Investment Highlights

• We maintain HOLD on Bursa Malaysia (Bursa) with an unchanged fair value (FV) of RM6.80/share, pegging the stock to FY23F P/E of 22x. Our FY23F/24F earnings have been tweaked lower by 2.2%/3.4% after adjusting upwards our estimates for operating expenses. We keep our daily average traded value (DATV) assumptions for the securities market of RM2.3bil/RM2.6bil/RM2.8bil for FY23F/24F/25F.

• No change to our neutral 3-star ESG rating.

• Bursa reported a subdued 4Q22 earnings of RM49mil (-2.2% QoQ) with the improvement in securities trading revenue offset by lower derivatives trading revenue and higher operating expenses (OPEX). OPEX rose in the quarter due to higher marketing and business development expenses.

• 12M22 net profit of RM227mi declined by 36.2% YoY, mainly driven by lower securities market trading revenue, listing, issuer and depository services fees.

• Cumulative earnings were within expectations, 5% below ours and almost on the dot with consensus estimates.

• DATV for the securities market was higher at RM1.9bil in 4Q22 compared to RM1.6bil in 3Q22.

• For 12M22, DATV of the securities market came in at RM2.1bil, in line with our expectation for FY22F.

• The average traded value YOY for 12M22 of retail investors, domestic and foreign institutions shrank by 59%/38%/17% to RM0.6bil/RM1bil/RM0.6bil.

• Effective clearing fee rate for 12M22 declined to 2.61bps compared to 2.71bps in 12M21, contributed by a lower mix of retail trades.

• New CDS account openings by retail investors fell by 55% YoY to 99,610 in 12M22. Local retail net buying shrunk significantly to RM2.1bil in 12M22 vs. RM12.2bil in 12M21.

• 4Q22 recorded a cumulative foreign fund outflow from the securities market of RM2.2bil vs. an outflow of RM527mil in 3Q22. For 12M22, the securities market recorded a cumulative foreign funds inflow of RM4.4bil (12M21: outflow of RM3.2bil).

• The number of new IPOs in 12M22 rose to 35 vs. 30 in 12M21.

• We expect the market to remain volatile in the 1H2023. This is due to the differences in the Federal Open Market Committee (FOMC) and the Fed fund futures on the hawkishness of the rate hike in the US, which is expected to weigh on investor sentiments. However, the Fed rate hike in US in expected to pause in the 1H2023. With the halt in the increase of interest rate in the US coupled with the positive impact from the reopening of China’s economy, we expect investor sentiments to be more positive in 2H2023, consequently improving the securities market’s DATV.

• The derivatives trading revenue rose by 11.3% YoY in 12M22, contributed by higher collateral management fees. Volatility for both CPO prices and FBMKLCI were higher in 12M22 compared to the preceding year. As a result, the average total derivatives contracts traded rose by 4.6% YoY to 78,621 in 12M22, underpinned by higher trades of crude palm oil futures (FCPO) and FBMKLCI futures (FKLI).

• Bursa Suq Al-Sila’ (BSAS) trading revenue increased by 17.8% YoY in 12M22. ADV for BSAS rose by 22.3% YoY to RM45.6bil with an increase in the number of trading participants to 325 in 12M22 (12M21: 299). In 12M22, 26 new participants were admitted (18 local and 8 foreign).

• Opex in 12M22 was stable YoY. Personnel costs declined due to lower provisions for variable performance rewards while other operating expenses dropped due to a decline in provisions for CSR activities and SST on digital services. Nevertheless, these were offset by higher depreciation from IT, increase in marketing and development expenses from a palm oil conference hosted by the exchange together with expenses related to other initiatives such as the Bursa Rise scheme, Gold Dinar and the Voluntary Carbon Exchange. CI ratio jumped to 49% in 12M22 contributed by lower operating income. We expect FY23F CI ratio to remain elevated above the 5-year pre-pandemic average of 46% due to higher personnel expenses as more manpower with expertise will be required for its new initiatives, Bursa Gold Dinar and Debt Fundraising platforms, targeted to be launched this year.

• We understand FY23 capex spending will be RM70mil, of which 40% or RM28mil will be utilised for office refurbishment and the remaining 60% or RM42mil for IT enhancement. In FY24, the amount targeted for capex spend will be lower at RM40mil-50mil.

• Foreign ownership of the securities market rose was stable at 20.6% as at end-Dec 2022, unchanged from Sept 2022. Meanwhile, the stock’s foreign ownership slipped to 13.7% in Dec 2022 (Sept 2022: 14.5%).

• Bursa declared a final dividend of 11.5 sen/share. The dividends for FY22 were 26.5 sen/share (payout: 95%), close to our estimate of 27.1 sen/share.

• The exchange has set a FY23F KPI target to achieve a PBT of RM295mil to RM326mil and to achieve a growth in nontrading revenue of 5%-7% from FY22. For FY23F, Bursa is targeting for 39 IPOs with a total market cap of RM10bil. Additionally, for ESG, the exchange has set a target to lower scope 1 and 2 emissions from FY22 by ≥ 5%.

• The stock is trading at a fair FY23F P/E of 22x and we continue to see limited upside potential for the stock.

Source: AmInvest Research - 2 Feb 2023