- We maintain our BUY recommendation on Bursa with an unchanged fair value of RM9.00/share. This is based on a target PE of 26x its FY13F earnings.

- Yesterday, Bursa Malaysia announced that it will be launching the country’s first precious metal futures contract - the gold futures contract (FGLD) - on 7 October 2013. This will raise the number of products on Bursa’s derivative platform to 11.

- Contract specifications show that contract deliveries of up to 12 months would be available, with cash settlement benchmarked against the London Gold AM Fix price in USD.

- Each futures contract is equivalent to 100 grams of gold bullion. The small contract size will appeal to retail investors (1HFY13: 32% of FKLI and 17% of FCPO) while institutional/industrial players may still participate by trading multiple lots. In a statement, the group said that active users of this product include gold jewellers, manufacturers, and stockists who wish to hedge their inventory risks and forward gold purchases.

- The debut seems timely as it will provide domestic investors with another option to protect their portfolios against the weakening RM. According to Bloomberg, the Malaysian ringgit, together with Indonesia’s rupiah and Philippine’s peso, is the three worst performing Southeast Asian currencies against the USD. Note that the contract will be denominated in the local currency, effectively eliminating foreign currency risks for investors.

- We continue to see blue skies for the group’s derivatives division (~16% to its 1HFY13 revenue) led by its top product, the crude palm oil futures (FCPO) (1HFY13: 70% of derivative volumes). While the introduction of the FGLD is a step in the right direction, we do not expect FGLD to significantly contribute to volumes in the immediate term given the need for investor education.

- The introduction of this product is in line with Bursa’s 2013 business plan and its strategic initiative to facilitate more tradable alternatives. Thus far, it has brought to market exchange traded bonds (ETBS) and amended rules to allow for the listing of business trusts.

- No change to our forecasts for now. The group will be releasing its 3QFY13 results on 23 October 2013. We believe the cumulative earnings will comfortably meet our FY13 earnings estimate of RM181mil.

Source: AmeSecurities