We raise our TP to RM6.50 (from RM6.30) based on an unchanged 20.0x FY23F PER on minor tweaks to our average daily value (ADV) model inputs with slightly bumped earnings forecasts. Investor participation is expected to have bottomed in 3QCY22 on depressed sentiment but should pick up meaningfully in 1HCY23 on general election (GE) angled trading. That said, softer global macros would still fog outlook until positive catalysts materialise in the medium term. Maintain MP.

Gathering recent readings, 3QCY22 ADV appears to be trailing at c.RM1.62b (2QCY22: RM2.10b, 3QCY21: RM2.89b). This comes close to our expected ADV for the period at RM1.55b. Trading activities slowed further during the period from fears of global recession stemmed by US Fed’s aggressive policy tightening. However, the later part of the period did pick up gradually with better corporate earnings performance boosted by recovering economic prospects. With that, we anticipate 4QCY22 ADV to come in close to RM1.80b, translating to a full CY22 reading of RM2.03b (vs. CY21: RM3.56b). Aside from the absence of bumper commodities and healthcare-related trading, lower comparative participation could be due to higher interest rates diverting retail investors to move their funds to more secure deposit products with more modest returns against prior periods.

Looking towards CY23, we forecast ADV to come in at c.RM2.23b (consisting of 1HCY23 at RM2.30b and 2HCY23 at RM2.15b), mainly spurred by GE15 which we believe is more likely to be held in 1QCY23. Historically speaking, general elections have been a trading catalyst as investors will seek to position in line with their expectations of the election's results and recalibrate their portfolio if expectations are not met. Heavy foreign investor outflow could also be triggered if policy uncertainties ripple from the election outcome. That said, there could be a gradual cooling off in the 2HCY23 period unless strong macros develop.

We believe positive catalysts could range from: (i) favourable resolution of the Russia-Ukraine conflict, albeit the sentimental boost may not be long lasting as the mending of economic damage would be a medium-term endeavour, (ii) earlier-than-expected GE15 (i.e. pre-2023), and (iii) sustained growth in commodity prices to support stock trading of the beneficiaries.

Forecasts. Post update, we slightly tweak our FY22F/FY23F earnings by +1%/+3% as we fine tune our YTD-ADV readings and slightly raise our FY23F ADV levels in accordance to the above. With that, we estimate its 3QFY22 to report net earnings of RM50m-RM55m (-35% YoY, -10% QoQ). Trading income makes up at least two thirds of BURSA’s total income and will likely remain the lion’s share as its other income from listing and depository services also hinges on the overall sentiment of the equities market. BURSA’s upcoming earnings release is slated to be on 31 October 2022.

Maintain MARKET PERFORM with a higher TP of RM6.50 (from RM6.30). Our TP is based on an unchanged 20.0x FY23F PER, in line with its global exchange peer average and pre-pandemic valuations, which is fairly valued at current levels. The group has been persistently vying for methods to improve efficiency which is testament to its leading ROEs. Additionally, though the group has been benefitting from equities rally in recent years, management has been proactively working towards developing other revenue streams to cement its long-term sustainability. There is no adjustment to our TP based on ESG of which is given a 3-star rating as appraised by us.

Risks to our call include: (i) higher/lower-than-expected trading volume in the securities and derivatives markets, (ii) lower/higher-than-expected opex, (iii) more/fewer-than-expected initial public offerings, and (iv) higher/lower-than-expected dividend payout.

Source: Kenanga Research - 5 Oct 2022