Bursa’s 4Q14 results were ahead of our forecast and at the upper end of consensus  estimate,  with  net  profit  up  57%  YoY  (flat  QoQ)  due  to  a combination  of  stronger  trading  revenue  from  securities,  lower  costs and  a lower  effective tax rate. Maintain BUY with a revised MYR9.20 TP (24x  2015  EPS,  12%  upside).  Retail  participation  was  also  up  YoY,  a positive reflection of Bursa’s outreach efforts in this area.

• Strong  end  to  the  year.  Bursa  Malaysia  (Bursa)  reported  4Q14  net profit of MYR53m (+57% YoY, flat  QoQ), above our  forecast  and  at the upper  end  of  consensus  expectations.  2014  net  profit  of  MYR198m (+15% YoY) accounted for 107% of our and 104% of consensus full-year estimates.  The  key  variances  were  lower-than-expected  costs  and effective tax rate (2014: 25% vs our assumption of 27%).
• Results highlights. 4Q14 average daily value (ADV) for securities stood at  MYR1.9bn,  up  by  a  healthy  13%  YoY  but  down  13%  QoQ  (weaker ADV in 4Q tends to be seasonal). This brought 2014 ADV to MYR2.05bn (+7%  YoY),  Bursa’s  strongest  performance since 2007.  4Q14  effective clearing fee rate was  higher YoY at  2.43bps  vs  4Q13’s  2.38bps (3Q14: 2.44bps),  thanks to higher retail participation  YoY (4Q14 retail ADV was MYR461m, +7% YoY/-28%  QoQ).  Similarly, 4Q14 velocity improved to 28% from 25% in 4Q13,  but down slightly from 30% in 3Q14.  As for the derivatives market, average daily contracts were 54,500  in 4Q14 (+31% YoY,  flat QoQ),  with the robust YoY growth driven by higher  crude palm oil  futures  (FCPO)  contract  volumes.  Overall,  total  revenue  rose  15% YoY  but was flat QoQ.  Cost-to-income ratio  rose to 46% in  4Q14 from 42.9%  in  3Q14  due  to  higher  staff  costs,  but  lower  relative  to  4Q13’s57.6%. This was because bonus provisions were accrued throughout the quarters in 2014 (vs accrual of provisions only in 4Q in 2013).
• Dividends.  As  expected,  Bursa  declared  a  final  net  DPS  of  18  sen (4Q13:  16  sen net), bringing the full-year net DPS to  54  sen (FY13: net DPS of 52  sen). This was inclusive of the interim special single-tier DPS of 20 sen. Total net payout ratio (ex-special dividends) was 92%.
• Forecasts. We tweak our 2015-2016 net profit forecasts 5% higher after updating the 2014 results, and introduce our 2017F numbers.
• Investment  case.  We  maintain  our  BUY  call  with  a  revised  TP  of MYR9.20 (from MYR9.10), based on target 2015 P/E of 24x.

Briefing highlights
IPO pipeline likely  to be better in 2H15. Management thinks the number of IPOs in 2015 could match that  of  last year,  but admitted visibility was lacking at this juncture due to volatile market conditions. Nevertheless, Bursa thinks 2H15 could pan out to be a better half for fund-raising activities.

Non-committal  to  more  special  dividends.  Bursa  was  non-committal  to  the possibility of further special dividends ahead, after having declared a special net DPS of  20  sen  in  2013  and  2014.  As  mentioned  in  our  previous  report,  while  we  laud management’s initiatives to return excess cash to shareholders, we believe Bursa will now need some time to rebuild its cash pile  (MYR214m as at end-2014). That said, Bursa’s recurring dividends still provide  investors with an attractive yield of about  4-5% per annum.

Listing fees  –  still awaiting approval from  Securities Commission (SC).  There was not much  update on this front  except that Bursa  believes that providing various value-added  services  should  help  in  its  cause  for  a  fee  revision.  Examples  of measures Bursa has taken include the various outreach programmes to help improve retail participation.

Forecasts
We  raise our 2015-2016  net profit forecasts  by  5% after updating the 2014  resultsand  lowering  our  effective  tax  rate  assumption  to  25%  from  27%  per  annum.  We assume 2015 ADV rises by 7.5% to MYR2.15bn. ADV has got off to a good start YTD at MYR2.06bn vs Jan 2014’s MYR1.9bn. We also introduce our 2017F numbers.

Valuations and recommendation
We raise  our  TP to MYR9.20 from  MYR9.10  to reflect the earnings revisions above as well as a revised 2015 target P/E of 24x (previously 25x, in line with the 5-yearmedian).  We  revise  down  our  target  P/E  to  reflect  a  softer  and  uncertain macroeconomic  environment,  which  may  adversely  impact  ADVs  as  well  as  fundraising activities, among others. Nevertheless, we do note that ADV has got off to a good  start,  at  MYR2.06bn  in  Jan  2015  thus  far  vs  MYR1.93bn  in  Jan  2014. Macroeconomic  factors  are  also  still  positive  on  the  retail  front,  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  via  the  Asean  Trading  Link, although  we  see  this  as  a  longer-term  positive.  Thus,  we  are  keeping  our  BUYrecommendation on the stock

Source: RHB