• We expect strong net profit for Bursa in 2Q24F, given the robust equity ADTV (+103% yoy) and derivative ADC (+9.7% yoy) in 2Q24F.

• We estimate net profit to rise 71.1% to RM82.5m in 2Q24F, excluding the chunky SST write-back in 2Q23.

• Reiterate Add premised on the positive outlook for the equity market and our projected strong 3-year CAGR of 11.2% for its net profit in FY23-26F.

2Q24F net profit driven by robust equity market

According to Bursa, it will release its 2Q24F financial results on 30 Jul 2024. We envisage strong 2Q24F net profit for Bursa, premised on the robust trading activities in the capital markets. Notably, the average daily trading value (ADTV) of the equity market doubled (+103% yoy) in 2Q24F. Meanwhile, the average daily contract (ADC) of the derivative market increased by 9.7% yoy in 2Q24F.

We estimate a net profit of RM82.5m for Bursa in 2Q24F

Taking into consideration the strong growth of the trading activities in the capital markets, we ran a simulation to estimate Bursa’s 2Q24F net profit, with the following assumptions – (1) 90% yoy surge in equity income, (2) 10% yoy increase in derivative income, (3) flattish (yoy) other income, and (4) 12% yoy rise in operating expenses. Based on the above, we arrive at an estimated net profit of RM82.5m in 2Q24F, translating to a yoy growth of 8.2%.

A potential 71% net profit growth in 2Q24 excluding SST write-back

Bursa’s 2Q23 net profit was lifted by the chunky write-back of RM28m in sales and service tax (SST), lifting the base for the yoy comparison for 2Q24F net profit. Excluding the SST write-back, Bursa’s net profit growth would be significantly higher at 71.1% yoy in 2Q24F. With the 1Q24 net profit of RM75m and our estimated net profit of RM82.5m in 2Q24, our estimated 1H24 net profit of RM157.5m would be above expectations as it accounted for 60.7% of our full-year forecast and 55% of Bloomberg consensus estimate.

Raising EPS forecasts and target price

We raise our FY24-26F EPS forecasts by 17% as we increase projected FY24-26F equity ADTV by 20.9%. For our DDM valuation, we increase our assumed growth rate for the interim growth phase from 7% to 7.5%, in line with the positive outlook for the equity market. Consequently, our DDM-based target price is lifted from RM8.70 to RM11.10 (cost of equity of 9.1%, terminal growth rate of 4%).

Reiterate Add on Bursa

We retain our Add call on Bursa, premised on the re-rating catalysts from the vibrant equity market and our projected strong 3-year CAGR of 11.2% for its net profit in FY23-26F. The downside risks would be the downturn in the equity market (due to any intensified geopolitical tension and slowdown in global economic growth) and wider-than-expected increase in operating expenses.

Source: CGS-CIMB Research - 19 Jul 2024