Review

• Bursa reported a 21.5% YoY increase in 4Q23 net profit. With that, the FY23 net profit grew from RM226.6mn to RM252.4mn, representing 98% of our full year estimates. The ROE was higher at 31%, vs 28% a year ago.

• As expected, results softened sequentially on the back of lower operating revenue (-1.3% QoQ). The net profit fell by 1.4% QoQ to RM59.6mn in 4Q.

• A final dividend of 14.0 sen was declared. This brings the total dividend for the FY to 29.0 sen (translating to a 93% payout).

• Bursa’s FY23 operating revenue grew by 1.3% YoY to RM592.8mn, as the decrease of 1% YoY in the overall trading revenue was more than offset by a 5.4% YoY increase in non-trading revenue. Securities Trading Revenue rebounded to climb by 1.2% YoY to RM266.6mn vs RM263.5mn a year ago despite lower Average Daily Value (ADV) On Market Trades (OMT). The increase was due to higher Effective Clearing Fee Rate (ECFR). Meanwhile, the Derivatives Trading Revenue fell by 7.8% YoY, attributed to lower Average Daily Contracts (ADC). Bursa Suq Al-Sila’ (BSAS) trading revenue, however, grew by 3.9% YoY to RM17.1mn from RM16.4mn.

• The non-trading revenue segment expanded by 5.4% YoY, underpinned by Depository Services, Data Business, Member Services & Connectivity and Conference fees & Exhibition related income, with each improving by 0.3%, 11.9%, 5.1% and >100% YoY, while Listing & Issuer Services declined by 3.6%.

• Total operating expenses rose marginally to RM294.5mn vs RM292.7mn in FY22 as increases in 1) staff costs (+8.7% YoY) due to higher headcount for new business and capacity building, 2) Depreciation and Amortisation (+23.7% YoY), Marketing and Development (+2.0% YoY) along with IT Maintenance (+41.3% YoY) due to efforts to enhance the cybersecurity and renewal of maintenance contracts, were offset by Service Fees, which declined by 3.3% YoY and a one-off reversal of provision for SST on digital services. Bursa reported an FY23 cost-toincome ratio of 48%, improving slightly from 49% a year ago.

• By segment, Securities Trading Revenue comprised 45% of total operating revenue. Total ADV slipped to RM2,056mn vs RM2,068mn in FY22. By segment, retail ADV grew to RM566mn (FY22: RM550mn), while the ADV by domestic institutions dropped to RM890mn from RM965mn. Meanwhile, foreign institutions' ADV improved YoY to RM600mn (FY22: RM553mn).

• Trading velocity was stable sequentially at 30% while the FY23 trading velocity eased slightly to 29% from 30% in 2022. Elsewhere, the market capitalisation broadened slightly to RM1,796bn from RM1,736bn in December 2022. Capital market activities declined as total funds raised fell to RM9.4bn (FY22: RM26.0bn), led by a 74% YoY contraction in funds raised from the secondary market. Funds raised from new listings however, rose slightly to RM3.6bn (FY22: RM3.5bn).
   
• Bursa reported total net foreign outflows of RM0.4bn in 4Q23, bringing 2023 total foreign net outflow to RM2.3bn. To recap, Bursa reported total net foreign inflows of RM4.4bn in 2022. The foreign shareholding level (by market cap) slipped marginally to 19.5% in December 2023 from 20.6% in December 2022. By trading mix, trading participation by foreign institutions broadened to 30% (2022: 27%). Comparing trading participation by retailers and institutions, retail investors were marginally higher at 28% (2022: 27%).
   
• Trading in the Derivatives Market was primarily supported by Crude Palm Oil futures trading. Nevertheless, the ADC of crude palm oil futures (FCPO) sank to 60,735 in FY23 compared with 66,695 in FY22. Meanwhile, the FBMKLCI futures (FKLI) trading widened YoY to an ADC of 11,944 from 11,717. The trading velocity for FCPO declined to 27% (from 45% in FY22), while the trading velocity for FKLI stood at 7% (FY22: 11%). Combined, the YoY total ADC traded softened to 72,896 contracts compared to 78,621 a year ago. Of this, 83% of total trades were in FCPO and 16% in FKLI. Encouragingly, we continue to note an increase in foreign participation, as foreign institutions now account for 59% of total ADC traded by investors, followed by Retail (24%). The ADC for T+1 After-Hours Trading rose by 3.1% YoY, contributing 11.3% of total ADC (FY22: 10.1%).

• On the Islamic market trading activity front, the BSAS trading revenue accounted for around 3.0% of total operating revenue. In FY23, the segment’s ADV fell by some 1.0% YoY to RM45.1bn. The number of trading participants increased to 354 from 325 in FY22, while the number of Shariah Compliant Stock (in terms of market capitalisation) stood at around 82% (FY22: 79%). Local participants contributed to 82% of total trades. The market capitalisation of Shariah-compliant stocks improved by some 1.6% YoY to RM1,174mn.

Impact

• Incorporating FY23 results, we adjust Bursa’s FY24 and FY25 net profit forecast to RM272.4mn and RM291.5mn from RM265.8mn and RM285mn respectively. We predict stronger annual profit growth of 12.5% to RM328.1mn for FY26.

Outlook

• Moving forward, the bourse will continue to advance as a Multi-Asset Exchange by expanding its products and services as well as leveraging on its enhanced offerings, data and technology to deliver better customer experience and increase the value for its customers. In 2024, we foresee efforts to strengthen its new platforms and solutions, such as the Bursa Carbon Exchange (BCX), Bursa Gold Dinar (BGD) and BR Capital, as Bursa aims to be a leading, sustainable and globally connected marketplace in ASEAN. Efforts are also in place to create a more vibrant marketplace, such as removing hurdles in the ecosystem and supporting new participants in new business areas, all of which would be important to attract foreign participation.

• For FY24, Bursa is guiding for a stronger PBT, estimated between RM293mn and RM323mn, partly supported by a non-trading revenue growth rate of 5-7% YoY. Capital market activities should improve on the back of ongoing initiatives to attract trading and IPOs/products to strengthen market vibrancy. As such, management predicts 42 new IPO listings, raising RM13bn in total IPO market cap. Additionally, management is looking to launch several new products and services in 2024, such as Renewable Energy Certificates and the Centralised Sustainability Intelligence (CSI) Platform.

Valuation

• We tweaked Bursa's target price (TP) to RM8.20 from RM8.10 due to the slight earnings revision. Our TP is based on an implied FY24 PER of around 24.4x. We reiterate our BUY recommendation on Bursa. We note that Bursa is trading within the average regional peers PER of 22x (SGX: 20x, HKEx: 23x, ASX: 26x).

• Other key upside risks to our TP include 1) a compression in risk premiums, 2) a pick-up in velocity, 3) a stronger-than-expected improvement in the derivatives market, 4) further improvement in retail sentiments, and 5) the ability to sustain foreign inflows.

Source: TA Research - 2 Feb 2024