Bursa Malaysia Berhad

Transcription

1 4QFYDec2016 Results 6 February 2017 Bursa Malaysia Berhad 4Q16 and 2016 results within expectations Net profit down on lower securities trading volume Overall fairly resilient earnings with 3.9% net yield Proxy to economic growth in long run Price RM8.78 Market capitalization RM4,708 million Board Main HOLD Indices FBM70, FBM100 Sector Finance Stock code 1818 Analyst The Research Team Key stock statistics E EPS (sen) P/E (x) Net DPS (sen) Net asset/share (RM) Issued capital (mil) week price range (RM) Major shareholders Capital Market Development Fund 19.3% Minister of Finance Inc 19.3% Share Price Chart Jan-16 Jul-16 Jan-17

2 4QFYDec16 Earnings Highlights Year end Dec (RM mil) 4Q16 4Q15 % chg Turnover % Operating profit % Extraordinary loss/(gain) - - Pre-tax profit % Tax % Net profit % EPS (sen) Operating margin (%) Pre-tax margin (%) Net margin (%) Effective tax rate (%) Bursa Malaysia s earnings results for 4Q16 and 2016 were broadly within our expectations. Turnover for 4Q16 and full-year 2016 were weaker due, mainly, to lower securities trading volume. Positively, operating margins held fairly steady, thanks to stable recurring income as well as lower operating expenses. Revenue from securities trading fell 8.6% y-y in 2016 to RM212.9 million on the back of lower trading volume. The average daily trading volume dropped to 1.76 billion shares, from 2.04 billion shares in 2015 while the average daily traded value also fell, from RM2.08 billion to RM1.97 billion. Retail participation was weak, accounting for only 21% of total value traded, compared with 23% in This reflects the weaker overall sentiment as corporate earnings continued to disappoint for consecutive quarters. The FBM KLCI ended the year 3% lower at 1, Funds raised from both the primary (IPO) and secondary markets fell sharply, as corporate activities slowed on the back of prevailing uncertainties. Foreign participation was steady at 27% of total value traded as fund flows ebbed and flowed through the year, driven mainly by external developments. Monthly fund inflows hit a peak in March 2016 totaling RM6.07 billion, which was then followed by a steep selloff in May and June. The local bourse saw net inflows again in the months of July and August before reversing in the following months. Selling intensified in November after the shocking election result in the US. For the whole year, net foreign fund outflows totaled RM3.16 billion. The derivatives arm fared better, with revenue inching 3% higher to RM88.7 million. This was attributed to higher trade fees, guarantee fees and collateral management fees. Derivatives made up some 29% of total exchange revenue. 2

3 The number of FCPO contracts traded increased to 11.4 million last year, from 11 million in 2015 but the number of FKLI traded fell from 3 million to 2.8 million over the same period. The daily average contracts traded were slightly higher at 57,829, compared with 57,157 in the previous year. Revenue from exchanges securities and derivatives combined accounted for 64% of operating revenue in Recurring income was steady, accounting for about 31% of operating revenue. This includes fees from listing, information and data services as well as depository fees. Meanwhile, revenue from the Islamic capital market was also stable with higher foreign participation. Non-operating income, mainly investment income and rental, was higher at RM34.1 million. Bursa has a big cashpile totaling RM1.85 billion that includes security deposits and cash for equity and derivatives trading margins. Cash for the company, meanwhile, stood at RM341 million. Total operating costs (ex-depreciation) were some 1.9% lower y-y at RM212 million. The lower cost was due, mainly, to lower staff headcount. In all, pre-tax profit fell 2.9% to RM270.6 million in 2016, compared with RM278.8 million in Net profit totaled RM193.6 million, again, down slightly from RM198.6 million in the previous year. Outlook and Recommendation As we saw in this latest set of results, whilst Bursa s revenue is impacted by investor sentiment and trading volume, earnings are relatively resilient. This is thanks to its stable recurring income and investment income, which combined is sufficient to cover nearly all of operating expenses. Given its limited capex for the foreseeable future and steady cashflow, Bursa is able to maintain a high dividend payout. The company declared a final dividend of 17 sen per share, bringing dividends to 34 sen per share for the year, about 94% of profits. This will earn shareholders a net yield of 3.9%, which is higher than many of the 30 component stocks for the FBM KLCI. As such, Bursa remains a good defensive holding in difficult times whilst offering investors upside prospects on recovery in sentiment and trading volume as well as proxy for the country s economic growth. Its stock price has demonstrated, historically, low volatility relative to the broader market with beta of only A beta of 1 means that the stock price moves in line with the broader market while a beta of greater than 1 indicates greater than market average volatility. We keep our HOLD recommendation on the stock. 3

4 It is becoming increasingly difficult to predict day-to-day market movements due to the myriad uncertainties, particularly on the external side. We suspect global markets and the local bourse will remain volatile. President Trump has shown himself to be unpredictable and his policies and tweets will continue to affect investor confidence. His trade policies, in particular, are seen to have big impact on developing countries. There are also key elections coming up in Europe in the Netherlands, France, Germany and likely Italy that could have repercussions around the world. Plus, Brexit negotiations will play out in the background over the next 2 years. These will result in more volatile foreign funds buying and selling, which has been shown to be quite erratic and short-term in nature. The ebb and flow, in turn, affects confidence of domestic investors, particularly retail investors. The foreign fund flows also affect the value of the ringgit and ultimately, the cost of doing business and consumer purchasing power. All of which will affect the overall economy. On a more positive note, 2017 started on a steady footing. Trading volume in January picked up strongly. Average daily trading volume rose to 1.92 billion shares valued at RM1.93 billion compared with the average of 1.54 billion shares worth RM1.93 billion in 4Q16. The stronger volume suggests greater retail participation in lower liner stocks. We are, however, uncertain if this is sustainable. In view of prevailing external and domestic uncertainties, most investors will probably stay cautious. To attract sustained investor interests, we need to see an improvement in corporate earnings. In this respect, companies have yet to show evidence of a turnaround in the earnings slide that s been ongoing for the past few years. The total trailing 12-month net profit for the market declined some 14% in the past one year. Operating conditions remain tough on the back of sluggish demand and rising costs. The Bursa Derivatives market has been faring better, benefiting, in part, from increased volatility, especially in commodity prices. We believe there is room for Bursa to grow this business segment. With the US CFTC approval, Bursa plans to attract more US-based commodity traders via direct market access. It is also looking to engage more participants, local and foreign, through increased marketing activities. The latter includes garnering greater acceptance for the FCPO as a global benchmark. Also on the drawing board are new derivatives products. 4

5 Similarly, there is room to grow the BSAS platform. There is visible increase in the value of transactions over the past few years on the back of marketing and acceptance of the Murabaha contracts as liquidity management tools. Bursa Malaysia-i, the world s first fully integrated Islamic securities exchange platform, is expected to further attract a wider pool of both domestic and foreign investors. Profit & Loss Analysis Year end Dec (RM mil) E 2018E Turnover Operating profit Depreciation EI loss/(gain) Pre-tax profit Tax Minority Interests Net profit EBITDA margin (%) Pre-tax margin (%) Net margin (%) Effective tax rate (%) Per Share Data Year end Dec E 2017E 2018E EPS (sen) P/E (x) Net dividend (sen) Net yield (%) Payout ratio (%) NTA/share (RM) Price/NTA (x) Cashflow/share (RM) Price/cash (x) Net gearing (%) na na na na ROE (%)

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