Bursa Malaysia Bhd

WE like Bursa (fundamental: 2.7/3; valuation: 2.1/3) for its resilient business model, long-term growth prospects and its decent dividend yield. In 2014, the integrated exchange operator derived 78.1% of its operating revenue from securities market and 18.2% from derivatives market. It is also the world’s largest palm oil futures trading hub and has a niche in Shariah-compliant products.

Net profit grew at CAGR of 15.1% between 2010 and 2014, to RM198.2 million on the back of steady rise in volumes, for both securities and derivatives. Average daily trading value (ADV) for securities rose from RM1.54 billion to RM2.16 billion while the daily average derivatives contracts grew from 24,818 to 50,654 over this period. As its costs are mostly fixed, rising volume translates into better margins. 

Earnings in the current year may be flattish, as domestic and external uncertainties may keep investors sidelined. Nonetheless, we remain positive on its long-term growth prospects. Under the second Capital Market Masterplan, equity market capitalisation is projected to grow to RM2.43 trillion in 2020 (end-2014: RM1.65 trillion). 

Going forward, Bursa intends to continue to expand its product offerings to improve market depth, improve trading access as well as boost retail participation through roadshows (promote awareness and educating the public on investing). 

Bursa has a debt-free balance sheet with ROE of 25.4%. Currently, it has some RM100 million in excess cash available for distribution, after taking into account capex, working capital and clearing guarantee requirements.  

To be sure, the stock trades at premium valuations, of trailing P/E of 22.8 times and 6.0 times its book value. But attractive yields should support its share price. Even excluding special dividend of 20 sen, dividends totalled to 34 sen per share in 2014, giving a higher-than-market average yield of 4.0%. 

This article first appeared in The Edge Financial Daily, on March 12, 2015.