BURSA still weak

Bursa Malaysia Bhd
(Oct 20, RM8.20)
Maintain neutral at RM8.35 with higher target price of RM8.64: Bursa eked out a mere 2.5% year-on-year (y-o-y) rise in September’s net profit of RM83.3 million, which works out to just 60% of our full-year forecast and 65% of consensus. The main culprit was September’s velocity which came in at only 31% against our projection of 35% for FY10. The absence of a dividend for 3Q was well expected and left the year-to-date net dividend per share at 9.5 sen. In view of these results, we cut our FY10 EPS forecast by 15.4% as we factor in a velocity of 31% for the full year. However, our rollover of the target price to CY11 pushes it from RM7.80 to RM8.64, still pegged to a PER of 27 times, or a 10% discount to its three-year average. We think a 10% discount is reasonable as the poor velocity in September reflects the weak underlying trend in the near term. Although we anticipate a pickup in velocity to 35% in 2011, it will still be 12.5% lower than the 40% registered in the past three years. On this score, the stock remains a “neutral” in our book.

Equity trading revenue climbed 11% higher y-o-y to RM117.1 million in September, thanks to a 17% y-o-y rise in average daily trading volume to RM1.42 billion. The trading value was predominantly lifted by a 26% y-o-y expansion of market capitalisation to RM1.15 trillion following a rise in the KLCI from 1,202.1 a year ago to 1,463.5 as at end-September. Market velocity, however, dwindled from 36% a year ago to only 31% in September.

Conversely, derivative revenue fell 11% y-o-y to RM27.1 million in September as daily average contracts dropped 8% y-o-y to 23,831. The average daily contracts declined for both major derivative products — by 6% y-o-y for FCPO to 15,351 and 10% y-o-y for FKLI (index futures) to 8,029.

We are lowering our FY10 EPS forecast by 15.4% for a slower velocity of 31% instead of 35%. Our earnings projections for FY11/12 are intact. Despite the earnings downgrade, our target price rises from RM7.80 to RM8.64 as we roll it a year forward to CY11. Our target price is based on an unchanged PER of 27 times, which is a 10% discount to the stock’s three-year historical average PER. We apply the discount in view of Bursa’s earnings underperformance for three consecutive quarters and its weak velocity despite the sustained performance of the KLCI. — CIMB Research, Oct 20


This article appeared in The Edge Financial Daily, October 21, 2010.