Bursa’s earnings may pick up in 2QFY14

by **Cals** Tue 08 Jul 2014, 08:48

Business & Markets 2014

Written by Affin Investment Bank

Monday, 07 July 2014 11:11

Bursa Malaysia Bhd
(July 4, RM7.84)
Maintain buy with target price of RM9.50: Based on Bursa’s trading statistics up to June 30, 2014, the equities trading value for the second quarter ended June 30 of 2014 (2Q14) grew by 8.4% quarter-on-quarter (q-o-q) to RM138.1 billion, which was partly boosted by an increase in direct business trades (DBT) from RM5.4 billion to RM9.1 billion q-o-q. Meanwhile, market trades grew at a lower rate of 5.7% q-o-q from RM122 billion to RM129 billion, which translated into slightly weaker trading velocity of 29% in 2Q14 from 30% in 1Q14. All in all, the equities market saw a mediocre average daily value (ADV) growth of 1.5% q-o-q, up marginally from RM2.16 billion in 1Q14 to RM2.19 billion in 2Q14.

The average daily contracts (ADC) for derivatives declined 11.9% q-o-q from 50,046 in 1Q14 to 44,082 in 2Q14.

Based on the these statistics, we estimate a higher revenue of RM131.7 million for 2Q of financial year 2014 ending Dec 31 (from RM123.2 million in 1QFY14), representing about 25% of our FY14E revenue. This may subsequently translate into a net profit of RM52.3 million (26% of FY14 estimate). All in, we are expecting a first half (1HFY14) net profit of RM97.4 million for Bursa, representing 48% of our FY14 forecast.

At this juncture, we keep our earnings forecasts unchanged as we remain optimistic on the market outlook going into 2HFY14, driven by new initial public offering launches (including that of 1Malaysia Development Bhd, Malakoff Corp Bhd, Iskandar Waterfront Holdings, Medini Iskandar Malaysia Sdn Bhd and others, with a pipeline of more than RM20 billion).

Other catalysts in 2HFY14 include rising capital inflows (given the anticipation of a rate hike and a stronger ringgit). Bursa’s recent initiative to encourage greater retail investor participation, through the launch of an interactive investment platform called Marketplace on April 29, 2014, if successful, could also be a catalyst.

We reiterate our “buy” rating on Bursa as we continue to favour the stock as a high-beta and high-yield play.

Bursa is able to maintain a high payout of at least 90% per annum given its low annual capital expenditure requirement of about RM20 million. Our price target of RM9.50 remains unchanged, based on a target price-earnings ratio of 22 times on FY15E earnings per share. — Affin Investment Bank, July 4

[You must be registered and logged in to see this image.]

This article first appeared in The Edge Financial Daily, on July 7, 2014.