We maintain our TP of RM6.25 but downgrade our recommendation to UP (from MP). BURSA’s 4QCY23 average daily value (ADV) came lower than expected, likely subdued by softer appetite from Budget 2024 developments. While we anticipate a more vibrant trading environment in CY24 with the support of foreign participation, BURSA could be overpriced at current levels with more attractive dividend yielders elsewhere. Adjusting for the lower 4QCY23 ADV, we adjust our FY23F/FY24F earnings by -2%/-1%.

4QCY23 ADV at RM2.16b (+2% QoQ, +12% YoY). Although readings reflect a modest recovery from 4QCY22’s lower base, it still missed our expected RM2.4b for 4QCY23. Although the period’s trading conditions were likely supported by resolved political uncertainties in addition to lower stamp duties, overall participation may have been muted by mixed reactions towards Budget 2024 as well as the persistent weakness in domestic currency. On a full-year basis, CY23’s ADV came in at RM2.06b, a slight decline from CY22’s RM2.07b.

Bigger appetite into 2024. Despite the disappointment in 4QCY23’s ADV, we opine that the anticipated tailwinds would be more pronounced in CY24. Our in-house estimates point for USD/MYR to close at 4.254 (CY23: 4.594) on the back of a GDP target of 4.9% (CY23: 3.8%). We had also observed that foreign inflows are rising, possibly spurred by lower expectations on US Fed rates throughout CY24 which may divert interest in money market products back towards equities and derivative securities. Attributed by the abovementioned, we keep our earlier expectations for CY24 ADV to come in at RM2.4b.

Forecast. Post update, our FY23F/FY24F earnings are adjusted by - 2%/-1%. Our forecast profit before tax of RM326.5m is closely within the group’s FY23 target of RM295m-RM326m but with the inclusion of a RM27.7m reversal of provisions. Against an 9MFY23 core earnings of RM165.2m, 4QFY23 earnings could land between RM54m-RM59m.

Downgrade to UNDERPERFORM (from MARKET PERFORM) on an unchanged TP of RM6.25. Our TP is based on an unchanged 20.0x FY24F PER, in line with its global financial exchange peers’ average, and also with pre-pandemic valuations. While BURSA could see an earnings uplift from a better trading landscape in FY24 backing its solid ROE of c.30%, its risk-to-reward could be unfavourably skewed following its recent price rally. In addition, its expected dividend yield of c.4% may appear unattractive for yield seekers as compared to the 5%- 6% offered by other financial services stocks.

Risks to our call include: (i) higher-than-expected trading volume in the securities and derivatives markets, (ii) lower-than-expected opex, (iii) more-than-expected initial public offerings, and (iv) higher-thanexpected dividend payout.

Source: Kenanga Research - 8 Jan 2024