We maintain our TP of RM6.25 and MP call. BURSA’s 3QCY23 average daily value (ADV) beat our expectation as sentiment was lifted by more favourable conditions. We anticipate further expansion in ADVs in 4QCY23 before stabilising in CY24 as global macros are likely to exude less volatility. Greater participation is expected to come from both domestic and foreign fronts. Adjusting for the higher 3QCY23 ADV, we raised our FY23F earnings slightly by 2%.

3QCY23 ADV closed at RM2.13b (+19% QoQ, +31% YoY), above our expected RM2.00b for the quarter. This also marks the first quarterly YoY improvement since 2QCY21. Granted, 3QCY22 ADV of RM1.62b was severely hurt by heightened recessionary fears then with the US Fed having progressively raised Fed Rates to 3.00%-3.25% in Sep 2022 from 0.00%-0.25% in Mar 2022. We could also attribute better sentiment in the market to political stability post-state election results in Aug 2023.

Better trajectory till 2024. We anticipate more encouraging participation in the market with foreign inflows expected to lift activities. Although the upcoming Budget 2024 may likely introduce some negative tunes via targeted fuel subsidies and possible reimplementation of certain taxes, clarity on infrastructure projects could bolster selective trading plays. Additionally, we are anticipating flattish interest rates for OPR and US Fed rates throughout CY24 which may dilute interest in money market products and hence resulting in a reversion back to equity and derivative securities.

CY23 ADV could end at RM2.11b. Following our incorporation of 3QCY23 ADV, our full-year number has risen to RM2.11b from RM2.08b, previously. We have left our 4QCY23 ADV unchanged at RM2.40b on the back of stronger trading interest backed by the above. Also helping this time around is the reduction of stamp duty to 0.10% (capped at RM1k per contract) which translates to cheaper retail participation. This could continue to support our CY24 ADV projections of RM2.40b as well.

Forecasts. Post update, we slightly tweaked our FY23F earnings by +2% on the above mentioned factors. Our forecast profit before tax is higher than the group’s FY23 target of RM295m-RM326m but this is with the inclusion of a RM27.7m reversal of provision seen in 2QFY23 which we have excluded from our core profit earnings. With this expectation in mind, we expect BURSA’s 3QCY23 core earnings to register between RM55m and RM60m with lumpier earnings to fall in 4QCY23.

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 also with 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 - 5 Oct 2023