Despite a potential lower than expected 2Q12 earnings, we
reckon that Bursa Malaysia (“BURSA”) is an excellent proxy to capitalise on our
cautiously optimistic market strategy. We maintain our OUTPERFORM rating and
believe the recent correction in its share price could have factored in the
thinly traded equity market in 2Q12. Besides, having underperformed FBMKLCI by
>15% in 2Q12, we believe BURSA is now poised to stage a rerating. The current
Forward PER of BURSA is fast approaching its -1SD level of 20.6x and its
Forward PBV has dipped below the -1SD level of 3.9x. Going forward, we believe
trading activities on the Malaysian equity market should improve in line with
the favourable seasonal pattern. Nonetheless, given our earnings downgrade, we
have revised down our target price slightly to RM7.70 (from RM8.00 previously),
which is based on 23.3x FY13 PER and 4.6x FY13 PBV. These valuations are in
line with its 3-year average Forward PER and PBV of 23.9x and 4.4x
respectively.
2Q12 earnings
estimates downgraded by 11%-18%. BURSA has scheduled to release its
financial results for the second quarter ended 30 June 2012 on Wednesday, 18
July 2012. Recall that in our last results note, we anticipated that BURSA will
register an operating revenue and a net profit of RM105.9m (+5.4% QoQ or +14.6%
YoY) and RM42.4m (+4.0% QoQ or +18.7% YoY) respectively. Our strong earnings
estimates back then were premised on our expectations of a higher volatility in
2Q12 and hence higher traded volume (see overleaf for our market trade assumptions).
However, based on the actual market statistics for 2Q12, we believe that there
is a potential downside risk to our 2Q12 earnings estimates. We now reckon that
the trading revenue from the securities market was actually likely below our
earlier expectation led by significant lower average trading value and volume.
The actual 2Q12 average trading value and volume were registered at RM1.48b and
1.14b, respectively, which are >20% lower than our previous forecasts of
RM1.86b and 1.45b. However, this shortfall was cushioned by trading value from
the derivatives market. This is because the total traded volume for futures
contracts was 12.6% higher than our expectation driven by a significant
increase in Crude Palm Oil (“CPO”) futures trades. We have fine-tuned our 2Q12
operating revenue and net profit estimates to RM93.5m (-6.9% QoQ or +1.2% YoY)
and RM34.9m (-14.4% QoQ or -2.2% YoY), respectively, representing 11.7% and
17.7% downward revisions.
Better days ahead?
Nonetheless, with the more optimistic market view, we believe that the market
condition should improve in the coming quarters. Recall that our various market
forecasting models suggest that there are further upsides for the local market.
We have recently pegged our 12-month index level at 1,750 and revised up our
year-end index target to 1,680 (from 1,650 previously). While the risk of corrections
remains at least for another quarter, we believe that the risk of stock purchases
should be somewhat cushioned by the ample liquidity and new mega issues. As
such, we believe investors should look beyond 3Q12 and start to position themselves
for the seasonal stronger 4Q12 and 1Q13. In summary, we believe the equity
market average trading value and volume should rise back to RM1.85b and 1.45b
respectively in 2H12, which would be 25% and 27% respectively higher than 2Q12,
in line with the more bullish investment sentiment.
FY12E-FY13E earnings
estimates revised down 5%-10%. With our cautiously optimistic market
outlook, we have revised down our FY12E and FY13E net earnings estimates to
RM150.7m (+3.1% YoY) and RM175.6m (+16.5% YoY) respectively from RM159.3m and
RM195.2m previously, translating into downgrades of 5.4% and 10.1%. Our
FY12-13E earnings forecasts are inline with consensus estimates of RM150.8m-RM170.5m.
Fine-tuning dividend
estimates as well. Due to the lower earnings estimates, we have also
revised down our FY12E DPS estimate from 27 sen to 26 sen and our FY13E DPS
estimate from 33 sen to 29 sen. However, they still represent an average 90%
dividend payout ratio. For the forthcoming results announcement, we anticipate BURSA
to declare a 13 sen interim DPS.
Source: Kenanga
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