We maintain our TP of RM6.25 and MP call. Despite sequentially stronger, 1QCY23 average daily volume (ADV) fell below our mark, as trading sentiment did not pick up meaningfully. While the near term may not see much improvement, we anticipate the medium term to fare better on more stable economic prospects. BURSA also aims to boost its non-trading revenues with the launch of new platforms.

1QCY23 ADV arrived at RM2.14b (+11% QoQ, -18% YoY), which was below our anticipated RM2.50b for the period. We had expected strong trading activities as confidence is rebounding from: (i) a more stable domestic political landscape, (ii) better economic performance, and the (iii) reopening of China’s borders. However, these were overwhelmed by growing recessionary concerns in developed economies and the collapse of several banks denting sentiment in the financial sector.

Immediate term prospects could be dim. 2QCY23 trading could continue to be marred by the abovementioned factors. We believe overall sentiment will still be underpinned by recessionary concerns in the US. Meaningful positive catalysts will likely hinge on stronger-than expected economic readings from improved global trade and more stable currencies, which may only arise in 2HCY23 as China’s reopening have so far only generated a largely disappointing muted response.

CY23F ADV to move closer to RM2.21b (+7% YoY). We adjust for 1QCY23’s lower ADV while maintaining our 2Q-4QCY23 inputs of RM2.10-RM2.40b. This results in a 4% reduction from our earlier CY23F ADV of RM2.30b.

Forecasts. Post update, we lowered our FY23F earnings by 2.5% due to our abovementioned lower ADV inputs. Our updated pre-tax earnings forecast remain within the group’s FY23 target of RM295m RM326m.

Trading activities aside, BURSA’s performance could be supported by higher service fees from a stronger IPO pipeline for the year (up to 39 IPOs targeted from FY22 of 35 new listings). Meanwhile, new initiatives (recently launched carbon credit auction and upcoming debt fundraising platform, Bursa Gold Dinar) may be revenue accretive. With this, we expect its 2QFY23 reported earnings to register between RM53m and RM59m.

Maintain MARKET PERFORM and TP of RM6.25. Our TP is based on an unchanged 20.0x FY24F PER, in line with its global financial exchange peers’ average, and pre-pandemic valuations. Risk-reward ratios appear fair with the lack of strong medium-term catalysts to deliver earnings surprises cushioned by its solid ROE and stable dividend prospects. There is no adjustment to our TP based on ESG 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 - 11 Apr 2023