Investment Highlights

• We maintain HOLD on Bursa Malaysia (Bursa) with a higher fair value of RM9.30/share (from RM6.90/share previously), rolling forward our valuation to FY25F with a PE of 24x.

• Earnings for FY24F/25F/26F have been raised by 18.8%/17.3%/7.9% after revising our daily average traded value (DATV) assumptions for the securities market to RM3.2bil/RM3.3bil/RM3.1bil.

• Maintain our neutral 3-star ESG rating .

• Bursa will be releasing its 2Q24 results on 30 Aug 2024. We expect 2Q24 earnings at RM86mil (+15.7% +QoQ), contributed largely by higher securities market revenue and a moderate increase in derivatives trading revenue. This is expected to bring 6M24 net profit of the exchange to RM162mil (+22.2% YoY). 6M24 operating revenue is projected to rise by 28.8% YoY, underpinned by an improvement in securities and derivatives market trading activities.

• 2Q24 DATV (of on-market transactions) for equities rose to RM3.6bil vs. 1Q24’s RM2.9bil. This has been fueled by more upbeat sentiments following the stronger market performance in US equity markets by megacap tech stocks and the anticipation of a Fed Rate cut in Sept 2024. 6M24 saw higher DATV for the securities market of RM3.3bil vs. RM2bil in 6M23.

• 2Q24 saw domestic institution/retail/foreign investor participation rate of 44.8%/22.1%/33.1% compared to 42.7%/22.1%/35.2% in 1Q24.

• Velocity of the securities market climbed to 42.7% in 2Q24 vs. 39% in 1Q24.

• Foreign fund inflow to the securities market of RM52mil cumulatively was recorded in 2Q24 vs. an outflow of RM875mil in 1Q24. YTD (Jan to June 2024) saw outflows of foreign funds from the securities market of RM823mil (2023: outflow of RM2.3mil).

• On derivatives trading, average total contracts traded rose by 1.6% to 85,644 in 2Q24 from 84,222 in 1Q24. In comparison to 6M23, average daily contracts (ADC) traded for derivates climbed 13.6% YoY to 84,927 in 6M24. FCPO traded contracts increased by 9.8% YoY to 69,197 while the FKLI surged by 33% YoY to 15,270 in 6M24. With continued volatility in the stock index and commodity prices, we have factored in a higher ADC for derivatives of 85,000/80,000 for FY24F/25F compared to 72,896 in FY23.

• Outlook on the securities markets continues to be seen volatile ahead amidst i) uncertainties in the US presidential election, which may impact policy directions and interest rate path, and ii) ongoing geopolitical tensions that is likely to see tariffs by developed economies either maintained or increased on China’s goods.

• Valuation has turned toppish with the stock trading at 26.5x/25.1x for FY24F/25F, above the historical 10-year PE of 23.5x. Also, it is above peer average FY24F/25F PE of 23.1x/22.4x (see Exhibit 11). In view that the stock is momentum driven with earnings leveraging on volatility of markets, we see the current share price as presenting opportunities to book in profits.

• Foreign ownership of the securities market was marginally lower 19.5% as of end-June 2024 compared to 19.6% in Mar 2024. Meanwhile, the stock’s foreign ownership rose to 16.8% as of end-2Q24 vs. 14.4% in 1Q24.

Source: AmInvest Research - 26 Jul 2024