KUALA LUMPUR (Aug 1): Research houses have raised their target prices (TPs) on Bursa Malaysia Bhd after the local bourse operator registered a 28% improvement in net profit in the second quarter ended June 30, 2023 (2QFY2023).

Bursa's net profit rose to RM76.25 million in 2QFY2023 from RM59.47 million a year before, attributed to operating expenses falling on a one-off reversal of the provision of sales and service tax (SST) on digital services. Quarterly revenue, however, dropped 4.8% to RM144.6 million from RM151.89 million in 2QFY2022.

RHB Research has upgraded the counter to “buy” from “neutral”, with its analysts Nabil Thoo and David Chong raising their TP for the stock to RM7.50 from RM6.50, or a 12% upside and circa 4% financial year 2024 (FY2024) forecast yield.

The new TP was derived by pegging an unchanged 22.5 times price-to-earnings (P/E) multiple to FY2024 forecast earnings per share (EPS).

Both analysts said Bursa’s net profit was above its and consensus estimates and were optimistic that the securities average daily volume (SADV) could rebound in the second half of 2023 (2H2023).

They noted that July 2023’s SADV rose to RM2.1 billion from the 2Q2023 figure of RM1.9 billion.

Additionally, derivatives average daily contracts (DADC) traded has surged 10% quarter-on-quarter (q-o-q) and 1% year-on-year on the back of subdued derivatives market activity in 1Q2023.

They added that trading on crude palm oil (CPO) futures is also expected to stay robust despite the volatility in CPO on El Nino fears.

“We turn bullish on the counter as we believe a favourable exchange rate, undemanding stock valuations and recent positive news flow are strong catalysts for market activity moving forward,” said the two analysts.

“We lift FY2023-2025 [forecasts] by 8%-13% after factoring in the one-off reversal of provisions for FY2023 [forecast] and incorporating higher SADV and DADC assumptions for all three years.”

CGS-CIMB maintained its “hold” call on Bursa given its undemanding valuation, and marginally increased its TP to RM6.57 from RM6.54, as its FY2023 forecast P/E of 20.5 times is below the five-year historical average while it is supported by FY2023 forecast dividend yield of 4.4%.

Analyst Winson Ng has raised its projected FY2023 EPS by 11.9% to factor in the reversal of the SST provision.

He noted that Bursa's net profit was above expectations, accounting for 56% of his full-year forecast and 59% of Bloomberg consensus estimate.

“We are projecting a net profit of RM131.1 million for Bursa in 2H2023, representing a marginal decline of 1% q-o-q.”

“We expect equity ADTV (average daily trading volume) to improve in 2H2023 from 1H2023’s RM1.96 billion, as we think that, to a certain extent, market sentiment could improve following the announcement of Ekonomi Madani last week, as it provides greater clarity for the roadmap of Malaysia’s economic developments in the next few years,” said Ng.

Kenanga Research remains firm on Bursa

Kenanga Research has maintained its “market outperform” call on Bursa and TP of RM6.25 based on an unchanged 20 times FY2024 forecast price-earnings ratio, in line with its global financial exchange peers’ average, and pre-pandemic valuations.

Its analyst Clement Chua kept his FY2023 and FY2024 earnings forecast for Bursa unchanged, while for the 2HFY2023 period he is hopeful that ADV will clock in at RM2.2 billion, which translates to a full-year ADV of RM2.08 billion.

“We reckon that securities ADV may continue to be slow as participation did not pick up meaningfully despite a more stable domestic political landscape, better economic performance, and the reopening of China’s borders.

“That said, the traction from recent initial public offerings (IPOs) could continue to fuel retailers’ interest, with Bursa indicating a pipeline of 39 IPOs this year,” Chua said.

On its core net earnings of RM104.8 million, Chua said 1HFY2023 is within expectations with 47% of its full-year forecast and 46% of the consensus full-year estimates.

He also noted that Bursa is working on new efforts to drive non-trading revenue such as the launch of the Bursa Gold Dinar and a new debt fund-raising platform with RAM.

“Its inaugural carbon credit auction in March 2023 could also serve as a platform for sustainable revenue in the near term,” he added.

Nevertheless, Chua said Bursa is in need of a better 2HFY2023.

“We believe 2HFY2023’s trading climate could be more vibrant as macro conditions improve with price weakness possibly indicating a more favourable risk-reward to investors.

“Cheaper stamp duties and possible fractional share trading may also widen participation,” he said.

Earlier, Hong Leong Investment Bank Research maintained its “hold” rating on Bursa, with a slightly higher TP of RM6.88 from RM6.74.

At the time of writing, Bursa’s counter was up 14 sen or 2.09% to RM6.85, valuing the stock exchange at RM5.54 billion.

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