Bursa Malaysia (BURSA) is poised to announce its 4Q14financial results next week. We see potential downside risk toour earnings estimates and thus, we are cutting our 4Q14forecast operating revenue and earnings estimates by 5%-10%.For 2015, we expect lacklustre trading activities in the securitiesand derivatives markets. Hence, we have also toned down ourFY14/FY15 earnings estimates by 3%/7%. All in, we maintain ourMARKET PERFORM rating on the stock but lowered our TP toRM8.30 (from RM8.60). This is based on 22.5x FY15 P/E.

Cutting 4Q14 revenue/earnings estimates by 5%/10%. BURSA ispoised to announce its 4Q14 financial results on 29 January 2015.Although in our last results note, we expect the company to book instrong earnings growth of 50% YoY, actual market statistics for Oct-Dec 2014 suggested otherwise. We now see potential downside riskto our 4Q14 earnings estimates due to weak trading revenue from thesecurities market; actual average trading value and volume were11%-13% lower than our original forecasts. That said, the fall in thesecurities segment should be mitigated by higher trading value fromthe derivatives market. This is because total volume for futurescontracts traded was 23% higher than our previous expectationsgiven the spike in CPO futures trades. After reflecting these numbersinto our model, we lower our 4Q14 operating revenue and earningsestimates by 5%-10% to RM114m (-6% QoQ, +10% YoY) andRM46m (-13% QoQ, +36% YoY), respectively.

Outlook for 2015. During the last quarter of 2014, FBMKLCI hadfallen by some 5% while market velocity was tepid at 28% (3Q14:31%; 4Q13: 26%). We believe investors (especially within the retailspace) are: (i) likelier to stay on the sideline and (ii) become morevigilant with their trading habits given the current choppy marketenvironment. Behavioural finance studies have also shown thatinvestors tend to be more loss averse rather than risk averse, leadingto this to effect. Also, foreigners have been net sellers of Malaysianstocks for the past 6 months and are unlikely to return anytime soon.Our strategist is now forecasting the local bourse to hit 1,905-pointsby end-2015, lower than what was initially projected at 1,950-points,amid: (i) weak corporate earnings growth (4%-8% YoY for FY15-FY16) coupled with (ii) poor investment sentiment. In turn, we areprojecting the average trading value and volume for the equity marketin 2015 to be lacklustre at RM2bn (-2% YoY, previous forecast:RM2.1bn or +3% YoY) and 2bn shares (+1% YoY, previous forecast:2.4bn shares or +11% YoY), respectively. As for derivatives market,we expect total volume for future contracts to decline 3% YoY to30bn contracts (previous forecast: 27.7bn contracts or -5% YoY).

Forecasts & risks. After making the abovementioned adjustments,we cut our FY14/FY15 earnings estimates by 3%/7% toRM191m/RM196m from RM196m/RM210m (1%/6% belowconsensus). The key risks to our forecasts are: (i) lower-thanexpectedtrading volume in the securities and derivatives markets, (ii)deferment of key IPOs in 2015, and (iii) higher-than-expected opex.

Valuation & recommendation. Following the downward revision inearnings, we reduce our TP to RM8.30 (from RM8.60), based on anunchanged FY15 P/E of 22.5x (-0.5SD below its 5-year average P/E).This is also in line with the valuation multiples of its regional peers.Hence, we maintain our MARKET PERFORM rating on the stock.

Source: Kenanga