CIMB: Bursa 1QFY08 in line - Hit by poor market sentiment

• Poor 1Q results within expectations. Bursa’s 1QFY08 net profit declined by a hefty 40% yoy and 14.9% qoq to RM42.1m, dragged by subdued trading activities in the equity market. Although 1Q net profit only accounted for 20.6% of our fullyear forecast and 17.7% of consensus, we regard the results as within expectations as we envisage stronger earnings in the 2H, banking on the potential recovery in the equity market. As expected, no dividend was declared in the 1Q.

• Dismal equity performance. 1Q revenue plunged by 26.6% yoy to RM93.8m, affected by poor performance of the equity market. The market velocity dropped to 46%, from a high of 68% in the 1QFY07, leading to a decline in daily trading value from RM2.8bn to RM2bn. Meanwhile, the group’s effective clearing fee rate also dropped to 2.3% from 2.7%, due to the negative impact from the new fee structure and lower retail participation in the market.

• Lower derivative income. The daily average contracts for the derivative market rose by 16.2% to 30,283. However, derivative revenue was down by 5.4% yoy to RM12.2m, due to the revised derivative fee structure.

• Retain earnings forecasts. Despite the poor 1Q, we are keeping our earnings forecasts unchanged as we anticipate stronger earnings for Bursa in the 2H,banking on potential recovery in the equity market. In fact, we had slashed our earnings forecasts by 30-32% in the previous report dated 18 Mar 08 to reflect the likely weaker market sentiment in the coming months.

• Maintaining target price. We are keeping our target price of RM8.35, still pegged to FY09 P/E of 20x, which is above the 15x average for the major bourses globally. The premium is premised on potential recovery in the 2H and M&A newsflow as NYSE Euronext and Chicago Mercantile Exchange are reported to be eyeing a stake in Bursa.

• Reiterate TRADING SELL. We maintain our TRADING SELL recommendation on the stock predicated on the de-rating catalysts of (1) weak market sentiment leading to dimmed earnings prospects in the next 1-2 quarters, and (2) continued negative impact from the new fee structure.