BURSA’s FY23 results met expectations with hopes for better ADVs to carry earnings. The group’s multi-asset status should also diversify its dependency on securities, and derivatives trading albeit will likely remain an insignificant profit contributor in the medium term. Per its guidance, the group hopes for up to 42 IPOs in FY24. Maintain UNDERPERFORM as its rich valuations could be unjustified but with a higher TP of RM6.45 (from RM6.25) as we roll valuation base to FY25F.

FY23 within expectations. BURSA’s FY23 core net profit of RM215.9m met our expectations at 97% of our full-year forecast but missed consensus full-year estimates by 8%. This comes after accounting for RM31.4m reversal from SST provisions for digital services from Jan 2020 to Mar 2022.

YoY, FY23 operating revenue was stable with flat trading revenue from securities amidst a full-year ADV of RM2.05b (FY22: RM2.06). Cost-toincome for the group improved slightly, at 48.1% (+0.4ppt), despite a 9% increase in personnel cost due to the one-off reversal of SST provision of RM31.4m. This led FY23 net profit to report at RM247.3m (+9%). Adjusting for said reversal, core FY23 net profit would come in at RM215.9m (-5%).

QoQ, 4QFY23 operating revenue declined by 3%. Although securities ADV was slightly higher at RM2.16b (3QFY23: RM2.13b), the group reported lower contributions from derivatives and other revenue streams. Coupled with higher staff costs reflected during the period, 4QFY23 core net earnings came in at RM50.4m (-17%).

Outlook. BURSA had rebranded itself to be a multi-asset exchange with the launch of its Bursa Gold Dinar mobile app to make investing in gold more accessible. This supports part of the group’s broader 2024- 2026 strategic roadmap in which it hopes to, on top of its key securities business, widen its derivative offerings to a broader international level and to strengthen other revenue streams (data solutions) for which it hinted it is open to considering inorganic growth opportunities. Meanwhile, the group had indicated the following headline KPIs for its FY24:

1. Profit before tax of RM293m-RM323m (which we think could be conservative given the strong ADVs seen in Jan 2024)

2. Non-trading revenue growth of 5%-7%

3. 42 IPOs and RM13b total IPO market cap.

Forecast. Our FY24F numbers are relatively unchanged on the back on an ADV assumption of RM2.40b (+17% YoY), signalled by returning interest from foreign investors and more moderate interest rate expectations. Meanwhile, we also introduce our FY25F earnings which are supported by an ADV of RM2.55b.

Maintain UNDERPERFORM with a higher TP of RM6.45 (from RM6.25). We roll over our valuation base year to FY25F on an unchanged 20.0x PER, in line with its global financial exchange peers’ average, and pre-pandemic valuations. Risk-reward ratios appear fair with the lack of strong medium-term catalysts to deliver earnings surprises cushioned by its solid ROE and stable dividend prospects. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

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

Source: Kenanga Research - 2 Feb 2024