Marginal q-o-q growth for Bursa

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Bursa Malaysia Bhd
(Oct 14, RM8)
Maintain “buy” with target price (TP) of RM9.30:
We expect nine months ended May 31 of financial year 2014 (9MFY14) net profit of RM140 million for Bursa, representing 70% of our 2014 forecast, derived from our third quarter of 2014 (3Q14) net profit estimate of RM48 million (23.9% of 2014 estimate, at an implied growth rate of 2.5% quarter-on-quarter). This is premised on 3Q14 revenue of RM125.4 million, which is based on the equity and derivatives trading statistics that have been released.

Although the market outlook appears cautious, with most non-government linked companies institutional investors staying on the sidelines and foreign funds exiting the market, we believe that ample domestic liquidity will continue to support the indices.

We view short-term volatility and corrections in the market as opportunities for domestic funds to be repositioned in the market. In fact, the fourth quarter traditionally is robust, owing to window-dressing activities. Our market strategist foresees a 2014-end KLCI index target of 1,920, suggesting an upside from the current level of 1,801.38.

Other catalysts in 4Q14 include expectations of stronger export numbers, driving our economist’s gross domestic product growth estimate of 5.8%. Meanwhile, the potential launch of new initial public offerings (pushed back to 2015) such as 1Malaysia Development Bhd’s power assets, MMC Corp Bhd’s Malakoff, Naza TTDI Sdn Bhd, Khazanah Nasional Bhd’s Themed Attractions and Resorts Sdn Bhd, Weststar Aviation Services Sdn Bhd and Permodalan Nasional Bhd REIT may add stimulus to the market.

Bursa’s initiative to encourage greater retail investor participation through the launch of interactive investment platform “Marketplace’ on April 29 this year, if successful, could also be a catalyst.

Reaffirm “buy” with TP of RM9.30. Bursa’s high free cash flow generation ability should continue to support high dividend payouts (estimated at 6.6% in FY14 to FY16). — Affin Hwang Capital Research, Oct 13

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This article first appeared in The Edge Financial Daily, on October 15, 2014.