We maintain our NEUTRAL call and MYR9.00 TP (2% upside) on Bursa Malaysia, with its expected unexciting 1Q16 earnings offset by a rather attractive dividend yield. The company is reporting its 1Q16 results on 25 Apr. Earnings are seen to be unexciting, with SADV falling 2% QoQ to MYR1.99bn and derivatives volume flat vs FY15’s numbers. However, the relatively attractive FY16F dividend yield of 4.3% ought to help support the share price at current levels.
Sequentially weaker 1Q16 securities average daily value (SADV). Our FY16 SADV assumption for Bursa Malaysia remains unchanged at MYR2.18bn. This is because we expect a pick-up in trading activities in the later part of 2016. However, SADV for 1Q16 was down 2% QoQ to MYR1.99bn. February wasweaker at MYR1.87bn whilst the other two months of the quarter were slightly above MYR2bn.
Derivatives volume seen to expand in subsequent quarters. 1Q16 derivatives average daily volume was 57,000, similar to that for FY15. 77% of 1Q16’s volume came from CPO Futures contracts. For FY16, we are assuming a derivatives average daily volume of about 62,000. This is because we see growth coming from CPO Futures contracts, as the El Nino and La Ninaweather phenomena bring forth more investments into the palm oil sector. Respectable dividend yield. Bursa Malaysia’s FY15 dividend of 34.5 sen/share is lower than FY14’s 54 sen/share (it includes a special 20 sen dividend). While the company has a policy of paying at least 75% of PATAMI as dividends, actual payout has been more than 90%. We are forecasting for a FY16 dividend of 38 sen, which would provide a respectable 4.3% yield.
Assumed steady volume growth over the next few years. We introduce our FY18 earnings forecasts. We assume an FY18 SADV of MYR2.41bn, which is 16% higher than FY15’s MYR2.08bn, or 3-year CAGR of 5%. We are more bullish on derivatives, and have assumed FY18 derivatives average daily volume of about 73,000, which represents a CAGR of 8% from FY15.
Valuations. With no catalyst in sight, we maintain our NEUTRAL call. Our unchanged TP of MYR9.00 is pegged to 21x FY17F EPS (-1SD from the 5-year historical average of 25x). We use DCF as a secondary valuation methodology, which is based on 6.8% WACC and 2% TG. This yields a similar MYR9.00 TP.
