Bursa Malaysia - Growing steadily and surely BUY

- We are re-initiating coverage on Bursa Malaysia Bhd (Bursa) with a BUY recommendation and a fair value of RM8.50/share, based on its trend-average PE of 30x on FY12F’s EPS. 

- We expect average daily trading value (ADTV) to potentially expand sequentially each quarter from 1Q12’s RM2.0bil given: - (1) our higher end-2012 FBM KLCI target of 1,690 and intact economic fundamentals; (2) IPOs to pick up in 2H12 with several prolific listings including Felda Global Ventures Holdings and Integrated Healthcare; and (3) encouraging number of new structured warrants being listed (3-year CAGR of 65%).

- We forecast net profit at RM151mil (+3%) for FY12F and at RM172mil (+14%) for FY13F, based on a conservative ADTV of RM2.0bil and RM2.2bil (FY11:RM1.8bil), respectively. Velocity is expected to be a tad higher at 36% compared with FY11’s 34%.

- We are positive on the derivatives market and are projecting FY12F average daily contracts traded (ADC) to grow by 18% to 40,679 contracts from 34,474 contracts in FY11. This is underpinned by:- (1) open interest being at an all-time high; (2) launch of the new derivatives clearing system and derivative products; and (3) overhaul ofparticipantship structure.

- The international exposure gained from the strategic partnership with CME Globex at end-2009 has seen increasing foreign interest in the derivatives market. Year-to-date (YTD) ended 29 Feb 2012, foreign institutions made up 27% of the FCPO market trades and 43% of the trades on FKLI. Foreign retailers were also drawn to the market, making up 1% of the FCPO trades in FY11. Wereckon that Bursa’s derivatives business has yet torealise the full potential of this partnership.

- We believe Bursa will continue with its generous dividend policy, supported by its strong balance sheet (cash-toequity ratio of 1.5x) and cash-in-hand of ~RM500mil. We have assumed a dividend payout ratio of 91%-94% for FY12F and FY13F, with gross DPS at 26.5 sen and 29.5 sen, respectively. This translates into dividend yields of 3.8% and 4.2%.

- We expect Bursa’s cost structure to remain stable, with staff costs being the main expense. We also expect Globex fees to stay elevated, following the 319% increase in FY11. However, we are not too concerned as a higher service fee resulting from the high volumes of contracts traded can be easily offset by the parallel increase in derivative trading revenues.

Source: AmeSecurities