Bursa Malaysia Bhd
(Oct 21, RM7.91)
Maintain buy with target price of RM10.10: Earnings for the nine months ended September of financial year 2014 (9MFY14) came in at 77% to 75% of our and consensus’ full-year estimates. For a change, third quarter (3Q) FY14 revenues were lifted by improved derivatives trading momentum, although this was partly offset by lower stable income (from lower membership and connectivity fees).

However, net profit jumped 13% quarter-on-quarter (q-o-q). Expenses fell 4% q-o-q on lower staff costs. Technology-related costs continued to trend up but depreciation and amortisation costs were stable.  Trading velocity inched up to 30% and lifted securities revenue. Average daily securities volume and value for 3Q rose 49% and 7% respectively q-o-q to 2.67 billion shares and RM2.2 billion.

Velocity inched up to 30% against 29% in 2QFY14. Retail trade continued to pick up with retail:institution mix improving to 26:74 from 22:78 in December last year. There are continued efforts to further improve retail participation.  Derivatives average daily contract volume grew 23% q-o-q with the crude palm oil futures (FCPO) contract volume breaching one million contracts in September as open interest hit a record high of 287,859 contracts.

There was stronger trading activity in August and September. The FBM KLCI saw lower volatility, hence, lower volume in the quarter.

No change to full-year earnings. Expect 4QFY14 to be seasonally weaker. Our assumptions for average daily trading volume and value for this year are 1.6 billion shares and RM2 billion respectively, below the 9MFY14 average of 2.1 billion shares and RM2.1 billion.

But we are keeping our forecasts as we expect seasonally weaker numbers in 4Q. Our sensitivity analysis shows that every 1% increase in average daily trading value assumption would raise net profit by 0.5%. No dividends were declared, as expected.

Maintain “buy”. Our dividend discount model-based target price of RM10.10 assumes 90% dividend payout (excluding special dividend), 7% long-term growth, and 11% cost of equity.

Structural changes to fees and taxes (GST replaces stamp duty) and streamlining of surveillance roles (leading to cost savings) could unlock value in Bursa. Higher retail participation would enhance velocity over time. — AllianceDBS Research, Oct 21

This article first appeared in The Edge Financial Daily, on October 23, 2014.