Bursa Malaysia - Weighed down by weak investor sentiment BUY

- We are maintaining our BUY recommendation on Bursa Malaysia Bhd (Bursa), but with a lower fair value of RM7.70/share (vs. RM8.50/share previously) due to a downward revision in our earnings forecast.

- The cut can be mainly attributed to our lower assumption of average daily traded value (ADTV) in the securities market. For FY12F, we forecast ADTV to grow by 5% to RM1.9bil (vs. 10% to RM2.0bil previously) from RM1.8bil in FY11. We expect a further 5.5% growth in FY13F to RM2.0bil. These assumptions are in line with management’s guidance. 

- To realise an ADTV of RM1.9bil for FY12F, volume would have to be about RM2bil over the next 7 months as YTD ADTV stands at only RM1.7bil. Nonetheless, we believe this is achievable given: 1)  our higher end-2012 FBM KLCI target of 1,690 and strong economic fundamentals; 2)  several high-profile listings on Bursa’s Main Market in 2H12. The two most prominent IPOs, namely, Felda Global Ventures Holdings and Integrated Healthcare, aim to raise  a total of RM16bil. For comparison, the 28 IPOs in FY11 as a whole raised RM15bil. 3)  the market is set to see a record number of new structured warrants being listed in FY12F. YTD, 273 structured warrants have already been issued (1HFY11: 201 and FY11: 363).

- We are still positive on the derivatives market and are maintaining our average daily contracts traded (ADC) forecast of 40,679 for FY12F. This is 18% above FY11’s ADC of 34,474. In 1Q12, ADC was 31,015, having been weighed down by the lack of interest in the futures market. Nevertheless, a recovery could  be seen in 2Q12 as ADC for April and May totalled 40,031. Management has reiterated their commitment to achieve a mid-term KPI target of 50,000 ADC in 2013. 

- We also do not foresee any substantial deviations in Bursa’s current cost structure. Staff costs will continue to account for roughly 50% of operating expenses, while any increase in technology charges (ie, Globex fees) can be offset by the higher returns in derivatives revenue.

- Taking in all of the above, we have trimmed our net profit forecast by 10% to RM136mil for FY12F and by 7% to RM160mil for FY13F. Our target price of RM7.70/share is based on Bursa’s trendaverage PE of 30x FY12F EPS. This represents a 20% upside to the current share price.

- Assuming a dividend payout ratio of 94%~96% for FY12F and FY13F, we expect Bursa’s gross DPS to be 24 sen and 28.5 sen, respectively. This translates into dividend yields of 3.9% to 4.6%.

Source: AmeSecurites