BURSA MALAYSIA BHD

Target price: RM10.40 Hold

AT 26% of CIMB’s and Bloomberg’s full-year consensus forecast, Bursa’s first quarter 2017 net profit was in line with expectations as the research house did not expect the strong market trading value in the first quarter to be sustained throughout 2017.

As per norm, no dividend was declared for the first quarter, CIMB noted.

“Bursa’s first quarter net profit rose 13.4% year-on-year, lifted by a 6.6% year-on-year increase in revenue. The earnings growth was also supported by the company’s ability to limit the rise in its operating costs at only 1% year-on-year in the first quarter.

“Thanks to an active equity market, Bursa’s equity trading income rose 17.7% year-onyear to RM67.2mil in the first quarter. This was underpinned by the 20% year-on-year increase in average daily trading value (ADTV) to RM2.4bil in during the quarter.”

CIMB also said first quarter ADTV was lifted by a rise in market velocity from 29% in the first quarter of 2016 to 34% in the first quarter of 2017.

Bursa also saw a 5.5% year-on-year expansion in market capitalisation of the stock market to RM1.8 trillion at end-March 2017.

“Despite the 7.3% year-on-year increase in average daily contracts in the derivative market, Bursa’s first quarter 2017 derivative income slid 5.8% year-on-year.

“This was due to the revision of guarantee fee rate from 0.5% per annum in 2016 to 0.3% per annum in the first quarter of 2017, imposed on margin on contracts’ open positions.”

Despite the stellar first quarter 2017 results, CIMB said it is retaining its hold call, given Bursa’s unattractive valuation.

“Its 2018 price-to-earnings ratio of 23.1 times is more than its five-year average of 19.4 times. We think this is reflective of the current strong market sentiment.

“Furthermore, we have factored in strong net profit growth of 11.8% for 2017, to reflect the active trading in the equity market.”