• Maintain BUY, with new MYR8.10 TP from MYR7.60, 10% upside and c.4% FY24F yield. Operating data for the securities market points towards a strong start to the year for Bursa Malaysia. On our revised FY24 securities average daily value (SADV) assumption, we now project SADV to rise 17% YoY, which will directly translate to stronger earnings for the local bourse. In the meantime, we also believe investors could benefit from short-term trading of the stock, given its moderately strong correlation to securities market activity.

• More legs to run? 4Q23 SADV of MYR2.72bn (+30% YoY, +21% QoQ) was largely a result of large direct business transactions, while on-market ADV was flat QoQ. 1Q24, however, is off to a flying start, with total SADV up to MYR3.44bn as of the first two weeks. While share price has done relatively well YTD (+6%), we believe a relatively stable political climate, surge of positive news flow on domestic economic and infrastructure developments, coupled with foreign inflows can keep the equity market vibrant, and consequently, support the share price. By our calculations, BURSA’s share price and SADV have a moderately strong correlation coefficient of 0.7.

• 4Q23 results preview. We expect BURSA to book 4Q23 net profit of MYR52.5m (+7% YoY, -13% QoQ). QoQ, the positive impact from stronger securities income will likely be offset by seasonally higher opex and weaker derivatives income – derivatives average daily contracts (DADC) traded was down 6% QoQ (-13% YoY), owing to lower trades of the KLCI and crude palm oil futures. Cumulatively, our core net profit forecast of MYR223m for FY23 is a 2% YoY decline on higher core opex (+8%).

• Pivoting into a multi-asset exchange. Yesterday, BURSA launched three new products, including a shariah-compliant gold trading and investment platform. These, together with the carbon trading and debt fundraising platforms launched last year, align with the group’s long-term aim of becoming a multi-asset exchange. Of these new initiatives, we think the gold trading platform stands out as having good potential, given the popularity of gold as an investment, especially among retailers. However, we expect minimal near-term revenue contributions from these new ventures, as the group will require time – and in the case of the carbon exchange, regulatory support – to build scale and traction for its new offerings.

• We raise our FY23F net earnings by 2% as we factor in actual SADV numbers for FY23. We also raise FY24F-25F by 7-9%, largely on more bullish SADV assumptions of MYR2.7bn and MYR2.9bn (from MYR2.4bn and MYR2.6bn). Our TP is lifted to MYR8.10 from MYR7.60, and is based on an unchanged 22.5x P/E target, in line with the counter’s mean. Our TP includes a 6% ESG premium.

Source: RHB Research - 17 Jan 2024