Bursa Malaysia - Riding on sustained trading interest

-  We are maintaining our BUY rating on Bursa Malaysia (Bursa), with an unchanged fair value of RM8.20/share. This is based on its trend-average PE of 30x on FY12F earnings.

-  Bursa reported a 3QFY12 net profit of RM37.0mil, bringing 9MFY12 earnings to RM115.8mil (+1% YoY). Its results were in line with our, and consensus’ estimates.

-  Our BUY recommendation is premised on:- (1) our end-2012 FBM KLCI target of 1,690; (2) continued interest in the domestic equity markets stemming from 3 major IPOs in 2H12 (including Astro last week); (3) encouraging number of new structured warrants being listed; and (4) higher contributions from stable revenue on top of a stable cost structure.

-  Bursa’s 9MFY12 securities trading revenue (which accounts for ~50% of operating revenue) fell 10.1% YoY to RM137.3mil (9MFY11: RM152.7mil), in tandem with a 9.9% decline in average daily traded value (ADTV). As we had anticipated, ADTV recovered 10.5% QoQ to RM1.7bil, after sliding 22.8% in the previous quarter. This comes on the back of the listings of Felda Global Ventures (June) and Integrated Healthcare (July). 

-  Bursa’s operating revenue declined by only 0.9% YoY to RM293.9mil as the drop in securities trading revenue was mitigated by an increase in derivatives trading revenue (+4.9%) and stable revenue (+11%). The jump in the latter can be attributed to higher information sales, access fees and listing fees (from listings of new structured warrants – 9MFY12: 413 vs. 9MFY11: 293; FY11: 363). 

-  The migration of Bursa’s derivative products to CME Globex electronic trading platform continues to bear fruit. Average daily contracts traded (ADC) grew 4.6% QoQ to 42,234 in 3QFY12, surpassing 2QFY12’s 40,367 for a fresh all-time high. For 9MFY12, ADC was up 10.5% to 37,794. We believe this trend is sustainable and maintain our assumption of 18% FY12F ADC growth, given the current volatility in equity and commodity markets. 

-  Bursa’s commitment to reducing its costs has been effective as operating expenses were down 4% YoY from RM162.7mil in 9MFY11 to RM156.6mil in 9MFY12. The decrease can be attributed to lower staff costs from fewer employees and lower depreciation and amortisation. The rise in Globex service fees of 9% YoY as a result of higher ADC can be offset by its corresponding trading revenue.

-  Last month, Bursa, together with the Singapore Exchange (SGX), launched the ASEAN Trading Link. Since then, the Stock Exchange of Thailand (SET) has also been connected.  We are neutral on this tie-up as the impact will only be felt by retail investors, which account for a small portion of trading participation (9MFY12: 24%; 9MFY11: 25%). Nonetheless, we are encouraged by Bursa’s bid to elevate its velocity (9MFY12: 30%; 9MFY11: 35%) by increasing retail participation, which has been dwindling YoY since 2009.

Source: AmeSecurities