- We reiterate our BUY recommendation on Bursa Malaysia Bhd with an unchanged fair value of RM9.50/share. We continue to peg our fair value to an unchanged FY14F target PE of 26x.

- Bursa reported a sequentially higher 2QFY14 net profit of RM47mil (QoQ: +4%) to extend its 1HFY14 earnings to RM92mil. The results were within expectations, accounting for 47% of our and 48% of consensus estimates.

- Management had also declared total single-tier dividends of 36 sen/share, consisting of a 20 sen special and 16 sen interim. This is similar to 1HFY13’s quantum and translates to a yield of 6.8%. Its payout ratio is 93%.

- We are not too surprised as management had earlier underlined its commitment to improve shareholder value and to continuously review its cash position and capital requirements. We have tweaked our FY14F gross DPS forecasts upwards to incorporate this special dividend.

- YoY, Bursa’s 1HFY14 equities trading revenue (~50% of operating revenue) grew by 7% to RM2.2bil. This tracks the 6% growth in average daily traded value (ADTV) for both on-market and direct business trades. Taking only the on-market trades, ADTV growth was slightly softer at 4%.

- Growth in the securities market was mainly contributed by higher retail participation, which expanded by 3ppts YTD (in value terms) to 25%. This is consistent with Bursa’s higher effective clearing fee of 2.33bps in 1HFY14 (1HFY13: 2.25bps).

- Despite the greater retail participation, velocity had slipped by 3ppts YoY to 30% as the 11% growth in market capitalisation was much higher than ADTV’s 6%.

- The encouraging performance in the securities market was, however, offset by that of the derivatives market. Trading revenue in the latter fell by 7% following lower receipts from guarantee and collateral management fees. That said, we note that average daily contracts traded (ADC) had jumped by 8% YoY in 1HFY14 to 47,000 contracts.

- Following this, we attribute the bulk of the 3% YoY growth in Bursa’s operating revenue to its stable component, led by the 14% rise in market data revenue as well as listing and issuer services fees – given the higher number of new structured warrants listed (+15% YoY) and larger IPOs (RM4.7bil in 1HFY14 vs. RM1.8bil in 1HFY13).

- Bursa’s operating expenses had increased by 9% YoY in 1HFY14 due to higher staff costs (+18%; caused by additional headcount and higher performance rewards) and an increase in marketing and development expenses from more retail outreach and engagement. Notably, depreciation expenses have declined following its technology refresh exercise (-27% YoY).

Source: AmeSecurities