Bursa sitting on RM400m cash pile

Bursa sitting on RM400m cash pile
Business & Markets 2013
Written by Hwang DBS Vickers Research  
Wednesday, 18 December 2013 10:20

Bursa Malaysia Bhd
(Dec 17, RM8.03)
Maintain buy at RM7.96 with a target price of RM10.10: The 20 sen per share special dividend declared in July lifted financial year 2013 ending Dec 31 (FY13) yield to 6%. We estimate Bursa is still sitting on RM400 million excess cash after setting aside RM265 million for FY13 dividends.

Management indicated that the excess cash is being reserved for business expansion and to meet the higher allocation for clearing guarantee funds. It has set aside RM100 million for this capital requirement, but if securities and derivatives trade values continue to rise going forward, it might need to raise the reserve funds.

That said, we do not discount part of the excess cash being returned to shareholders (via a special dividend). Bursa’s strong free cash flow and low capital expenditure (capex) should support higher dividend payouts. We understand it is in its last leg of a technology upgrade and capex requirement will decline consequently.

Structural changes such as a revision in listing fees, revamp of tax structure (goods and services tax to replace stamp duty) and streamlining of surveillance roles (leading to cost savings) could unlock value.

They could lift FY15F earnings by 20% and dividend yield to 5% (from 4%).

Our dividend discount model-based RM10.10 target price assumes 90% dividend payout (excluding special dividend), 7% long-term growth and 11% cost of equity. Current mean valuation represents a good opportunity to accumulate the stock. — Hwang DBS Vickers Research, Dec 17



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