- We maintain our BUY recommendation on Bursa Malaysia Bhd with a lower fair value of RM9.50/share (vs. RM9.80/share previously) after financial housekeeping of our FY14F-FY16F numbers. Our fair value is pegged to an unchanged PE of 26x over its FY14F earnings.

- Bursa kicked off FY14F with a 1Q net profit of RM45mil (QoQ: +33%; YoY: +18%). Annualised, the results were within our and consensus expectations.

- The group’s sequentially higher earnings growth came on the back of higher operating revenue, which grew by 11% to RM115mil. This follows higher trading revenues for both the equities (+13%) and derivatives (+5%) markets as well as a 10% growth for stable revenue.

- At first glance, the 1QFY14 average daily traded value (ADTV) appeared to have declined by 7% QoQ. However, recall that the value in 4QFY13 was skewed by a major RM34bil DBT share transfer transaction. Taking only the OMT figures, ADTV had in fact, advanced by 22%. YoY, growth was higher at 26%.

- Volumes at its derivatives market were equally encouraging. Average daily contracts traded (ADC) increased by 21% QoQ, and 11% YoY, to 50,046 contracts following the introduction of new products (e.g. gold futures) and the rising demand for FCPO contracts (+15% QoQ).

- Interestingly, we note that trading participation of retail investors (in value terms) has expanded by 3ppts to 26% in 1QFY14. This is consistent with higher effective clearing fee of 2.37bps and velocity of 30% (1Q13: 28%; 4Q13: 25%).This can be attributed to the group’s ongoing outreach activities.

- Although Bursa’s operating expenses had increased by 10% YoY following higher staff costs (+20%), IT maintenance (13%) and service fees (+16%), its cost-to-income ratio had improved by 1ppts. The higher YoY expenses were partly offset by lower depreciation charges (-27% YoY) after the technology refresh (BTS2) it had undertaken in FY13.

- As usual, no dividends were recommended this quarter. We believe that Bursa has the capacity to engage in further capital management given its end-Mar 2014 cash balance of RM436mil and lower capex requirements in FY14F.

- Management had earlier underlined its commitment to improve shareholder value and to continuously review its cash position and capital requirements.

- At the current price, the stock’s valuation is undemanding. It is trading at a forward PE of 21x, which is ~0.5SD below its 5-year trend average of 25x.

Source: AmeSecurities