• Bursa has proposed a bonus issue of one bonus share for every two existing shares held. Up to 269,834,150 bonus shares with a par value of RM0.50 will be issued. The actual number will depend on the total number of Bursa shares in issue as of the date of entitlement.

• The proposed issuance of bonus shares will be capitalised from both its share premium of RM119mil as at the end of September 2017 and retained earnings.

• The rationale of the bonus issue is create higher liquidity for the stock in the market.

• On a proforma basis, the enlarged number of shares from the bonus issue is shown in Exhibit 1 with the maximum number of shares scenario, taking into account the vesting of shares under its existing share grant plan (SGP).

• The proposed bonus issue will not have any material impact on our net profit forecast. However, there will be a dilution to our EPS projection, taking into account the enlarged number of shares post-bonus issue. Both our FY18 DPS and BV/share estimates will also be lower by 33.0% to 25.9 sen and RM1.07 from the present 39.2 sen and RM1.61 respectively. Assuming the maximum number of shares scenario, our projected FY18 EPS of 42.0sen/share will be diluted to 27.8 sen/share (-33.0%). This will adjust our fair value for Bursa from RM9.70/share to RM6.40/share based on an unchanged 23x FY18 PE.

• Bursa has also proposed the establishment of a new employee share grant plan (ESGP) of up to 4% of the issued share capital of Bursa (excluding treasury shares). It will replace Bursa’s existing share grant plan. The new plan will award new Bursa shares to any of the group’s executive directors and/or key employees including that of its operating subsidiaries. This will be in the form of restricted share plan (RSP) for executive directors, in which the award of new shares will be dependent on Bursa’s performance and the individual's achievement of KPIs as well as the performance share plan (PSP) for key senior management executives’ contribution to the group.

• The ESGP will not have any immediate impact on the dilution of EPS and BV/share of Bursa as new shares under this plan are anticipated to be issued progressively over a period of 10 years and it will depend on the actual number of the ESGP shares vested. The impact of ESGP will be determined by the fair value of Bursa shares at the date of the grants and the number of ESGP shares vested.

• Under the minimum number of shares scenario, the ESGP will increase the number of Bursa’s shares by 32.25mil while under the maximum number of shares scenario, an additional 32.28mil of new shares will be issued. This will be in addition to the issuance of shares under the proposed bonus issue.

• The bonus issue is expected to be completed by 2QFY18 while the ESGP will be implemented from 2QFY18 onwards.

• We make no changes to our estimates for now.

Source: AmInvest Research - 28 Nov 2017