• Upgrade to BUY from Neutral, with new MYR7.50 TP from MYR6.50, 12% upside and c.4% FY24F yield. Bursa Malaysia’s 1H23 results were a beat as a result of a one-off reversal of tax provisions. Despite this, we turn bullish on the counter as we believe a favourable exchange rate, undemanding stock valuations and recent positive news flow are strong catalysts for market activity moving forward. For now, the political risk from the upcoming state elections presents the largest downside risk to our call.

• 1H23 results review. BURSA’s 1H23 net earnings of MYR132.4m (+4% YoY) were above our and consensus estimates thanks mostly to a MYR27.7m one-off reversal of provisions made for taxes on digital services. On the other hand, trading revenue fell 13% YoY on weaker securities and derivatives market contributions, although this was mitigated by other revenue items. An interim DPS of 15 sen was declared, representing a 92% payout.

• Operational highlights. 2Q23 SADV of MYR1.9bn was down 15% YoY (QoQ: -17%), which in our view encapsulates investors’ concerns over the macroeconomic and geopolitical risks – both domestic and abroad. Derivatives average daily contracts (DADC) traded surged 10% QoQ (YoY: +1%) on the back of subdued derivatives market activity in 1Q23, and we expect trading on crude palm oil futures to stay robust given the recent volatility in CPO on El Nino fears. Elsewhere, BURSA’s other revenue sources continued to gain traction – in 1H23, revenue from the Bursa Suq- Al-Sila commodities trading platform and market data segment grew 16% and 6% YoY.

• A fresh air of optimism. During yesterday’s results briefing, management was optimistic that SADV could rebound in 2H23 on a combination of an oversold MYR, undemanding stock valuations, and exciting news flow on Malaysia’s energy transition plans and long-awaited infrastructure projects. Indeed, July 2023 SADV rose to MYR2.1bn from the 2Q23 figure of MYR1.9bn. The upcoming state elections on 12 Aug 2023 could also be a catalyst for short-term market volatility. Should our house base case scenario – in which the unity government retains Penang, Selangor and Negeri Sembilan – hold, the subsiding political risk could further improve market sentiment over a longer-term horizon.

• We lift FY23F-25F by 8-13% after factoring in the one-off reversal of provisions (for FY23F) and incorporating higher SADV and DADC assumptions (for all three years). Our TP is lifted to MYR7.50 – inclusive of a 6% ESG premium – and is derived by pegging an unchanged 22.5x P/E multiple to FY24F EPS. As BURSA is a direct beneficiary of improving market sentiment, we turn bullish on the counter in tandem with our renewed optimism in the domestic equity market.

Source: RHB Research - 1 Aug 2023