Bursa Malaysia - Growing steadily and surely BUY

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD

Research House: AMMB

Price Call: BUY

Target Price: 8.50

- We are re-initiating coverage on Bursa Malaysia Bhd (Bursa)with a BUY recommendation and a fair value of RM8.50/share, based on itstrend-average PE of 30x on FY12F's EPS. 

- We expect average daily trading value (ADTV) to potentiallyexpand sequentially each quarter from 1Q12's RM2.0bil given: - (1) our higherend-2012 FBM KLCI target of 1,690 and intact economic fundamentals; (2) IPOs topick up in 2H12 with several prolific listings including Felda Global VenturesHoldings and Integrated Healthcare; and (3) encouraging number of new structuredwarrants being listed (3-year CAGR of 65%).

- We forecast net profit at RM151mil (+3%) for FY12F and at RM172mil(+14%) for FY13F, based on a conservative ADTV of RM2.0bil and RM2.2bil(FY11:RM1.8bil), respectively. Velocity is expected to be a tad higher at 36%compared with FY11's 34%.

- We are positive on the derivatives market and are projectingFY12F average daily contracts traded (ADC) to grow by 18% to 40,679 contractsfrom 34,474 contracts in FY11. This is underpinned by:- (1) open interest beingat an all-time high; (2) launch of the new derivatives clearing system andderivative products; and (3) overhaul ofparticipantship structure.

- The international exposure gained from the strategic partnershipwith CME Globex at end-2009 has seen increasing foreign interest in thederivatives market. Year-to-date (YTD) ended 29 Feb 2012, foreign institutions madeup 27% of the FCPO market trades and 43% of the trades on FKLI. Foreignretailers were also drawn to the market, making up 1% of the FCPO trades inFY11. Wereckon that Bursa's derivatives business has yet torealise the fullpotential of this partnership.

- We believe Bursa will continue with its generous dividend policy,supported by its strong balance sheet (cash-toequity ratio of 1.5x) andcash-in-hand of ~RM500mil. We have assumed a dividend payout ratio of 91%-94%for FY12F and FY13F, with gross DPS at 26.5 sen and 29.5 sen, respectively.This translates into dividend yields of 3.8% and 4.2%.

- We expect Bursa's cost structure to remain stable, with staffcosts being the main expense. We also expect Globex fees to stay elevated,following the 319% increase in FY11. However, we are not too concerned as ahigher service fee resulting from the high volumes of contracts traded can beeasily offset by the parallel increase in derivative trading revenues.

Source: AmeSecurities