We are reiterating our Buy call on Bursa Malaysia (Bursa) with a revised fair value of RM8.10 (from RM7.48). We believe a higher target multiple (target 2013 PER of 25x from 23x) is justified on the back of our positive outlook for Malaysian equities, which has started to filter down to Apr’s ADT. Results-wise, Bursa had a slow start to the year. We think this largely reflects election jitters but expect earnings to pick up ahead.

- Slow start but expect a pickup ahead. Bursa’s 1Q13 net profit of MYR38m (-6% y-o-y; +7% q-o-q) came in at 22% of our and 23% of consensus full-year net profit estimates. Nevertheless, we consider the results to be in line as we expect a pickup ahead on the back of our positive outlook for Malaysian equities (see below).

- Derivatives growing in strength. 1Q13 average daily trading value (ADT) for securities market slipped 13% y-o-y to MYR1.7bn, which we believe largely reflects the lacklustre market sentiment then due to election jitters. Nevertheless, 1Q13 revenue still grew 1% y-o-y thanks to stronger contribution from derivatives trading (+43% y-o-y) with daily average contracts up 46% y-o-y to 45k. Net profit, however, dipped 6% y-o-y largely due to higher staff costs (+12% y-o-y), reflecting salary
adjustments. Q-o-Q, net profit rose 7% due to stronger trading revenue from both securities (+6% y-o-y) and derivatives (+20% q-o-q). ADT was up 14% q-o-q while average daily contracts rose 4% q-o-q.

- Outlook. We remain positive on the outlook for Malaysian equities as we expect the local bourse to play catch-up once the political overhang is removed and the elevated equity risk premium eases. Also, we believe equities still stand up against low-yielding alternative asset classes, given the prolonged low interest rate environment. These should bode well for Bursa ahead. Already, Apr’s ADT has improved to MYR1.85bn.

- Forecasts. No change to our earnings forecasts.

- Valuation and recommendation. On the back of our positive outlook, we are upgrading our 2013 target PER to 25x from 23x, which lifts our fair value to MYR8.10 from MYR7.48. Our revised target PER is based on Bursa’s 5-year average PER. We believe this is not excessive as over the past five years, Bursa’s net profit CAGR was 10%, as compared to our 2013F net profit growth of 14%. eiterate Buy call.

Source: RHB