Bursa Malaysia Bhd
(Jan 30, RM8.20)
Downgrade from add to hold with target price (TP) of RM8.05: Bursa Malaysia Bhd delivered fair earnings performance in its fourth quarter of financial year 2014 ended December (4QFY14), which is the weakest quarter seasonally, with a 12.7% year-on-year (y-o-y) rise in average daily trading value (ADTV) to RM1.9 billion on the back of market velocity of 28% (against 25% in 4QFY13). In 2014, ADTV advanced by 7% y-o-y to RM2.1 billion but market value dwindled from 30% in 2013 to 29% in 2014. This helped the company achieve a 10% y-o-y increase in equity income to RM239.1 million in 2014.

Bursa’s derivative income inched up by 1% y-o-y to RM70.6 million. This was mainly due to the drop in the first half of FY14 derivative income caused by lower guarantee and collateral management fees. On a positive note, the average number of daily contracts for the derivative market advanced by a strong 16% y-o-y to 50,650 in 2014. This underpins our positive view on derivative income growth in 2015.

At 104% of our and consensus forecasts, Bursa’s FY14 net profit was above expectations due to higher-than-expected equity income. However, net dividend per share of 54 sen for FY14 was in line with our estimate. After updating the FY14 numbers, our FY15 FY16 earnings per share forecasts rise by 1% to 4%.

However, we cut our TP as we reduce our target calendar year 2016 price earnings ratio from 21.5 times (three-year average) to 19.4 times (10% discount to three-year average) in view of our cautious stance on the equity market in 2015.

For the same reason, we downgrade the stock from “add” to “hold”, despite the stronger-than-expected 4QFY14 earnings. In 2015, we project slower equity income growth against a recovery in derivative income. We prefer RHB Capital Bhd for exposure to the financial services sector. — CIMB Research, Jan 30

This article first appeared in The Edge Financial Daily, on February 4, 2015.