- We re-iterate our BUY recommendation on Bursa Malaysia, with an unchanged fair value of RM8.20/share following the announcement of its 1QFY13 results. Our fair value continues to peg Bursa at 26x its FY13F earnings.

- Bursa reported a 1QFY13 net profit of RM38mil (+7% QoQ, -6% YoY). This accounted for 23% of our full-year forecast and 22% of street estimate.

- YoY, average daily trading value (ADTV) declined by 13% from RM2bil to RM1.7bil. Sequentially, however, it registered a 14% improvement to lift securities trading revenue, which make up ~40% of operating revenue, by 5%. Looking ahead, we expect ADTV to grow by 6% as market sentiment improves post the 13th GE.

- The QoQ step-up and drop in effective clearing fee rates by 0.04 basis points support our view that cashed-up domestic institutional funds had increased their demand for equities in 1QFY13. The proportion of value traded for this group was 38%, 44% and 46% respectively in 1Q12, 4Q12 and 1Q13.

- The derivatives market continued on its upward trajectory, recording 45,188 average daily contracts traded (ADC) in the first quarter. This was up an impressive 45% YoY and a commendable 4% QoQ growth, moving Bursa closer to its 50,000 ADC target for FY13F.

- We forecast ADC to expand by 16% each in FY13F and FY14F, underpinned by:- (1) open interest being consistently above 200,000; and (2) launch of new derivative products, namely futures on palm olein and gold.

- Overall, Bursa’s operating revenue grew by 9% QoQ and 8% YoY, aided by a stable revenue growth of 11%. The fall in depository services and listing fees as a result of a lower number of new structured warrants and absence of large IPOs (Astro in 4Q12) was mitigated by conference income and fee structure revision for Bursa access.

- Bursa’s operating expenses remained flat QoQ. YoY, it rose 5% due to:- (1) a hike in staff cost (+12% yoY) (~50% of costs) as it looked to fill key management positions, and (2) higher service fees which were offset by the higher volume of ADCs on CME’s derivatives platform.

- As expected, management did not declare any dividend for this quarter. Our gross DPS forecasts of 30 sen and 34 sen for FY13F and FY14F are premised on a 95% payout ratio, translating into decent yields of ~4%.

- We continue to like Bursa as it remains a leveraged play on the domestic capital market in view of our end-2013 KLCI target of 1,770. As it is, Bursa’s 52-week high of RM7.23 coincided with the index’s all-time high of 1,711 on 17 April.

Source: AmeSecurities