-  We maintain our BUY recommendation on Bursa Malaysia with an unchanged fair value of RM9.50/share. Our fair value is pegged to an unchanged PE of 26x.

-  Bursa posted earnings of RM53mil for 3QFY14 (+5% QoQ) to extend its 9MFY14 earnings to RM145mil (+4% YoY). Annualised, the group’s earnings were within our and market expectations.

-  We attribute Bursa’s earnings improvement to the sustained growth of its operating revenue (+5% QoQ and YoY), led by higher trading revenue (QoQ: +10%; YoY: +5%).

-  Trading revenue from equities (53% of operating revenue) had grown by 8% QoQ and YoY on the back of robust average daily traded values (ADTV). In 3QFY14, an ADTV of RM2.3bil was registered while for the nine-month period, it was RM2.2bil. The YoY growth of 7% thus far is in line with our FY14F forecast of 6.5%.

-  Clearing fees were also higher at 2.4bps in 3QFY14 and 9MFY14 (vs. 2.3bps in 2Q and 9MFY13). This corresponds to the higher retail participation rate of 26%. We attribute this improvement to the success of the group’s outreach activities (e.g. BURSAMKTPLC), which is part of its current strategic intents. The vibrancy of the domestic market in 3Q was also evidenced in its high velocity of 30%.

-  Bursa’s derivatives division continued to impress. It recorded average daily contracts traded (ADC) of 54,019 in 3QFY14 (+23% QoQ) and 49,317 for 9MFY14 (+12% YoY).

-  The upward trend in ADC was supported by the high volatility of CPO prices in 3QFY14. Volumes of FCPO contracts (81% of total contracts) surpassed the one million mark in Sept and open interest achieved another all-time high of 288,087 contracts.

-  While the higher volumes had pushed the derivatives trading value up by 14% sequentially, its revenue for the 9-month period was lower by 4% YoY as a result of lower receipts from guarantee and collateral management fees.

-  Bursa’s costs were higher YoY mainly due to increases in staff, IT and marketing expenses. The increase was partially offset by a reduction in depreciation costs (-28% YoY) post the implementation of its new trading system at end-2013.

-  As usual, no dividends were announced this quarter. We expect a final dividend of 20sen/share to be declared in 4QFY14. Its yields are attractive at 7%.

-  Although Bursa has paid out two special dividends (20 sen/share each in FY13 and FY14F), we do not rule out the possibility of another in FY15F as the group has net cash of RM157mil (as at end-Sept 2014) and the ability to generate operating cash flows in excess of RM200mil.

Source: AmeSecurities