Bursa’s trading value up on recovery in 1Q15 sentiment

by **Cals** Thu 16 Apr 2015, 23:58

Bursa’s trading value up on recovery in 1Q15 sentiment

By UOB KayHian Research / UOB KayHian Research | April 16, 2015 : 11:29 AM MYT
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Bursa Malaysia Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(April 15, RM8.70)
Maintain hold, with a revised target price (TP) of RM8.30. We are expecting Bursa Malaysia to report earnings growth of 9% year-on-year (y-o-y) in the first quarter of 2015 (1Q15) on the back of fairly strong derivatives contract volume growth of 20.6% y-o-y and marginal 1.2% uplift in average daily equity trading value. However, as its effective tax rate is expected to normalise back to 24% in 1Q15 versus 4Q14’s 21%, we expect a mild sequential 4% quatter-on-quarter (q-o-q) contraction in 1Q15 earnings versus 4Q14.
The recovery in trading sentiment in February and March 2015 helped lift average daily trading value from RM1.79 billion in January to RM2.08 billion for 1Q15 versus our earlier expectations of RM1.95 billion for 1Q15. However, this still represents only a marginal 1.2% y-o-y uptick in 1Q15 average daily trading value. There was a pickup in trading interest in the smaller-cap space as evident in the lower average daily value per trade of RM1.01 in 1Q15 versus RM1.04 in 4Q14 and RM1.10 in 1Q14. The interest in small-cap stocks was also clearly reflected in a comparatively slower uptick in average daily trading value (+1.2% y-o-y) versus average daily trading volumes (+2.7% y-o-y).
On a q-o-q comparison, both average daily trading values and volumes recovered (+7.6% and +8.9% respectively) given the low-base effect of 4Q, which traditionally tends to be the quietest period due to the year-end holiday season.
Average daily trading value of equities has tapered off (-14.9%) to RM1.76 billion over the prevailing first two weeks of April versus RM2.08 billion in 1Q15. While we are still fresh into 2Q15, the average daily trading value of the first two weeks of April has reflected a sharp 13.5% y-o-y deterioration from 2Q14 levels, mainly due to the sharp drop in average value per trade to 92 sen versus RM1.14 in 2Q14.
1Q15 futures contracts trade remains relatively resilient at 3.55 million contracts (+3.6% q-o-q and +20.6% y-o-y). This was driven by a 24.6% y-o-y increase in the number of crude palm oil (CPO) futures contracts traded to 2.92 million. We believe that the volatility in CPO prices may have generated greater hedging interest and hence the volume. In the KLCI futures segment, the volume was also up but a milder 7.2% y-o-y as the increase in market volatility had generated greater trading opportunities.
Given the government’s recent mandate to encourage higher dividend payouts from government-linked corporations, Bursa Malaysia could be a prime candidate given its net cash balance sheet of RM156.5 million (30 sen/share) and minimal annual capital expenditure (capex) requirements of RM30 million to RM40 million. We have imputed a 95% dividend payout ratio assumption into our 2015 and 2016 forecasts but could potentially stretch its payout to 140% for 2015, inclusive of an additional special dividend of up to 15 sen/share. This will result in its net cash balance declining to around RM90 million, which is still sufficient to fund its planned annual capex of around RM40 million per annum over the next two years. Assuming that this materialises, we are looking at an implied net dividend yield of 5.9% for 2015 and 6.4% for 2016.
Taking into account the stronger-than-expected recovery in 1Q15 average trading value, we have raised our full-year equity trading value to RM545 billion from RM520 billion for 2015. This represents an implied average daily trading value of RM2.09 billion for 2015 versus 2014’s RM2.05 billion. Consequently, we have raised our earnings forecast by 5.4% for 2015.
Maintain hold with a higher TP of RM8.30 post-earnings revision. Our TP of RM8.30 implies a 4.1% net dividend yield and 95% payout ratio.
Catalysts include: a) additional capital distribution, which will temporarily boost yield; b) stronger-than-expected trading volume; and c) trading of gold futures gains momentum. — UOB KayHian Research, April 15
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This article first appeared in The Edge Financial Daily, on April 16, 2015.[/size]