• Upgrade to BUY from Neutral, with new MYR9.85 TP from MYR8, 19% upside and c.4% yield. YTD securities average daily value (SADV) currently stands at a record-high of MYR3.2bn (excluding the COVID-19 period), a level which we think is sustainable, at least, over the medium term. As Bursa Malaysia is a prime beneficiary of a more active securities market, we turn more bullish on the stock.

• A rosier outlook for SADV. 2024 SADV as at 17 May stood at MYR3.2bn – the highest level on record excluding the COVID-19 period. We think the current level is sustainable, given: i) The strong surge of positive news flow affecting multiple different sectors; ii) ample liquidity to be invested in the domestic equity market, on top of the Prime Minister’s directive for government-linked companies or GLCs to invest a bigger portion of funds domestically; and iii) further structural reforms from the MADANI Government. We raise our SADV forecast for 2024 to MYR3.2bn (from MYR2.8bn) in view of our refreshed optimism.

• The argument for a higher P/E target. In 2017 and 2018 (the previous two record-breaking years for SADV), BURSA traded at a premium to its long- term mean of c.22x, reaching as high as 32x in late 2018. We think it is fair to ascribe a premium valuation to BURSA now, given 2024 (and potentially 2025) could likely see SADV beat the previous record of MYR2.6bn by some distance. As such, our P/E target is raised to 26.5x (from 22.5x) – the highest level reached in 2017 – or +1SD from its mean.

• Are special dividends back on the cards? While we understand that BURSA will prioritise excess cash for investments into new products and platforms, it has a history of paying out special dividends in years of record-breaking SADV – it did so in 2017, 2018 and 2020, the last three record-breaking years. We also note that BURSA currently has a cash pile of MYR374m, higher than the average levels in 2017, 2018 and 2020. For now, we assume no special dividend payments, pending further clarity from management.

• Upgrade to BUY. We upgrade our SADV forecasts for FY24-26 by 10-14%. Consequently, our net profit estimates for BURSA are raised by 1-4%, with the higher SADV assumption offset by higher opex, in line with management’s guidance for 50% CIR. Combined with the aforementioned increase in P/E target, our TP rises to MYR9.85 (from MYR8) and includes a 6% ESG premium.

• Key downside risks include a slowdown in securities market trading activity and higher-than-expected opex.

Source: RHB Research - 21 May 2024