• Downgrade to NEUTRAL from Buy, with new MYR9.70 TP from MYR11.25, c.7% upside. Bursa Malaysia’s 9M24 results came in line with expectations, and operational data shows that the bourse is likely to break several records this year. However, external headwinds to market sentiment have spiked, and are likely to dampen trading activity moving forward – as such, we think it is best to take some chips off the table for now.

• Results review. 3Q24 net profit of MYR85.7m (+42% YoY, +7% QoQ) brought the 9M24 total to MYR241.2m (+25% YoY) – this formed 75% and 77% of our and consensus full-year estimates. 9M24, revenue surged 31% YoY thanks to stronger contributions from the securities and derivatives trading departments, while opex was up by a similar quantum partly from the low base effect. On a quarterly basis, 3Q24 revenue growth of 5% QoQ (YoY: +34%) was mainly driven by the derivatives trading, listings, and market data segments. All in, with a 9M24 PBT of MYR324.6m, BURSA looks certain to achieve or even exceed its 2024 PBT target of MYR361-379m.

• A year of numerous records... 3Q24 SADV of MYR3.8bn was down 3% QoQ (YoY: +70%) from a high base in the previous quarter. However, derivatives average daily contracts traded (DADC) stood at 90.6k in 3Q24, up 6% QoQ (YoY: +23%). The 9M24 DADC figure of 86.9k means that BURSA is on track to achieving its highest ever DADC, surpassing the 78.6k record of 2022. The IPO market has also been vibrant YTD, with 35 new listings in 9M24 – this brings the bourse within touching distance of its target of 42 for the year, which would be another all-time high (current record of 40 new listings was achieved in 2006).

• …but cautious outlook ahead. With uncertainty surrounding geopolitical developments and US elections (which could have a bearing on the US Federal Reserve’s monetary stance), trading activity has come off significantly from the mid-year highs – Oct 2024 SADV of MYR2.7bn is the lowest of the year so far, and is some distance away from the 9M24 average of MYR3.6bn. Looking ahead, such headwinds may continue to persist and keep investor sentiment muted, and as such, we adjust our SADV estimates down by 7-8%. Positively, BURSA does not expect a significant impact to retail trading activities from Budget 2025’s 2% dividend income tax on individuals. In fact, any special dividend announcement from cash-rich public listed companies prior to the tax introduction could be a near-term market catalyst.

• Our FY24F-26F are trimmed by 6%, 7% and 7% after lowering our SADV assumptions, though offset by more optimistic DADC estimates. Due to the dampened trading sentiment, we think it is also fair to ascribe a lower target P/E of 24.5x (from 26.5x), or near +0.5SD from its mean, at this juncture – consequently, our TP is cut to MYR9.70 (including a 6% ESG premium).

Source: RHB Securities Research - 1 Nov 2024