• Despite trading above 5-year historical P/E, we maintain our Hold call on Bursa Malaysia as we expect an improvement in equity ADTV in 2024F.

• 9M23 net profit was within our expectation at 73.2% of our full-year forecast but above street expectation (81.2% of Bloomberg consensus estimate).

• We are positive on the strong recovery in equity ADTV, which expanded by 31.2% yoy and 19.4% qoq in 3Q23. We project ADTV to rise 7.6% in FY24F.

Reiterate Hold on Bursa Malaysia

Although Bursa Malaysia’s FY24F P/E of 21.6x is above the 5-year historical average of 20.3x, we maintain our Hold call on the stock as we expect the average daily trading value (ADTV) of the equity market to improve in 4Q23F and 2024F. We project an ADTV growth of 7.6% in FY24F. The stock is also supported by an attractive FY23F dividend yield of 4.4%. The potential upside/downside risks for the stock would be a much stronger recovery/a decline in equity ADTV in 2024F. We maintain our FY23-25F EPS forecasts but raise our DDM-based target price (TP) from RM6.57 to RM6.90 (cost of equity: 9.1%, terminal growth rate: 4%) as we roll over our TP to end-CY2024F.

9M23 Net Profit Within Our Expectation

Bursa’s 9M23 net profit was within our expectation, accounting for 73.2% of our full-year forecast. However, the 9M23 net profit was above street expectation at 81.2% of Bloomberg consensus estimates. 9M23 net profit increased by 8.6%, mainly lifted by the write-back in sales and service tax in 2Q23 (estimated by us at RM28m).

A Rebound in Equity ADTV Lifted 3Q23 Net Profit

Our positive take for Bursa’s 3Q23 results was the recovery in equity ADTV, which rose by 31.2% yoy and 19.4% qoq to RM2.1bn. We attribute this to the improved market sentiment following the state election on 12 Aug 2023 and the launch of Ekonomi Madani (economic programme introduced by the unity government). During the state elections, the unity government managed to maintain control of the state governments in the three major states, i.e. Selangor, Penang and Negeri Sembilan. In our view, this would reduce the risk of another change in the control of the federal government in the near term and improved political stability in Malaysia, which will allow for policy continuity under the unity government. The higher equity ADTV helped Bursa to record a solid growth of 20.6% yoy in net profit in 3Q23. This was despite the 8% yoy drop in Bursa’s 9M23 derivative income, arising from the 5.4% yoy dip in the average daily contracts in the derivative market in 9M23.

Projecting Robust Yoy Net Profit Growth in 4Q23F

We expect strong yoy net profit in 4Q23F, mainly due to the low base in 4Q22. We project net profit to rise 44.4% yoy to RM70.7m in 4Q23F based on our expectation of RM2.1bn- 2.2bn equity ADTV in 4Q23F (4Q22: RM1.94bn).

Source: CGS-CIMB Research - 31 Oct 2023