Period  2Q14/1H14

Actual vs. Expectations

 Inline. The reported 1H14 net profit of RM92.0m accounted for 50.6% and 47.8% to our forecast and consensus estimate, respectively.

Dividends  Apart from an interim dividend of 16 sen/share, BURSA also declared an additional special dividend of 20 sen/share. The declared dividend is on par with the previous corresponding period. However, the total dividend declared is above our expectation 16 sen as we did not anticipate the 20 sen special dividend in our estimate.

Key Result Highlights

1H14 vs. 1H13   

The YoY trend was mixed. Operating revenue grew 2.3% but net profit declined 1.1%.

 We reckon that the lower profitability was largely due to higher staff and operation costs of 17.9% and 12.5%, respectively. We understand that the higher staff cost was due to additional headcount and higher performance reward. The higher operating expenses were caused by an increase in marketing and development cost due to greater retail outreach and engagement.

 The staff cost-to-total income ratio was higher at 26.4% as opposed to 22.9% in 1H13. The costto-income ratio (CIR) also increased to 47.7% from 44.8% despite depreciation and amortisation expenses declining 26.7% YoY.

 Nonetheless, the top-line growth was also well supported by better equity market condition. Besides, the market also saw higher retail participation for the first six months of the year.

 The average FBMKLCI index and the average FBMKLCI market cap increased 9.4% and 12.2%, respectively, to 1,862 and RM1,035b. Consequently, we saw improvements in both Daily Average Trading Value (+4.2% YoY) and Volume (+41.8% YoY) to RM2.06b and 1.89b shares, respectively, as opposed to RM1.96b and 1.33b shares in 1H13.

 However, we saw a YoY decline of 7.4% in derivatives trading revenue despite higher trading volume due to lower guarantee and collateral management fees. We suppose this was due to the lower volatility of the benchmark index.

 Besides, a lower effective tax of 26.4% vs. 27.1% in 1H13 helped in lifting the bottom-line growth.

2Q14 vs. 1Q14   

 Operating revenue and net profit improved 0.3% and 3.8% QoQ, respectively, amidst a mixed market condition - Average daily trading value (RM2.05b vs. RM2.07b) and volume (1.79b shares vs. 1.99b shares).

 We believe the less exciting market trading activities as opposed to 1Q14 was due to the fasting month and FIFA World Cup.

 However, the bottom-line growth was boosted by lower operating expenses, which declined 13.4% QoQ. CIR registered at 46.6% in 2Q14 vis-à-vis 48.9% in 1Q14.

Outlook  Our market view remains unchanged. We still believe that the underlying liquidity position should remain supportive for the local market (with decent upside).

 However, we do not rule out a possible pullback/ correction in 3Q14 before recovery in 4Q14.

Change to Forecasts  No change in our earnings estimates of RM181.9m and RM201.5m for FY14 and FY15, respectively.

 However, we revised our FY14 DPS estimate from 32.0 sen to 52.0 sen after taking the just declared 20.0 sen special dividend into consideration. This will translate into FY14 dividend yields of 6.3%.

 Consequently, our FY15 and FY16 book value/share estimates are revised lower by 20 sen/share to RM1.34 and RM1.36, respectively.

Rating  Maintain our OUTPERFORM call for its attractive dividend payments while the share price has appreciated c.8% since our upgrade in late-March 2014. Coupled with the potential dividend yield of 6.3%, the potential total return is still >10%.

Valuation  We maintain our TP of RM8.60, implying 25.1x FY15 PER which is the historical PER of BURSA registered in end-2013.

Risks to Our Call  A tighter trading range and slower market trading activities.

Source: Kenanga