Period  3Q13/9M13

Actual vs. Expectations  The reported 9M13 net profit of RM139.2m accounted for 77.3% of our full-year net profit forecast of RM180m and 80.5% of consensus estimate of RM173m. The 3Q net profit of RM46.2m is ≈10% higher than our quarterly forecast of RM42.1m.

Dividends  No dividend was declared as expected. Recall that BURSA declared 36.0 sen dividend (of which 20.0 sen was special dividend) in 1H13. We expect BURSA to declare 14.0 sen dividend in 4Q13, firming up the full-year NDPS to 50.0 sen.

Key Result Highlights  3Q13 vs. 2Q13: Operating revenue and net profit declined 8.3% and 15.7% to RM112.1m and RM46.2m (from RM122.2m and RM54.8m), respectively. The weaker earnings growth is somewhat within our expectations as 3Q is seasonally a weak quarter while the 2Q13 trading activities could probably be the peak for 2013 due to deferred interest post the 13th General Election.

 The securities market recorded trading revenue of RM57.9m, representing a 12.0% QoQ decrease vis-à-vis RM65.8m recorded in 2Q13, due to lower average daily trading value and volume of RM2.00b and 1.66b shares on the securities market in 3Q13 as compared to 2.31b and 1.66b shares, respectively, in 1Q13. The stable revenue also declined 7.1% QoQ due to lower perusal fees as a result of fewer corporate exercises and lower revenue from depository services as a result of a merger between two broking houses in 2Q13.

 Besides, cost-to-total income ratio also higher at 46.4% in 3Q13 as opposed to 40.7% in 2Q13. Part of the reason for the jump in cost was due partly to higher staff cost due to continued efforts on staff enhancement.

 9M13 vs. 9M12: Operating revenue and net profit increased 16.0% and 49.7% YoY, respectively, to RM335.9m and RM167.0m in line with better market condition i.e. higher FBMKLCI level (1,725 vs. 1,593) & higher average index market cap (RM946.6b vs. RM815.5b) as well as higher average daily trading value (RM1.98b vs. RM1.65b) and volume (1.44b vs. 1.41b shares). Besides, the derivatives market also showed a 32.8% YoY increase in revenue (RM53.9m in 9M13, vs. RM40.6m in 9M12) attributed to higher number of contracts traded, especially in CPO Futures.

Outlook  In the coming two quarters, we believe BURSA should benefit from the seasonally stronger 4Q and 1Q.

 While the seasonal factor seems favourable, the trading momentum in the securities market will still be influenced by prevailing uncertainty in the global environment.

 Thus far, we have factored in (i) average daily trading value of RM2.01b for 4Q13 and RM2.10b for 1Q14 (vs. RM2.00b in 3Q13 and RM2.31b in 2Q13) and (ii) average daily trading volume of 1.56b and 1.58b shares (RM1.66 in 3Q13 and RM1.66b in 2Q13) for 4Q13 and 1Q14 respectively.

 Should there be no major volatility swing, we expect BURSA to deliver a better-than-expected set of results in coming quarters.

Change to Forecasts  We have fine-tuned our earnings estimates higher by 3.4% and 6.5% from RM179.5m and RM161.4m to RM185.6m and RM197.3m.

Rating  As we believe BURSA could benefit from the favourable seasonal pattern and coupled with a decent Total Return of 10%, based on our revised Target Price, we upgrade our rating from MARKET PERFORM to OUTPERFORM.

Valuation  With an unchanged targeted PER of 23x, 1SD level above the 3-year average, we fairly value the stock up to RM8.50 (revised up from RM8.40 previously in line with our earnings revisions).

Risks  Much slower than expected market activities. 

Source: Kenanga