings for FY16 came in at RM194 million against our expectation of RM186 million. Cumulative net profit was within our expectations, making up 104% of our estimate.

For FY16, securities market revenue slipped by 8.6% year-on-year (y-o-y), largely due to weaker securities trading activity in the second half of 2016 (2H16), which saw foreign fund outflows in November 2016 and December 2016.

Also, there was an exit of foreign funds in May 2016 due to the MSCI Index rebalancing. The daily average trading value (DATV) for the securities market slipped to RM1.69 billion in 4QFY16 compared with RM1.74 billion in 3Q. For FY16, the DATV was lower at RM1.81 billion for the securities market and in line with our expectations. The DATV for equities was higher in 1H16 compared with 2H16.

In 4QFY16, market velocity dropped to 25% from 26% in 3QFY16. On a full-year basis, market velocity for FY16 was lower at 27% (FY15: 30%).

On derivatives, the average daily contracts (ADC) was lower in 4QFY16 at 55,289 contracts compared with 56,459 in 3QFY16. This was due to a lower number of contracts traded for crude palm oil futures (FCPO) in 4QFY16. Nevertheless, the ADC for derivatives for FY16 is expected to still manage a marginal growth of 1.2% y-o-y to 57,829 contracts.

Breaking down by segments, the ADC for FKLI slipped 9% y-o-y to 11,183 contracts while the ADC for FCPO rose 3.9% y-o-y to 46,406 contracts in FY16.

Bursa Suq Al-Sila trading revenue declined marginally by 0.4% y-o-y while revenue for market data revenue rose by 1.6% y-o-y due to increased subscribers for derivatives market data.

We maintain our cautiously “optimistic” outlook for the market with a year-end 2017 FBM KLCI target of 1,745 points, a modest 6.3% upside from end-2016 of 1,641. We expect 1H17 to be volatile for the securities market on the potential for further hikes in US Federal Reserve rates, and another round of MSCI index rebalancing which is likely to further lower Malaysia’s weightage in the index. In 2H17, the above negative events would have surpassed, and with greater clarity on US President Donald Trump’s policies, we expect an improvement in securities market trading activity. — AmInvestment Bank Bhd, Feb 6