Investment Highlights

• We maintain our HOLD recommendation on Bursa Malaysia (Bursa) with a lower fair value of RM6.80/share (from RM7.20/share previously), pegging the stock to an unchanged FY24 PE of 22x. Our FV reflects a neutral 3- star ESG rating.

• We trim FY23F/24F/25F earnings by 6%/10%/9.4% after lowering our assumptions on daily average trading value (DATV) for the securities market to RM2.1bil/RM2.2bil/RM2.4bil in FY23F/24F/25F from RM2.2bil/RM2.4bil/RM2.5bil.

• Bursa will be releasing its 3Q23 results on 31 Oct 2023. We expect higher core 3Q23 earnings of RM58mil (+5.5% QoQ), attributable to stronger securities market trading revenue. This is expected to lead to a 9M23 core earnings of RM170mil (-4.3% YoY), excluding a one-off reversal on SST provision of RM28mil in 2Q23.

• In 3Q23, DATV (of on-market transactions) for equities increased to RM2.1bil vs. RM1.8bil in 2Q23 and RM1.6bil in 2Q22. Aug and Sept 2023 saw a DATV of more than RM2bil as aggressive interest rate hikes tapered in advanced economies, particularly in US. Year-to-date (until 13 Oct 2023), DATV for the securities market stood at RM2.0bil lower than our estimate of RM2.2bil for FY23F.

• Velocity of the securities market climbed to 30% in 3Q23 vs. 25% in 2Q23.

• In 3Q23, trades by foreign investors rose to 31.5% of total value of securities traded in the market vs. 29.2% in 2Q23. In contrast, the mix of shares traded by retail investors was slightly lower at 27% (2Q23: 27.4%) while the share of institutional investors’ trade slipped to 41.6% in 3Q23 vs. 43.4% in the preceding quarter.

• 3Q23 saw foreign fund inflows into the securities market of RM2.2bil cumulatively vs. outflows of RM2.3bil in 2Q23 and RM1.9bil in 1Q23. With the inflow of funds in 3Q23, the year-to-date (until Sept 2023) cumulative net foreign fund outflows were reduced to RM2bil from RM4.2bil in 1H23. Nevertheless, the re-emergence of market concerns of the Federal Reserve holding US interest rates higher for longer saw an outflow of RM1.15bil cumulatively from the securities market from 1 to 13 October 2023. Also, the 10-year US Treasury yield surged to 4.6%-4.7% from 4.1% as at end Aug 2023, impacting valuations of bonds or securities portfolio.

• We maintain our expectation of a higher securities market trading revenue in 2H23 compared to 1H23. However, market sentiment is expected to remain cautious. Financial markets are likely to continue to be volatile, contributed by noises on the direction of US interest rate, volatile commodity prices, stresses in China’s real property sector which have yet to see a strong recovery as well as ongoing geopolitical tensions with the latest being the Israel-Palestine conflict.

• For derivatives trading, average total contracts traded fell to 73,372 in 3Q23 vs. 78,161 in 2Q23. In 3Q23, average daily contracts (ADC) traded for FCPO slid by 8.5% QoQ to 60,694. Meanwhile, ADC for FKLI rose by 7.8% QoQ to 12,548 in 3Q23.

• Foreign ownership of the securities market declined slightly to 19.5% as at end Sept 2023 compared to 19.9% in June 2023. Meanwhile, the stock’s foreign ownership remained steady at 13.8%.

• Bursa Malaysia has recently clarified on the Budget speech on 13 October 2023 with regards to the expansion of the scope of SST to include brokerage. We understand that SST on brokerage fees charged will remain tax exempted and will not be subjected to the service tax of 8%. Hence, transaction cost for investors will remain status quo and we do not see any adverse impact on securities market trading activities. Meanwhile, the other types of fees such as Bursa access, link access and securities trading fees will attract the service tax of 8%.

• The stock is trading at a fair 22x FY24F PE with a decent dividend yield of 4.2%. Hence, we continue to see limited upside potential.

Source: AmInvest Research - 20 Oct 2023