- We downgrade our recommendation on Bursa Malaysia from BUY to HOLD with an unchanged fair value of RM8.90/share, based on an unchanged FY15F PE of 23x. The downgrade is mainly due to the removal of a key catalyst, i.e. special dividend payments, as well as the recent run-up in its share price.

- Bursa reported a 1QFY15 net profit of RM47mil (QoQ: -11%; YoY: +4%) on the back of operating revenues of RM120mil (QoQ: flattish; YoY: +4%). Annualised, its earnings were in line with our and consensus estimates, accounting for 23% of both full-year forecasts.

- The group’s performance in 1QFY15 was primarily driven by the strong growth in its derivatives market. Average daily contracts traded (ADC) had risen by 3.5% QoQ and 21% YoY to 60,335 contracts.

- This can be attributed to the continued volatility of palm oil prices, which lifted FCPO trades by 4% QoQ and 25% YoY (FCPO makes up 82% of total ADC). The recent approval by US CFTC for US commodity traders to trade Bursa’s derivatives products directly is expected to buoy volumes moving forward.

- Turning to the securities market, average daily traded value (ADTV) was only marginally higher YoY (+1%) but QoQ, it was up 10% (due to seasonality factor).

- We had earlier pointed out that trading volumes on Bursa will be supported by the cashed-up domestic institutional funds. This was evident in the decline (QoQ: 0.12bps; YoY: 0.06bps) in Bursa’s 1QFY15 effective clearing fee rate.

- The fall in stable revenue from the lower rate, together with lower listing fees (no IPOs in 1QFY15), was however more than offset by increasing contribution from Bursa Suq-al Sila and higher depository (CDS and SBL) fees. Overall, revenue from this segment was flattish both QoQ and YoY.

- Bursa’s operating expenses were also generally unchanged. While it registered higher marketing and development costs YoY, its staff and depreciation expenses declined. QoQ, Globex fees were higher, in line with the higher ADC.

- As usual, no dividends were declared this quarter. Although its balance sheet remains strong (net cash of RM271mil), we do not expect any more specials to be declared as its cashto- equity ratio has fallen to a reasonable 0.3x from 0.6x before the two specials (20sen each) were announced in FY13 and FY14. Yields are ~4.5%.

- We are leaving our FY15F-FY17F earnings estimates unchanged. Valuation-wise, the stock is currently trading at an FY15F PE of 23x, which is midway of its 5-year PE range of 16x-32x, which we deem to be fair.

Source: AmeSecurities Research - 23 Apr 2015