Bursa Malaysia - Amid lacklustre securities market, derivatives to drive growth

-  We re-affirm our BUY recommendation on Bursa Malaysia with an unchanged fair value of RM8.20/share. The implied PE of 26x FY13F earnings is midway its 5-year historical PE band.

-  Bursa’s net earnings of RM35.7mil in 4QFY12 (-4% QoQ and +14% YoY) brings FY12’s net profit to RM151mil (+4% YoY). The results met both ours, and consensus’ estimates.

-  The marginal improvement in Bursa’s net earnings may be attributable to YoY improvements in both stable revenue (+13%) and derivatives trading revenue (+9%), which more than made up for the 8% YoY decline in securities trading revenue (46% of total operating revenue). Overall, FY12 operating revenue remained flat at RM388.5mil (+2% YoY vs. FY11: +15%).

-  The fall in securities trading revenue was in tandem with the 7% drop in average daily trading value (ADTV) from RM1.8bil in FY11 to RM1.7bil in FY12. Following this, we have revised our FY13F and FY14F ADTV forecasts to RM1.8bil and RM1.9bil, respectively (from ~RM2.0bil previously). We expect volumes to grow by 6% on the back of more high profile listings as the GLICs look to pare down their stakes.

-  Looking ahead, we still believe Bursa’s growth will hinge on the development of its derivatives market. In FY12, average daily contracts traded (ADC) grew by 14% YoY to 39,387 contracts (QoQ: +3%) with a total of 9.7mil contracts traded. We forecast ADC to expand by 16% in FY13F and FY14F, underpinned by:- (1) open interest being at an all-time high (January 2013 average of 219,676); and (2) launch of new derivative products, namely futures on palm olein and gold.

-  Bursa had successfully contained its operating costs in FY12 (-1% YoY to RM211mil), which enabled it to register a 0.4 of a ppt increase in FY12 EBITDA margin to 54.4%. However, management has warned that expenses may rise in FY13F on account of a hike in staff costs (50% of opex) as they fill some key positions. 

-  Management has proposed a final single-tier dividend of 13.5 sen/share. Together with 2Q12’s 13 sen/share, Bursa is paying out a total of 27 sen gross DPS. Our FY13F and FY14F gross DPS forecasts of 29.5 sen and 33.5 sen (95% DPR) translates into yields of 4.5% and 5.1%. 

-  All in, we now expect Bursa’s net profit to grow by 10% to RM167mil in FY13F and a further 13% in FY14F. We also introduce FY15F net profit of RM209mil (+11% YoY).

-  We continue to like Bursa given:- (1) our higher end-2013 FBM KLCI target of 1,770; (2) increased demand for equities by cashed- up domestic institutional funds (Dec 2012: ~45% of value traded) post-GE 13; (3) the sustained growth in  new structured warrants  listings (3-yr CAGR: 40%); and (4) potential capital management surprises being a rerating catalyst.

Source: AmeSecurities