Review

• Bursa reported a 33.6% YoY increase in 1Q24 net profit to RM75.0mn from RM56.2mn. Despite the healthy growth, Bursa’s YTD net profit came within expectations at 28% of our full year estimates. The 1QFY24 ROE climbed to 37.3%, vs 29.4% a year ago.

• Bursa’s results also strengthened sequentially (+26.0% QoQ) on the back of higher operating revenue (+19.5% QoQ).

• Yearly, Bursa’s 1QFY24 operating revenue expanded by 19.9% YoY to RM180.7mn on the back of an encouraging increase in trading revenue (+24.5% YoY) and non-trading revenue (+12.1% YoY). Securities Trading Revenue accelerated at a stronger pace of 28.3% YoY to RM87.4mn vs RM68.1mn a year ago due to higher Average Daily Value (ADV). Meanwhile, the Derivatives Trading Revenue also rebounded to grow by a healthy 18.2% YoY, attributed to higher Average Daily Contracts (ADC). Bursa Suq Al-Sila’ (BSAS) trading revenue, however, fell by 5.1% YoY to RM4.3mn from RM4.5mn a year ago.

• The non-trading revenue segment expanded by 12.1% YoY, underpinned by Depository Services, Data Business, Listing & Issuer Services and Member Services & Connectivity, with each improving by 18.3%, 21.9%, 9.0% and 1.0% YoY.

• Total operating expenses rose 8.6% YoY to RM87.1mn vs RM80.2mn in 1QFY23 due to increases in 1) staff costs (+11.7% YoY) for higher headcount for new business and capacity building, 2) Depreciation and Amortisation (+9.3% YoY), 3) IT Maintenance (+22.9% YoY) due to renewal of maintenance contracts and new systems, along with 4) higher service fees (+21.4% YoY). Despite that, Bursa’s cost-to-income ratio improved to 46.6% from 51.3% a year ago due to positive JAWs.

• By segment, Securities Trading Revenue comprised 48% of total operating revenue. Total ADV broadened to RM2,930mn vs RM2,144mn in 1QFY23. By segment, retail ADV grew to RM656mn (1QFY23: RM611mn), while the ADV by domestic institutions grew to RM1,253mn from RM1,020mn. Meanwhile, foreign institutions' ADV also improved YoY to RM1,021mn (1QFY23: RM513mn).

• Trading velocity rose sequentially to 39% vs 30% in 4QFY23. Elsewhere, the market capitalisation widened to RM1,907bn from RM1,707bn on 31 March 2023. Capital market activities improved as total funds raised grew to RM3.6bn (1QFY23: RM2.8bn), led by a 27.8% YoY rise in funds raised from the secondary market. Funds raised from new listings also rose slightly to RM1.3bn (1QFY23: RM1.0bn).

• Bursa reported total net foreign outflows of RM0.9bn in 1QFY24, compared to a total foreign net outflow of RM2.3bn in 2023. The foreign shareholding level (by market cap) stood little changed at 19.6% in March 2024 from 19.2% in December 2023. Despite that, by trading mix, trading participation by foreign institutions broadened to 35% (FY23: 30%). Comparing trading participation by retailers and institutions, retail investors softened to 22% (FY23: 28%).

• In the derivatives market, the ADC of crude palm oil futures (FCPO) rose to 68,666 in 1QFY24 compared with 59,768 in 1QFY23. Meanwhile, the FBMKLCI futures (FKLI) trading also widened YoY to an ADC of 15,222 from 11,330. Nevertheless, the trading volatility for FCPO declined to 17% (from 27% in 1QFY23), while the trading volatility for FKLI stood at 7% (1QFY23: 8%). Combined, the YoY total ADC traded improved to 84,222 contracts compared to 71,366 a year ago. Of this, 82% of total trades were in FCPO and 18% in FKLI. Encouragingly, we continue to note an increase in foreign participation, as foreign institutions now account for 61% of total ADC traded by investors, followed by Retail (24%). The ADC for T+1 After-Hours Trading surged by 50.6% YoY, contributing 11.4% of total ADC (1QFY23: 8.1%).

• On the Islamic market trading activity front, the BSAS trading revenue accounted for around 2.0% of total operating revenue. In 1QFY24, the segment’s ADV fell by some 10.9% YoY to RM46.4bn. The number of trading participants increased to 359 from 328 in 1QFY23, while the number of Shariah Compliant Stock (in terms of market capitalisation) stood at around 81%. Local participants contributed to 83.8% of total trades. The market capitalisation of Shariah-compliant stocks improved by some 7.9% YoY to RM1,231mn.

Impact

• No change to our earnings estimates.

Outlook

• For FY24, Bursa maintains its guidance 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 maintain Bursa's target price (TP) at RM8.20. 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 regional peers PER range 20x to 26x (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 May 2024