We maintain our TP of RM6.25 and MP call. The government has announced its intention to reduce stamp duty rate for securities transactions on BURSA to 0.10% from 0.15% of contract value. This will be effective July 2023 onwards. This is a positive to the overall trading market, albeit the immediate impact may be wanting given the softer general sentiment and underperformance so far.

Cheaper trading cost. From July 2023, trading participants would only be imposed a 0.10% charge in stamp duty (from 0.15%). This is subject to a maximum cap of RM1,000 per contract (i.e. translative of a contract size of at least RM1.0m in July 2023 from RM0.67m at present). The move is intended to make the Malaysian stock market more accessible and competitive.

We view the above to be beneficial to overall trading activities, as lower trading cost could translate to overall higher trading volumes, particularly for retail investors. These investors are known to have higher trading frequency and hence are more sensitive to transaction costs. That said, current market conditions may still exhibit weakness, as overall macros are marred by: (i) possible softness in near-term economic trajectory; (ii) persistent inflationary pressures; (iii) weakness in MYR. These may impede the overall spillover in trading volumes as certain investors may still rather be on the sideline fearing possible downside risks until conditions improve.

Forecasts. Post update, we leave our FY23F/FY24F earnings unchanged for now. The reduction in stamp duty should not dent BURSA’s profits as it does not benefit from the collection of stamp duties.

On the other hand, while higher trading volumes could be expected, we leave our ADV assumptions unchanged for now. Against our present RM2.21b ADV projections for FY23F, year-to-date performance of RM1.99b still demands stronger activities to materialise in 2HFY23, which could now be supported by the stamp duty reduction. On a quarterly note, the 2QFY23 quarter-to-date ADV of RM1.81b could likely fall behind our 2QFY23 ADV assumption of RM2.10b.

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 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 - 20 Jun 2023