Investment Highlights

• We maintain HOLD recommendation on Bursa Malaysia (Bursa) with a revised fair value of RM7.20/share from RM6.50/share after rolling over our valuation to FY24F. Our FV is based on FY24F EPS pegged to an unchanged P/E of 22x, on par to its 5-year historical average.

• Our FY23F/24F/25F earnings have been tweaked by +1.8%/+3.1%/-0.6% to reflect a slightly higher daily average trading value (DATV) assumptions for the securities market. Also, we have adjusted our estimates on average daily contracts (ADC) traded for derivatives based on anticipation of lower volatility for crude palm oil futures (FCPO) and FBMKLCI futures (FKLI) ahead. We make no changes to our 3-star ESG rating.

• 6M23 earnings were within expectations accounting for 47.1% of our forecast and 48.7% of consensus estimate.

• Bursa’s 6M23 core earnings fell by 12.4% YoY to RM112mil. This was driven by a lower operating income contributed largely by weaker securities and derivatives trading revenue.

• Bursa reported subdued earnings of RM55mil (-1.7% QoQ) in 2Q23 after stripping out a one-off reversal of RM27.7mil provisions related to the sales and service taxes (SST) on digital services. This is in view that digital services will only be subjected to SST effective from 1 April 2022. Hence, the retrospective provisions of taxes from 1 Jan 2020 to 31 Mar 2022 have been reversed.

• 2Q23 saw a lower trading revenue from the securities markets contributed by a decline in daily average trading value (DATV). Meanwhile, trading revenue from derivatives was modestly higher QoQ.

• In the 2Q23, the DATV of on-market transactions for equities fell to RM1.8bil vs. 1Q23’s RM2.1bil. This led to a DATV of RM2bil in 6M23 compared to RM2.4bil in 6M22.

• 2Q23 saw an outflow of foreign funds from the securities market of RM2.3bil vs. withdrawals of RM1.9bil in 1Q23. For the 6M23, cumulative outflow of foreign funds from the securities market (Exhibit 3) was RM4.2bil. Nevertheless, in July 2023 (month to date until 28 July), foreign investors were seen as net buyers of RM1.1bil cumulatively of local equities.

• Velocity of the securities market was lower at 28% in 6M23 vs. 33% in 6M22.

• In 6M23, trades by institutions accounted for 72% of the securities market’s DATV vs. 73% in 6M22. The balance was made by retail investors at 28%.

• On 26 July 2023, the Federal Open Market Committee (FOMC) raised the US interest rate by another 25bps to a range of 5.25-5.5%, up from 5%-5.25%. With the Fed Reserve turned less hawkish on further raising interest rates coupled with the rate hike uptrend cycle in the US and developed markets coming to a pause, we expect the DATV for the securities market to improve in 2H23 from 1H23. We are revising our DATV assumptions for the securities market slightly for FY23F/24F to RM2.2bil/RM2.4bil from RM2.1bil/RM2.3bil.

• For derivatives trading, the average daily contracts (ADC) traded climbed to 78,161 in 2Q23 vs. 71,366 in 1Q23 driven largely by higher trades of crude palm oil futures (FCPO) and FBMKLCI futures (FKLI). In 6M23, ADC traded for derivatives declined to 3.3% YoY to 74,735. With an expectation of lower volatilities from FCPO and FBM KLCI ahead, we have tweaked our assumptions lower on the ADC for derivatives in FY23F/24F/25F to 75,000/70,000/68,000 from 80,000/75,000/70,000.

• The average daily value traded for Bursa Suq-Al Sila (BSAS) climbed by 14.3% YoY to RM48.5bil in 6M23 with a higher number of trading participants.

• Operating revenue of Bursa slipped by 6.4% YoY to RM290mil contributed largely by lower trading revenue of 11.5% YoY. In contrast, non-trading revenue grew by 3.2% YoY in 6M23 supported by higher market data, member services, connectivity, conference fee and exhibition related income.

• Excluding the reversal of the provisions on SST, operating expenses (OPEX) grew by 10.6% YoY to RM158mil underpinned by higher personal cost (increase in headcount for new business and added capacities), depreciation, amortisation, marketing and business development expenses.

• The exchange reported a cost-to-income (CI) ratio of 44% in 6M23. Excluding the one-off reversal of SST provisions, the 6M23 CI ratio would have been higher at 52.6%.

• Foreign ownership of the securities market slipped to 19.9% in June 2023 vs. 20.2% in Mar 2023. Meanwhile, the stock’s foreign ownership remained steady at 13.7% as at end-June 2023.

• An interim dividend of 15 sen/share (payout: 92%) has been declared in 6M23, similar to 6M22.

• The stock is trading at a fair 21x FY24F P/E with limited upside potential. Dividend yield is decent at 4.6% for FY24F.

Source: AmInvest Research - 1 Aug 2023