STOCK EXCHANGE BURSA MALAYSIA (BURSA MK, BMYS.KL) 22 October 22 Company report Cheryl Tan cheryltan@ambankgroup.com +63 236 2293 Riding on sustained trading interest Rationale for report: Company Result BUY (Maintained) Price Fair Value 52week High/Low Key Changes Fair value EPS RM6.39 RM8.2 RM7.6/RM5.9 Unchanged Unchanged YE to Dec FY FY2F FY3F FY4F Revenue (RMmil) 42. 49.9 47.3 53.2 Core net profit (RMmil) 46.2 45.9 7.4 82. EPS (Sen) 27.5 27.4 32. 34.3 EPS growth (%) 29.2 n/a 6.8 6.8 Consensus EPS (Sen) 27.5 28.8 32. 35.5 DPS (Sen) 26. 26. 28.5 3. PE (x) 23.2 23.3 9.9 8.7 EV/EBITDA (x) 9. 9.2 7.6 7. Div yield (%) 4. 4. 4.5 4.7 ROE (%) 7. 6.9 9.4 2.2 Net Gearing (%) n/a n/a n/a n/a Stock and Financial Data Shares Outstanding (million) 53.5 Market Cap (RMmil) 3,396.2 Book value (RM/share).62 P/BV (x) 3.9 ROE (%) 7. Net Gearing (%) n/a Major Shareholders Capital Market Dev Fund (8.9%) Ministry of Finance (4.3%) Free Float (%) 6. Avg Daily Value (RMmil) 2.8 Price performance 3mth 6mth 2mth Absolute (%) (.2) (8.5) 2.6 Relative (%) (2.2) (2.4) (2.8) 2.,75 Investment Highlights We are maintaining our BUY rating on Bursa Malaysia (Bursa), with an unchanged fair value of RM8.2/share. This is based on its trendaverage PE of 3x on FY2F earnings. Bursa reported a 3QFY2 net profit of RM37.mil, bringing 9MFY2 earnings to RM5.8mil (+% YoY). Its results were in line with our, and consensus estimates. Our BUY recommendation is premised on: () our end22 FBM KLCI target of,69; (2) continued interest in the domestic equity markets stemming from 3 major IPOs in 2H2 (including Astro last week); (3) encouraging number of new structured warrants being listed; and (4) higher contributions from stable revenue on top of a stable cost structure. Bursa s 9MFY2 securities trading revenue (which accounts for ~5% of operating revenue) fell.% YoY to RM37.3mil (9MFY: RM52.7mil), in tandem with a 9.9% decline in average daily traded value (ADTV). As we had anticipated, ADTV recovered.5% QoQ to RM.7bil, after sliding 22.8% in the previous quarter. This comes on the back of the listings of Felda Global Ventures (June) and Integrated Healthcare (July). Bursa s operating revenue declined by only.9% YoY to RM293.9mil as the drop in securities trading revenue was mitigated by an increase in derivatives trading revenue (+4.9%) and stable revenue (+%). The jump in the latter can be attributed to higher information sales, access fees and listing fees (from listings of new structured warrants 9MFY2: 43 vs. 9MFY: 293; FY: 363). The migration of Bursa s derivative products to CME Globex electronic trading platform continues to bear fruit. Average daily contracts traded (ADC) grew 4.6% QoQ to 42,234 in 3QFY2, surpassing 2QFY2 s 4,367 for a fresh alltime high. For 9MFY2, ADC was up.5% to 37,794. We believe this trend is sustainable and maintain our assumption of 8% FY2F ADC growth, given the current volatility in equity and commodity markets. 5. ) M. (R 5.,483,27 95 In d e x P o in ts Bursa s commitment to reducing its costs has been effective as operating expenses were down 4% YoY from RM62.7mil in 9MFY to RM56.6mil in 9MFY2. The decrease can be attributed to lower staff costs from fewer employees and lower depreciation and amortisation. The rise in Globex service fees of 9% YoY as a result of higher ADC can be offset by its corresponding trading revenue.. O A O A O A c ṯ p c ṟ ṯ p c 7 ṟ ṯ p 8 8 ṟ 9 9 Bursa PP 2247/6/23 (3238) O c ṯ FBM KLCI A p ṟ O c ṯ A p ṟ 2 684 Last month, Bursa, together with the Singapore Exchange (SGX), launched the ASEAN Trading Link. Since then, the Stock Exchange of Thailand (SET) has also been connected. We are neutral on this tieup as the impact will only be felt by retail investors, which account for a small portion of trading participation (9MFY2: 24%; 9MFY: 25%). Nonetheless, we are encouraged by Bursa s bid to elevate its velocity (9MFY2: 3%; 9MFY: 35%) by increasing retail participation, which has been dwindling YoY since 29.
Bursa Malaysia 22 October 22 TABLE : 9M2 EARNINGS SUMMARY YE 3 Dec (RM mil) 2Q2 3Q2 QoQ (%) 9M 9M2 YoY (%) Op. Rev enue 96.7 96.7 (.) 296.5 293.9 (.9) Other Income 9.3 9.5 2.9 28. 28.8 2.9 Revenue 6. 6.2 324.5 322.7 Staff Costs (25.4) (25.5). (79.) (75.2) (4.8) Other Op. Ex penses (8.) (7.8) (.7) (54.) (56.2) 3.7 EBITDA 62.4 63..9 9.3 9.3 (.) Depn. & Amortization (8.7) (8.5) (.8) (29.5) (25.2) (4.5) EBIT 53.8 54.5.3 6.8 66. 2.6 Finance Cost.... Profit Before Tax 53.8 54.5.3 6.8 66. 2.6 Tax ation (4.2) (5.9) (43.4) (45.7) Minority interest (.6) (.6) (3.6) (4.6) Net Profit 37.9 37. (2.4) 4.8 5.8.8 EPS (sen) 7. 7. (2.4) 2.6 2.8.8 DPS (sen) 3.5. 3. 3.5 Operating EBITDA margin (%) 55. 55.3 55. 55.3 Pretax margin (%) 55.6 56.4 54.6 56.5 Effectiv e tax rate (%) 26.4 29. 26.8 27.5 Equity Market Av erage daily trading v alue (RM'bil) OMT.5.7.5.9.7 (9.9) Trading Velocity (%) 27. 28. 35. 3. Market capitalisation (RMbil),367.9,47.3,72.3,47.3 Effectiv e clearing fees (bps) 2.29 2.25 2.33 2.3 Deriv ativ es Market Av erage Daily Contracts 4,367 42,234 4.6 34,374 37,974.5 CHART : MONTHLY ADTV AND ADC FOR 22 ADTV (RM mil) 25 2 5 Securities Market ADTV (LHS) Derivatives Market ADC (RHS) 2,275.,88.8 5,387 45,46,873.7,82.3 45,365,478.7 4,477 39,473 36,7,542.5,533.,58.7,7. 33,53 34,44,444. 28,552 3,592 6, 5, 4, 3, 2, No. of contracts 5, Jan2 Feb2 Mar2 Apr2 May2 Jun2 Jul2 Aug2 Sep2 Up to 8 Oct 22 AmResearch Sdn Bhd 2
Bursa Malaysia 22 October 22 CHART 2: SECURITIES MARKET QUARTERLY ADTV (OMT) & VELOCITY (RM mil) Average Daily Value Traded (RMmil) Turnover Velocity 3, 2,5 2,,5, 5 68% 54% 5% 4% 46% 48% 42% 36% 35% 37% 3% 32% 28% 28% 3% 3% 34% 34% 25% 27% 27% 28% 23% 2,6 2,33 2,69,75,97,87 823 854 65,49,266,99,435,29,387,793 2,6,579,732,34,84,439,595 Q7 3Q7 Q8 3Q8 Q9 3Q9 Q 3Q Q 3Q Q2 3Q2 (%) 8% 7% 6% 5% 4% 3% 2% % % CHART 3: DERIVATIVES MARKET QUARTERLY ADC TRADED & OPEN INTEREST Daily Average Volume (LHS) Open Interests (RHS) ' 45 4 35 3 25 2 5 5 59 62 45 39 25 3.3 26. 27. 24.8 22.2 56 48 35 22 7 2.9 24.5 24.2 23.9 29.4 42 32 23 29 5 4 24. 2.5 23.9 25. 27.8 22.5 76 7 72 56 6 66 44 36.8 32.3 34.2 34.8 3. 4.4 42.2 2 8 6 4 2 8 6 4 2 ' Q7 3Q7 Q8 3Q8 Q9 3Q9 Q 3Q Q 3Q Q2 3Q2 CHART 4: MONTHLY TRADING VALUE AGAINST FBM KLCI 7. Trading Value (LHS) KLCI (RHS),7 6.,6 5.,5,4 (RM mil) 4. 3. 2.. Jan7 Jul7 Jan8 Jul8 Jan9 Jul9 Jan Jul Jan Jul Jan2 Jul2,3,2,, 9 8 AmResearch Sdn Bhd 3
Bursa Malaysia 22 October 22 CHART 5: TRADING PARTICIPATION FOREIGN VS DOMESTIC % 9% 8% 7% 6% 5% 4% 3% 2% % % Domestic (LHS) Foreign (LHS) Foreign ADTV (RMmil) (RHS) 86 63% 58% 73% 73% 74% 75% 496 437 323 398 392 37% 42% 27% 27% 26% 25% 27 28 29 2 2 9M2 9 8 7 6 5 4 3 2 CHART 6: TRADING PARTICIPATION RETAIL VS INSTITUTIONS Institutions (LHS) Retail (LHS) Retail ADTV (RMmil) (RHS) % 86 9% 8% 7% 63% 67% 76% 73% 74% 6% 76% 5% 369 392 389 4% 283 442 3% 2% 37% 33% 24% 27% 26% % 24% % 27 28 29 2 2 9M2 9 8 7 6 5 4 3 2 CHART 7: NUMBER OF STRUCTURED WARRANTS LISTED ADTV (OMT & DBT) (RMmil) (RHS) Number of new structured warrants listed (LHS) 45,788,72 4,574 35 363,278 3,22 43 25 2 5 24 24 5 8 FY8 FY9 FY FY 9M2 2,,8,6,4,2, 8 6 4 2 AmResearch Sdn Bhd 4
Bursa Malaysia 22 October 22 TABLE : FINANCIAL DATA Income Statement (RMmil, YE 3 Dec) 2 2 22F 23F 24F Revenue 36. 42. 49.9 47.3 53.2 EBITDA 27.6 244.6 236.6 266.2 287. Depreciation (43.2) (38.4) (37.9) (34.) (39.2) Operating income (EBIT) 64.4 26. 98.7 232 247.9 Other income & associates..... Net interest (.6).... Exceptional items..... Pretax profit 63.8 26. 98.7 232. 247.9 Taxation (48.) (54.8) (52.8) (6.7) (65.9) Minorities/pref dividends (2.6) (5.2)... Net profit 3. 46.2 45.9 7.4 82. Core net profit 3. 46.2 45.9 7.4 82. Balance Sheet (RMmil, YE 3 Dec) 2 2 22F 23F 24F Fixed assets 23. 28.4 26.5 97. 226. Intangible assets 43. 43. 43. 43. 43. Other longterm assets 98.3 65.7 78.7 93.2 29.4 Total noncurrent assets 472.3 427. 428. 433.3 478.5 Cash & equivalent,92.2,25.7,229.7,379.2,364. Stock..... Trade debtors 33.5 27.9 33.3 35.4 39.6 Other current assets.2 2.9 4. 5. 6.3 Total current assets,235.9,246.5,277.,429.7,42. Trade creditors 676.6 636.2 672.2 797.3 86.2 Shortterm borrowings..... Other current liabilities 5.9 6.7 2. 23.6 27.3 Total current liabilities 792.5 752.8 792.2 92.9 933.5 Longterm borrowings..... Other longterm liabilities 52.2 46. 47.5 49.8 52.8 Total longterm liabilities 52.2 46. 47.5 49.8 52.8 Shareholders funds 852.3 86.4 865.4 892.3 92.2 Minority interests.3 4.2... BV/share (RM).6.62.63.68.72 Cash Flow (RMmil, YE 3 Dec) 2 2 22F 23F 24F Pretax profit 63.8 26. 98.7 232. 247.9 Depreciation 43.2 38.4 37.9 34. 39.2 Net change in working capital (5.8) 8.8 32.9 25.5 7.2 Others (5.9) (76.4) (68.7) (78.2) (83.) Cash flow from operations 49.3 77. 2.8 33.5 2.4 Capital expenditure (9.6) (7.7) (35.) (35.) (8.) Net investments & sale of fixed assets 28.4 78.3.3 2.4 2.4 Others (57.3) (65.)... Cash flow from investing 5.5 (4.5) (33.7) (32.6) (77.6) Debt raised/(repaid)..... Equity raised/(repaid) 7.. 6. 5. 5. Dividends paid (98.3) (24.9) (4.9) (43.5) (62.) Others 4. 2.4 (3.8) (5.6) (4.) Cash flow from financing (87.) (22.5) (66.7) (54.) (7.2) Net cash flow 3.6 49.9.5 26.7 (37.4) Net cash/(debt) b/f 3.6 49.9.5 26.7 (37.4) Net cash/(debt) c/f 449.9 499.9 5. 626.2 588.3 Key Ratios (YE 3 Dec) 2 2 22F 23F 24F Revenue growth (%).6 6.4 n/a 2. 9. EBITDA growth (%) n/a 7.8 n/a 2.5 7.8 Pretax margins (%) 45.4 49. 47.3 49.4 48.3 Net profit margins (%) 3.3 34.8 34.7 36.2 35.5 Interest cover (x) 267.7 n/a n/a n/a n/a Effective tax rate (%) 29.4 26.6 26.6 26.6 26.6 Net dividend payout (%) 94. 94.6 94.7 92. 9.5 Debtors turnover (days) 28 27 27 27 27 Stock turnover (days) Creditors turnover (days) 737 57 569 57 57 Source: Company, AmResearch estimates AmResearch Sdn Bhd 5
Bursa Malaysia 22 October 22 Anchor point for disclaimer text box Published by AmResearch Sdn Bhd (3355P) (A member of the AmInvestment Bank Group) 5th Floor Bangunan AmBank Group 55 Jalan Raja Chulan 52 Kuala Lumpur Tel: (3)272444 (research) Fax: (3)278362 Printed by AmResearch Sdn Bhd (3355P) (A member of the AmInvestment Bank Group) 5th Floor Bangunan AmBank Group 55 Jalan Raja Chulan 52 Kuala Lumpur Tel: (3)272444 (research) Fax: (3)278362 The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd Benny Chew Managing Director AmResearch Sdn Bhd 6