Investment Highlights

• We maintain our HOLD recommendation on Bursa Malaysia (Bursa) with an unchanged fair value of RM6.80/share, pegging the stock to FY23F PE of 22x, based on its 5-year average.

• No changes to our earnings estimate and our 3-star ESG rating. We continue to maintain our assumptions for the daily average trading value (DATV) of the securities market of RM2.3bil/RM2.6bil/RM2.8bil in FY23F/24F/25F.

• Bursa will be releasing its 1Q23 results on 3 May 2023. We expect weaker 1Q23 earnings (-14.3% YoY) of RM58mil in 1Q23 attributed to lower securities market trading revenue.

• In 1Q23, DATV (of on-market transactions) for equities declined to RM2.1bil vs. RM2.6bil in 1Q22. Mar 2023 saw a weaker DATV of RM2bil (Feb 2023: RM2.4bil) due to concerns on the health of the banking sector in US and Europe which impacted investors’ sentiment.

• Velocity of the securities market was lower at 30% in 1Q23 compared to 36% in 1Q22.

• In 1Q23, trades by institutions accounted for 47.6% of total value of securities traded in the securities market vs. 47.8% in 1Q22. In contrast, the mix of shares traded by retail investors rose marginally to 28.2% while that of the foreign investors slipped slightly to 24.3% in 1Q23.

• 1Q23 saw foreign fund outflows from the securities market of RM1.9bil cumulatively vs. RM6.5bil inflows in 1Q22. Amidst the banking sector stress in major economies, an outflow of RM1.3bil of funds from the securities market was recorded in Mar 2023. These were higher than the foreign fund outflows of RM348mil in Jan 2023 and RM168mil in Feb 2023.

• We continue to expect DATV for the securities market to be weak in the 1H23 contributed by: i) uncertainties in central bank policy rate directions, concerns on elevated inflation and technical recessions in developed markets, and ii) banking sector stress in advanced economies. Investment sentiment is expected to remain cautious in the near term despite the reopening of China’s economy. Nevertheless, we anticipate DATV to improve in 2H23 on the back of a likely pause in US rate hikes ahead after another 25bps increase in the Fed Funds rate to a range of 5%-5.25% in May 2023. A cessation in rate hikes in the US will likely improve market sentiment, easing worries of a deeper recession.

• For derivatives trading, average total contracts traded declined to 71,366 in 1Q23 vs. 78,869 in 4Q22 and 77,513 in 1Q22. In comparison to 1Q22, average daily contracts (ADC) traded for FCPO slid by 9.4% YoY to 59,768 while FKLI fell marginally by 0.2% YoY to 11,330 in 1Q23.

• Foreign ownership of the securities market declined slightly to 20.2% as at end-Mar 2023 compared to 20.6% in Dec 2022. Meanwhile, the stock’s foreign ownership remained steady at 13.8%.

• The stock is trading at a fair 21x FY23F PE and we continue to see limited upside potential.

Source: AmInvest Research - 3 May 2023