1QFY23 net profit of RM56.2m (-17% YoY) was within expectations. Securities ADV continued to demonstrate sequential softness, which we anticipate will pick up with hopes that macros will consistently perform. Meanwhile, supportive IPO performance and new income streams could pan out favourably in the medium term. Maintain MARKET PERFORM and TP of RM6.25.

1QFY23 met expectations. The reported net profit of RM56.2m was within expectations, making up 25% of our full-year forecast and 24% of consensus full-year estimates. No dividend was declared this quarter, as the group typically pays biannually.

YoY, 3MFY23 operating revenue declined by 6% owing to softness in trading revenue from the securities market (-15%). Period ADV closed at RM2,144m (3MFY22: RM2,598) as trading sentiment cooled. That said, this was an 11% increase from 4QFY22’s RM1.936m as overall activities grew more encouraging. Meanwhile, derivatives trading also declined 8% as commodity prices were less volatile. Cost-to-income ratio rose to 51.3% (+7.4ppt) as new business segments and product launches triggered higher depreciation and operating expenses. Overall, this led to 3MFY23 net profit coming in at RM56.2m (-17%).

Working to stimulate tepid markets. We reckon that securities ADV may continue to be slow as participation did not pick up meaningfully despite: (i) a more stable domestic political landscape, (ii) better economic performance, and the (iii) reopening of China’s borders. That said, the traction from recent IPOs could continue to fuel retailers’ interest, with BURSA indicating a pipeline of 39 IPOs this year. Meanwhile, the group 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 Mar 2023 could also serve as a platform for sustainable revenue in the near term. For now, our FY23F pre-tax profit falls within the group’s target of RM295m-RM326m.

Forecast. Post-results, our earnings were slightly tweaked from 1QFY23’s inputs. In terms of ADV, we maintain our FY23F assumption of RM2,211m with FY24F at RM2,400m backed by higher participation.

Maintain MARKET PERFORM and TP of RM6.25 based on an unchanged 20.0x FY24F PER, in line with global exchange peers’ average. Risk-reward ratios appear fair as a lack of strong medium term catalysts to deliver earnings surprises is cushioned by its solid ROE and stable dividend prospects. There is no adjustment to our TP based on ESG with 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 operating expense, (iii) more/fewer-than-expected initial public offerings, and (iv) higher/lower-than-expected dividend payout.

Source: Kenanga Research - 5 May 2023