Period  4Q13/FY13

Actual vs. Expectations The reported FY13 net profit of RM173.1m was within consensus estimate of RM173.4m. However, it was approximately 7.0% below our estimate of RM185.6m. This was mainly owing to weaker-than-expected net profit in 4Q13. Earlier on, we estimated BURSA to register a net profit of RM44.1m in 4Q13. The actual 4Q13 net profit was only at RM33.8m due to higher staff cost and operating expenses.

Dividends  Declared a 16 sen NDPS (vs. our estimate of 14 sen). Together with the 16 sen interim dividend and 20 sen special dividend that were declared in 2Q13, the fullyear NDPS is 52 sen, representing a payout ratio of ~99% excluding the special dividend.

Key Result Highlights 4Q13 vs. 3Q13: Operating revenue and net profit declined 7.3% and 26.8% QoQ, respectively, to RM103.9m and RM33.8m (from RM112.1m and RM46.2m), respectively. The much lower profitability was due mainly to higher staff cost and operating expenses.

 The lower operating revenue was due mainly to lower trading revenue (-12.0% QoQ) especially trading revenue from securities market (-13.0% QoQ) due to lower average daily trading value and volume of RM1.69b and 1.55b shares on the securities market in 4Q13 as compared to RM2.00b and 1.66b shares, respectively, in 3Q13. The stable revenue improved 2.6% QoQ due to higher listing and issuer services which is inline with higher number of IPOs (7 in 4Q13 & 4 in 3Q13) and higher perusal and processing fees earned from higher number of corporate exercises.

 Cost-to-total income ratio is also higher at 57.6% in 4Q13 as opposed to 46.4% in 3Q13. Part of the reason for the jump in cost was due to higher staff cost (+25.1% QoQ) due to adjustments to talent pool remuneration package to benchmark against industry.

 FY13 vs. F12: Operating revenue and net profit increased 13.2% and 14.9% YoY, respectively, to RM439.8m and RM173.1m inline with better market condition i.e. higher average FBMKLCI (1,748 in 2013 vs. 1,610 in 2012) & higher average market cap (RM964.8b vs. RM831.1b) as well as higher average daily trading value (RM1.91b vs. RM1.59b) and volume (1.47b vs. 1.31b shares). Besides, the derivatives market also showed a 10.9% YoY increase in revenue (RM70.3m in FY13, vs. RM63.3m in FY12) attributed to a higher number of contracts traded and introduction of new product i.e. Gold Futures.

 On a full-year basis, the cost-to-income ratio seems to be well-capped below the 50%-mark (FY13: 48.3%, FY12: 49.3%) despite the higher staff cost in 4Q13.

 ROE was registered at 20.7% (vs. 17.7% in FY12).

Outlook  YTD, average daily trading value and volume stood at RM1.97b and 1.69b shares respectively. These average figures are better than 4Q13.

 While the market could be volatile at this juncture due mainly to external uncertainties, we are still fairly confident on the local market due mainly to the sizeable domestic liquidity. We believe FBMKLCI will at least register a decent upside with our end-2014 and end-2015 index targets of 1,890 and 2,020.

 On the dividend front, we also believe BURSA should be able to pay at least 32 sen NDPS for the next two years given that its capex is expected to be lower in the coming years as compared to RM33m in FY13. Our dividend estimates suggest a net dividend yield of 4.2% for the next two years.

Changes to Forecast However, due to higher staff cost and fine-tuning in our market statistics parameters, we have revised (down) our FY14 net profit estimate from RM197.3m to RM181.7m, representing a 7.9% downward revision.

 At the same time, we also introduce our FY15 net profit forecast of RM199.7m.

 Note that bottom-line growth rates (2014: 5.1%, 2015: 9.9%) were inline with our index targets. With these forecasts, we reckon that ROE should continue to improve to 22.2% in FY14 and subsequently to 23.9% in FY15.

Rating  Downgrade to MARKET PERFORM inline with our earnings revision.

Valuation  We lower our Target Price to RM8.10 from RM8.50 previously, -4.7%. This valuation implies a FY14 PER of 23.7x or a FY14 PBV of 5.2x, which are the +2SD-level for both price multiples.

Risks to our call  Stronger-than-expected market activities.

Source: Kenanga