Bursa operates a fully integrated exchange, offering the complete range of exchange-related services, trading in securities, derivatives, conventional and Shariah-compliant products. We expect Bursa’s various initiatives to boost retail participation in the securities market to result in higher effective clearing fee. Forecasted PATAMI is expected to grow 8.8% to RM242.6m from higher securities trading in FY18. We initiate Bursa with a BUY call and TP of RM8.15 based on 27.0x FY19 EPS of 30.2 sen. We like Bursa for its proxy on Malaysia longer term reform prospects post GE14, high operating leverage and decent dividend yield of 3.8%

Diversified revenue streams. Bursa operates a fully integrated exchange, offering complete range of exchange-related services, trading in securities, derivatives, conventional and Shariah-compliant products. The exchange derives its revenue from clearing fees associated with securities and derivative trading, depository services, listing and issuer services and selling of market data and more.

Increased retail participation expected to boost effective clearing fee. Bursa is carrying out various initiatives to boost security trading from retailers, which currently make up just 22% of the total market value traded (pre-GFC average was 40%). The Bursa MidS scheme, temporary stamp duty waivers and numerous educational events open to the public are expected to stimulate interest from retail participants.

Revenue classified under listing fees is predominantly derived from annual fees paid by listed companies as opposed to new listings. In 2017, based on the fee structure, Bursa raised only under RM1m from IPOs despite large cap listings. Note that 2017 saw the listings of large cap companies Lotte Chemical and Eco World International. Total revenue earned from annual listing fees from all public listed companies in FY17 was RM61.8m.

Reduction in GLICs equity shareholding to boost security ADV. Finance Minister Lim Guan Eng announced that GLICs ‘will reduce the government’s direct participation in the equity ownership of companies’. We expect this to lead to a more liquid market, which in turn should result in higher trading velocity and ADV. Currently GLICs have a sizeable effective holding of 40.7% of the companies in the FBMKLCI according to Bloomberg.

Forecast. Going forward, we project FY18 core PATAMI to grow by 8.8% to RM242.6m of the back of increased security trading revenue (due to increased trading post GE14 following the sell down). However, we expect FY19 core PATAMI to remain relatively flat due to expected security trading value tapering off from the absence of any notable catalysts.

Decent dividend yield. We expect Bursa to pay out 95% of PATAMI going forward. In the previous five years, Bursa has paid out over 100% of PATAMI on average. Based on this, DPS of 29.5 sen translates to a healthy 3.8% dividend yield in FY18.

BUY, TP: RM8.15. We initiate Bursa Malaysia with a BUY call and TP of RM8.15

based on 27x of FY19 EPS of 30.2 sen in line with global peers. We like Bursa for its proxy on Malaysia longer term reform prospects post GE14, operating leverage and decent dividend yield of 3.8%.

Source: Hong Leong Investment Bank Research - 10 Oct 2018