Bursa Malaysia (Bursa) had announced that the company will be acquiring a 25% equity interest in Bursa Malaysia Derivatives Berhad from CME Group Strategic Investments (under a Put Option agreement). Based on an EV/EBITDA multiple of 17.8x, this works out to a sum of RM162.47m. An ‘Additional Sum’ on top of the consideration sum will determined later. Bursa will be funding the purchase from proceeds of disposal of Bursa’s overseas quoted shares (valued at RM373m as at June19). Subsequent to the acquisition, Bursa expects some costsavings arising from the revision in the tiered fee structure with Globex Services and is planning to widen its derivatives product offering. Maintain our SELL rating, with a lower Price Target of RM5.15, on the back of our weak expectation of market trading values in 2019-2020E.

A 17.8x EV/EBITDA multiple for 25% stake in Bursa Msia Derivatives

Based on the announcement yesterday, Bursa will be acquiring a 25% equity interest in Bursa Malaysia Derivatives Berhad (BMD) from CME Group Strategic Investments (CMEGSI) (subsequent to the latter exercising its Put Option on 16 Sept19). Based on pre-agreed valuation formula (set out in the Shareholders Agreement on 30 Nov09), the acquisition price is determined based on the EBITDA of BMD and the EV/EBITDA multiple of 12 listed exchanges – of which worked out to be RM162.47m. Considering the fact that the acquisition is expected to be completed by early Dec19 (and CMEGSI remains a 25%-shareholder until the completion date), there will be an ‘Additional Sum’ to be paid by Bursa to CMEGSI, of which is being determined based on the 25% of the 70% of BMD’s profit before tax for 2Q19 and 3Q19. On our estimate, this Additional Sum could be worth RM3m, based on a pre-tax profit projection of RM17m for the two periods.

Maintain SELL. PT revised down lower to RM5.15 (from RM5.40) We have made some minor earnings revisions to our 2020E-21E net profit (+2.5%) and adjusted our balance sheet accordingly. We maintain our SELL rating with a revised Price Target of RM5.15 (based on a lower P/E multiple of 23x on 2020 EPS, representing a -0.5SD against 10-year average of 25x). In our view, the 2H19 equity and derivative market outlook is expected to stay bearish in light of a moderating economic outlook and escalating geopolitical risks and global trade tensions. Our assumptions: i) an equity ADV of RM1.9 – 2.0bn and derivatives ADC of 48,000. Upside risks: funds inflow; revival of investor confidence.

Source: Affin Hwang Research - 19 Sept 2019