BURSA (1818) - Bursa Malaysia - Hedging with strong derivative income growth
Target RM8.50 (Stock Rating: HOLD)
At 23% of our full-year forecast and consensus, Bursa’s 1Q15 net profit was in line with expectations. Also expected was the absence of dividends for 1Q15. Given the better sentiment in the equity market as evidenced by the 5% rise in KLCI YTD, we scale back our target discount to the 3-year average P/E from 10% to 5%, lifting the target FY16 P/E from 19.4x to 20.4x, leading to a higher target price. Despite the improved sentiment and favourable prospects for derivative income, Bursa remains a Hold given the still-weak velocity in the equity market and its high FY16 P/E of 21.6x. We prefer RHB Capital for exposure to the financial services sector.
Marginal increase in equity income
Bursa’s equity trading income only inched up 1% to RM57.5m in 1Q15. This mainly came from a 1% rise in the total capitalisation of the market to RM1.74tr at end-Mar 15. This lifted the 1Q15 average daily trading value (ADTV) by 1% yoy to RM2.08bn, on the back of stable market velocity of 30% in 1QFY14 and 1QFY15. Equity trading income accounted for 48% of Bursa’s total revenue in 1QFY15, down from 49.5% a year ago.
Derivative income the key catalyst
We are positive on the much stronger expansion of 19% yoy for derivative trading income to RM20.5m in 1Q15. The momentum was boosted by the 21% yoy surge in average daily contracts to 60,340. This reaffirms our positive stance on the prospects for Bursa’s derivative income, with an expected strong rebound in 2015, following subdued expansion in 2014 which was dented by lower guarantee and collateral management fees. Derivative income contributed about 17.1% of Bursa’s total revenue in 1Q15, up from 14.9% a year ago.
Stay on sidelines
Despite the improvement in stockmarket sentiment and the bright prospects for derivative income, we advise investors to stay on the sidelines given the still-weak market velocity and Bursa’s high valuation.
Source: CIMB Daybreak - 23 April 2015,
Target RM8.50 (Stock Rating: HOLD)
At 23% of our full-year forecast and consensus, Bursa’s 1Q15 net profit was in line with expectations. Also expected was the absence of dividends for 1Q15. Given the better sentiment in the equity market as evidenced by the 5% rise in KLCI YTD, we scale back our target discount to the 3-year average P/E from 10% to 5%, lifting the target FY16 P/E from 19.4x to 20.4x, leading to a higher target price. Despite the improved sentiment and favourable prospects for derivative income, Bursa remains a Hold given the still-weak velocity in the equity market and its high FY16 P/E of 21.6x. We prefer RHB Capital for exposure to the financial services sector.
Marginal increase in equity income
Bursa’s equity trading income only inched up 1% to RM57.5m in 1Q15. This mainly came from a 1% rise in the total capitalisation of the market to RM1.74tr at end-Mar 15. This lifted the 1Q15 average daily trading value (ADTV) by 1% yoy to RM2.08bn, on the back of stable market velocity of 30% in 1QFY14 and 1QFY15. Equity trading income accounted for 48% of Bursa’s total revenue in 1QFY15, down from 49.5% a year ago.
Derivative income the key catalyst
We are positive on the much stronger expansion of 19% yoy for derivative trading income to RM20.5m in 1Q15. The momentum was boosted by the 21% yoy surge in average daily contracts to 60,340. This reaffirms our positive stance on the prospects for Bursa’s derivative income, with an expected strong rebound in 2015, following subdued expansion in 2014 which was dented by lower guarantee and collateral management fees. Derivative income contributed about 17.1% of Bursa’s total revenue in 1Q15, up from 14.9% a year ago.
Stay on sidelines
Despite the improvement in stockmarket sentiment and the bright prospects for derivative income, we advise investors to stay on the sidelines given the still-weak market velocity and Bursa’s high valuation.
Source: CIMB Daybreak - 23 April 2015,
