- We re-affirm our BUY recommendation on Bursa Malaysia with an unchanged fair value of RM9.80/share following the release of its FY13 results. Our fair value is based on an unchanged FY14F PE target of 26x.

- Bursa’s upward earnings trajectory was reaffirmed as it wrapped up the year with an FY13 net profit of RM173mil. This represents a YoY increase of 15% and is the highest that Bursa has recorded in the past 5 years. The results were in line with both our and market estimates.

- Management had also proposed a final single tier dividend of 16 sen/share, bringing total gross dividends declared for FY13 to 52 sen/share (including a special 20 sen). Excluding the special, its payout ratio would be 98% with yields at 4%.

- The group’s FY13 earnings growth was underpinned by healthy operating revenue of RM440mil (+13% YoY). This was led by a 19% increase in trading revenue. Its stable revenue was also higher, growing 4% YoY.

- Average daily traded value (ADTV) was up 28% YoY, from RM1.7bil in FY12 to RM2.1bil in FY13. However, the corresponding securities trading revenue only rose by 22%. This can be explained by a skew in 4QFY13 ADTV that included an RM34bil DBT transaction that earned a minimal fee.

- In tandem with the market’s bull run last year, Bursa recorded higher YoY trading participation from domestic institutions (+25%) and foreign investors (+23%). Retail investors also partook in the rally, resulting in a 17% growth in participation. The vibrancy was reflected in a 2ppts improvement in market velocity to 30%.

- While recent press reports have touted 2014 as another significant year for domestic IPOs (15 listings in pipeline with at least RM20bil to be raised), management was less optimistic; stating that funds raised from IPOs could return to the 5-year average of RM14bil. In FY13, 18 new companies were brought to market, raising RM8.2bil.

- We remain positive on Bursa’s derivatives division, which continues to thrive. Average daily contracts traded (ADC) jumped by 10% YoY to 43,490 contracts in FY13 as it registered a greater number of foreign trades from its outreach to High Frequency Traders.

- The better performance in FY13 was also aided by management’s prudence, which resulted in a slower growth in operating expenses of 10% compared to its revenue. The bulk of the increase can be attributed to higher technology (+16%) and staff costs (+18%) as Bursa looks to enhance its core systems and attract talent.

Source: AmeSecurities