Period     1Q13/3MFY13

Actual vs. Expectations    The reported 1Q13 net profit of RM38.2m was slightly below expectations. It accounted for approximately 22% of both our full-year forecast of RM176m and consensus estimate of RM172m.

Dividends     No dividend was declared as expected. Nonetheless, we expect BURSA to pay out 27.5 sen NDPS this year.

Key Result Highlights     QoQ, the total income and net profit grew moderately at 5.8% and 7.0% respectively despite the shorter trading days of 58 in the quarter (vs. 62 in 4Q12) and slightly higher effective tax rate of 27.3% (vs. 25.3% in 4Q12). This was due to a better Average Daily Trading Value and Volume of RM1.6b (+14.9%) and 1.0b shares (+2.1%). However, depository services revenue decreased by 18% to RM7.8m in 1Q13 compared to 4Q12. We saw higher public issue fees earned from a large IPO in 4Q12. Apart from higher open interests in both equity and CPO contracts due to the uncertainties in markets, conference income from the POC 2013 event also contributed almost a 20%-jump in derivatives market revenue.

YoY, the total income and net profit, however, declined 0.1% and 6.3% respectively due mainly to a lower traded value and volume. The Average Daily Trading Value and Volume declined 11.8% and 48.5% from RM1.9b and 2.0b shares respectively in 1Q13. We believe the lacklustre trading environment could probably be due to the 13th General Election (“GE”) uncertainties. Besides, effective clearing fee rate declined to 2.20bps (vs. 1Q12: 2.38bps) due to larger size of institution trader. Listing and issuer services revenue decreased by 8% to RM11.3m in 1Q13 compared to 1Q12 due to the lower number of new CW listings and lower processing fees.

Outlook     With the date of the GE having been set as 5 May 2013, we believe that the uncertainties over the GE should gradually ebb. This will be especially true if the outcome of the upcoming GE results remain status quo.

Besides, the strong liquidity in the financial system should continue to support the downside risk in our view. In addition, the performance of the local equity market is still lagging behind its regional peers.

We believe that the market could probably see a gigantic short-squeeze rally once the GE uncertainty is over.

Change to Forecasts    We have fine-tuned our FY13E net earnings estimate to RM158.8m (+5% YoY) from RM175.6m after adjusting for the latest 1Q13 results. We are also introducing our FY14F net earnings estimate at RM161.4m (+2% YoY).

Rating     Maintain MARKET PERFORM

Valuation      We have revised our TP higher to RM7.20 (from RM6.95). We have rolled over our valuation base year to FY14 and adopting higher valuation multiples. We believe that the market could be in the midst of pricing in an improved equity market scenario. Our TP is derived from the average of the 23.0x FY14F PER and 4.5x FY14F PBV valuations. These price multiples represent levels above their respective 3-year averages.

Risks      Much slower than expected market activities.

Source: Kenanga