We maintain our OP call with a lower TP of RM9.70 (from RM10.00) as we trim our FY25 ADV assumptions and earnings forecast. 4QCY24 ADVs were softer-than-expected with foreign investors seeming to exit Malaysian equities to return to US markets following Trump's Presidential win which spills into a softer CY25 ADV projection, to RM3.3b (from RM3.6b), diluting improvements upheld by Johor's SEZ and data centre plays. We anticipate BURSA's 4QFY24 earnings to report between RM65m-RM75m to close FY24 at RM311m (+42% YoY).

4QCY24 ADV at RM2.55b (-28% QoQ, +18% YoY). The period's ADV came grossly behind our expectations of RM3.80b, which resulted in a full-year ADV of RM3.16b as opposed to our anticipated RM3.47b. The shortfall was attributed to softer-than-expected trading as the market sidelined, while awaiting the results of the US Presidential Election in Nov 2024. The outcome of Trump's win also led to the heavy outflow from Malaysian equities by RM7.8b in 4QCY24 which offset 3QCY24's net inflow of RM4.4b.

CY25 expectations moderated but still with cause for growth. Following the disappointments in CY24's ADV, we opt to trim our CY25 ADV assumption from RM3.6b to RM3.3b as foreign interest will not likely be as robust, given a Trump presidency spelling more favourable US markets i.e. waning foreign participation in emerging equities market. That said, the revised assumption is still at a 4% growth YoY as we anticipate prevailing investment themes continue to develop.

We opine the market is watchful for stocks which are: (i) beneficiaries from the recently officialised Johor Special Economic Zone, (ii) involved in data centre developments (construction and landowners), and (iii) net exporters, to benefit from potential softening of the MYR.

Forecast. Post update, our FY24F/FY25F earnings are cut by 4%/3% to reflect the softer ADVs. This translates to 4QFY24 earnings forecast of between RM65m-RM75m to make up our revised FY24 earnings of RM311m which presents a QoQ weakness of 20%.

We opine FY25F earnings is supported by greater fees which make up 20% of total revenue from a higher IPO pipeline projection of 50 listings (from FY24's 42) and market participation as well as better derivatives performance. Additionally, BURSA's upcoming value-up framework looks to set performance targets for corporates in hopes to drive shareholder value and quality of Malaysian equities, which could prompt foreign investors to reconsider our domestic market when implemented.

Maintain OUTPERFORM with a lower TP of RM9.70 (from RM10.00), following our earnings adjustments based on an unchanged 25x PER on FY25F EPS of 38.9 sen, in line with its global financial exchange peers' average which have also seen appreciation in valuations. Current valuations are also akin to pandemic levels (25x-26x fwd. PER, peaking at 35x), which we believe could be reflective of similar sentiment in line with heightened trading activities. Being slightly under 1SD of BURSA's 5-year valuations, we find our applied valuations to be inexpensive.

We also like BURSA as: (i) it serves as a proxy to participation in our local bourse, and (ii) its ROE accelerates in a market upcycle thanks to its lean cost structure. With their hefty net cash war chest of RM436m only expected to expand further into FY25, we opine special dividends would be an eventuality following its last payment of 8.0 sen in 4QFY20 (17% additional payout on top of 92% interims).

Risks to our call include: (i) lower-than-expected trading volume in the securities and derivatives markets, (ii) higher-than-expected opex, and (iii) fewer initial public offerings.

Source: Kenanga Research - 13 Jan 2025