This article first appeared in The Edge Financial Daily on August 1, 2018
Bursa Malaysia Bhd
(July 31, RM7.82)
Maintain buy with an unchanged target price of RM8.40: Bursa Malaysia Bhd saw a net profit of RM122 million (+5% year-on-year [y-o-y]) in the first half of financial year 2018 (1HFY18), broadly within our expectations of a net profit of RM249.7 million in FY18 (premised on an average daily value [ADV] assumption of RM2.8 billion versus 1HFY18 ADV of RM2.88 billion).
The securities division (accounting for 89% of the group’s operating profit in second quarter of FY18 [2QFY18] ended June 30, 2018) came in lower (2QFY18 profit -1.9% y-o-y, -7.1% quarter-on-quarter) as a result of: i) a lower effective clearing fee at 2.15 basis points (bps) in 2QFY18 versus 2.34 bps in 2QFY17 and 2.31 bps in 1QFY18 (despite higher 2QFY18 ADV of RM2.88 billion versus RM2.81 billion in 2QFY17 and 2.93 billion in 1QFY18); and higher overheads (+6.6% y-o-y) due to increased staff costs. The securities market’s 1HFY18 operating profit was up 6.8% y-o-y on robust ADV (+8.6% y-o-y) and higher listing/issuer fees.
The derivatives market contributed RM11.6 million to 2QFY18 operating profit, up 10.8% y-o-y due to higher revenue and margin earned from a spike in the FBM KLCI futures trades (volume +40.4% y-o-y in 2QFY18), offsetting a reduction in guarantee fees (under a gradual phaseout until 2019). For 1HFY18, derivatives profit was down by 1.9% y-o-y due to lower trade volumes (-8.4% y-o-y) and reduction in the guarantee fees by another 0.1 percentage point.
We believe that Bursa’s outlook remains intact, noting potentially more foreign fund inflows as confidence in the new government’s fiscal and economic reforms grow, a firmer ringgit, and a growing traction of the new capital-market initiatives announced (stamp duty waiver on the mid-/small-cap counters, intraday short-selling, volume-based incentives). — Affin Hwang Capital, July 31