- We maintain BUY on Bursa Malaysia but lower our fair value to RM8.90/share to reflect:- (1) the downward revision in our earnings forecasts; and (2) our lower PE target of 23x following the removal of a key catalyst, i.e. special dividend payments. We have also rolled forward our base year to FY15F.

 - Post Bursa’s full-year results announcement, we have updated our FY15F-FY16F estimates and introduced FY17F earnings. We reduce Bursa’s FY15F-FY16F earnings by 4%-10% mainly due to our lower average daily traded value (ADTV) assumptions of -3% in FY15F and +4% in FY16F (previously, growths of 5% p.a.).

 - We expect softer trading volumes in 2015 (especially in the 1H) in view of investors’ heightened risk aversion amid the current market uncertainties and the implementation of GST in April. The latter may affect retail ADTV as retail participation is on the rise (26% of total value traded in FY14 vs. 22% in FY13).

 - While the pipeline of IPOs this year looks promising (in value terms), we caution that excessive market volatility may result in some listings being deferred. We also highlight that in 2012, when a similar amount (~RM30bil) was raised, ADTV had declined by 7% YoY. That said, we believe that volumes will be well supported moving into 2H as cashed-up domestic institutional funds (42% of total value traded) return to the market.

 - Bursa reported 4Q net profit of RM53mil (flattish QoQ; +57% YoY) to extend its full-year earnings to RM198mil (+14.5% YoY). The results met both our and consensus estimates.

 - The group’s uncharacteristically strong performance in 4Q was aided by a higher-than-expected quarterly ADTV of RM2bil (vs. RM1.6bil typically for 4Q) and lower effective tax rate of 21% (vs. its usual 25%-28%).

 - Against the backdrop of high volatility (in particular the CPO market), its derivatives segment continued to shine. Average daily contracts traded (ADC) had increased by 16.5% YoY to 50,654 contracts, led by the 27% surge in FCPO contracts. We project healthy ADC growths of 12% p.a. moving forward with demand underpinned by the launch of new products.

 - There were no surprises in its FY14 operating expenses, which was only a tad higher (+1%) YoY. Increases in staff costs of 6% - the main expense at 55% of total opex - were more than offset by the 28% reduction in depreciation costs following the implementation of new systems (e.g. BTS 2) last year.

 - A final dividend of 18sen/share was proposed, bringing the total for FY14 to 54sen/share or a payout of 145% (92% excluding the 20sen special). Although its balance sheet remains strong, we do not expect any more specials to be declared as its cash-to-equity ratio has fallen to a reasonable 0.3x from 0.6x before the two specials (20sen each) were announced in FY13 and FY14.

 - At the current price, Bursa is valued at an FY15F PE of 21x. This is at the lower end of its 5-year PE band of 16x-32x.

Source: AmeSecurities