We  downgrade  our  call  on Bursa  to  NEUTRAL  from  Buy  on  valuation grounds.  Our  MYR9.20  TP  is  unchanged  (4.7%  upside).  We  expect Bursa’s  upcoming  1Q15  net  profit  to  form  23-24%  of  our  full-year forecast,  aided  by  stronger  derivative  contract  volumes.  We  do  not expect special dividends this year and believe further uplift to  its  share price would be earnings-driven, although April’s volume has softened.

• Upcoming  1Q15  results  –  a  decent  start.  Bursa  Malaysia  (Bursa)  is scheduled to release its  1Q15  results on  22  Apr.  Based on market data, its 1Q15 average daily value (ADV) for securities stood at MYR2.1bn, flat YoY  but  up  10%  QoQ  (weaker  ADV  in  4Q  tends  to  be  seasonal). However, the  derivatives market  started off  2015 on a strong note,  with average daily contracts amounting to 60,335  in  1Q15  (+21% YoY, +11% QoQ).  The  robust  growth  was  mainly  driven  by  higher  crude  palm  oil futures  (FCPO)  contract  volumes.  Based  on  the  above,  we  estimate 1Q15  revenue  rose  c.  5%  YoY  but  was  flat  QoQ  –  with  stronger securities  and  derivatives  volumes  QoQ  offset  by  a  fewer  number  of trading  days.  There  were  no  IPOs  in  1Q15,  which  would  be  a  slight dampener  to  listing  fees.  In  terms  of  bottomline,  we  expect  1Q15  net profit to make up 23-24% of our full-year forecast.
• Volumes soften  in April.  Looking ahead to 2Q15, the MTD (Apr) data for markets-related income has  eased. ADV  for securities  was down to MYR1.96bn while average daily contracts were at  c. 48,400.  While we note that  April‟s lower volume  coincides with the implementation of  the goods and services tax (GST), we believe the lower volume  was mainly a function of market activities rather than solely caused by the GST.
• Bursa  has  been  generous  in  the  past  two  years,  paying  out  160% and  145%  of  earnings  in  2013  and  2014  respectively  as  dividends (payout inclusive of  special net DPS of 20 sen in both  2013 and 2014). As  such,  its  cash  pile  has  fallen  to  MYR214m  at  end-2014  from MYR472m at end-2012. We believe Bursa will need some time to rebuild its cash pile and, for now, take a pause in terms of special dividend s.
• Downgrade  to  NEUTRAL  with  an  unchanged  MYR9.20  TP.  Our MYR9.20 TP is unchanged, which is based on  a  target 2015 P/E of 24x (5-year median).  However, given its  share price performance YTD, the potential upside  to  our  TP  is now  limited.  Hence,  we  are  downgrading our call to NEUTRAL from Buy.