KENANGA : Bursa - BUY - 15 Apr 2008

Bursa Malaysia – Challenging year ahead (Company Update)



Price: RM8.45

Target Price: RM9.70

Recommendation: BUY



· Lethargic trading momentum. Initially affected by global market uncertainties, pressure on trading activities is compounded further by political uncertainties following the recent 12th general election. Consequently, previous anchor themes such as fiscal stimulus, the 9th Malaysian Plan and robust M&A activities have been played down, causing investors’ appetite and sentiment to the market to wane off.

· Daily trading volume and daily trading value remain undoubtedly thin. The daily average trading volume and value in 1Q08 declined by a significant 55.5% and 26.7% YoY to 925.8m shares and RM2.0b, respectively.

· Earnings downgrade. We are lowering our FY08 and FY09 net profit estimates by 16-19% on the back of revised daily average trading value to RM2.1b and RM2.2b from RM2.6b and RM2.8b for FY08 and FY09, respectively.

· We also believe the new clearing fee structure (from 4bps of contract value to 3bps while cap was doubled to RM1,000 effective from 1 Jan, 2008) to depress Bursa’s effective clearing fee by approx. 8% which will drag down its potential revenue.

· Collaboration with Chicago Mercantile Exchange (CME). Management expects to conclude talks with CME, the world’s largest derivative market, by end of the year which will assist the Group to further re-engineer its business. A successful potential collaboration will act as a re-rating catalyst for Bursa, in our view.

· Dividend payout of at least 90% is likely to be maintained. Despite reducing our gross DPS estimates for FY08 and FY09 from 85sen to 60sen and 65sen, respectively, following the earnings revision, Bursa’s gross dividend yield of 7.1% is still appearing more attractive vis-à-vis its peers.

· Cautious against market uncertainties but downside risks appear limited due to its: (1) decent dividend yield and (2) recent sharp share price correction of 49% from RM16.60 high. Upgrade to BUY, Target Price of RM9.70 based on PER of 20x to estimated FY08 EPS of 40.7sen and RM1.60/share of cash at hand value at book.





KENANGA INVESTMENT BANK BERHAD (15678-H)