Bursa’s  3Q14 results met our and consensus estimates,  with net profit up  15%  YoY  or  13%  QoQ  due  to  a  combination  of  stronger  trading revenue  from  both  securities  (+11%  YoY,  +8%  QoQ)  and  derivatives (+2% YoY,  +14% QoQ) markets, as well as tightly-controlled  costs.  Also positive was the strong retail participation during the quarter.  Maintain BUY, with an unchanged MYR9.10 TP (25x 2015 EPS, 15.9% upside).

3Q14  results  within  expectations.  Bursa  Malaysia  (Bursa)  reported 3Q14 net profit of MYR53m (+15% YoY, +13% QoQ), which was broadly within  expectations.  Its  9M14  net  profit  of  MYR145m  (+4%  YoY) accounted for 78% of our and 76% of consensus full-year estimates. We leave our FY14F  net profit unchanged as 4Q is typically a slower seasonfor  the  securities market  while staff costs  (mainly  a  variable component) tend to be higher.

Results  highlights.  The  securities  market  had  a  strong  quarter. Average  daily  value  (ADV)  for  on-market  trades  (OMT)  rose  7%  QoQ and  10%  YoY  to  MYR2.2bn.  The  effective  clearing  fee  rate  was  also higher at  2.44bps vs  2.3bps in  2Q14 (3Q13: 2.31bps)  thanks to  higher retail participation during the quarter (3Q14 retail ADV was MYR641m, which was +31-32% YoY and QoQ). We believe this helped velocity inch up  to  30%  in  3Q14  compared  with  29%  in  2Q14  (3Q13:  31%).  The derivatives  market  also  enjoyed  stronger  volumes  with  average  daily contracts  up  23%  QoQ  (+18%  YoY),  led  by  higher  FCPO  contract volumes.  Overall,  total  revenue  rose  5%  QoQ  or  8%  YoY.  Costs  were also  tightly  controlled  this  quarter  (-4%  QoQ/-1%  YoY),  mainly  due  to 
lower  staff  costs.  Its  cost-to-income  ratio  improved  to  42.9%  in  3Q14 from 46.6% in 2Q14 (3Q13: 46.4%). 

Forecasts. We retain our FY14F-15F forecasts and introduce our FY16F numbers in this report.

Maintain BUY  with  a  MYR9.10 TP.  We maintain our  our  MYR9.10 TP, which is based on a  target  2015  P/E of 25x (5-year median). Bursa is a proxy  and  a  likely  beneficiary  of  the  ongoing  rollout  of  the  Economic Transformation Programme, in our view. Meanwhile, on the  retail front, macro  factors  look  positive  –  thanks  to  the  country‟s  young,  growing workforce as well as high savings rate.  This could be further boosted if foreign  retail  participation  picks  up  following  the  launch  of  the  Asean Trading Link,  although we see this as a longer-term positive. Assuming our  full-year  ADV  assumption  of  MYR2.0bn  is  achieved  (9M14: MYR2.1bn), this could be Bursa‟s strongest performance since 2007. 

Source: RHB