BURSA’s 9MFY23 results met expectations. Its 9MFY23 core net profit declined 7% YoY on a 5% contraction in trading revenue coupled with higher staff, depreciation and IT expenses. It maintained its guidance for a pretax profit of RM295m-RM326m for FY23. We leave our forecasts relatively unchanged and maintain our TP of RM6.25 and MARKET PERFORM call.

9MFY23 within expectations. BURSA’s 9MFY23 core net profit of RM165.2m met expectations, accounting for a RM27.3m reversal from SST provisions for digital services from Jan 2020 to Mar 2022. This made up 74% of our full-year forecast and 70% of consensus full-year estimate.

YoY, its 9MFY23 operating revenue eased marginally (-1%) mainly due to lower trading revenues from the securities (-3%) and derivatives (- 8%) markets. Period ADV came in at RM2.00b (9MFY22: RM2.21b) but saw a notable QoQ improvement as trading sentiment improved postAug 2023 state election. Operationally, the group had reflected a reversal of SST provisions of RM27.3m during the period. Adjusting for this would translate to a cost-to-income ratio of 51.6% (+4.7ppt). Notably, higher staff costs, depreciation and IT expenses outpaced top line performance. All in, its 9MFY23 core earnings came in at RM165.2m (-7%).

Briefing highlights. It maintained its guidance for a pretax profit of RM295m-RM326m (vs. our forecast of RM331.1m) and non-trading revenue growth of 5%-7%. That said, some KPIs may miss.

1. IPO value target maintained. BURSA had initially targeted 39 IPOs with a total market cap of at least RM10b in CY23. While its market capitalisation target has been met, the group has cut the number of targeted IPOs to 31 attributed to lower LEAP market listings. We are unconcerned as LEAP market stocks are typically lower in overall market cap value with much tighter liquidity.

2. SST exemption continues. Arising from the government’s bid to raise SST from 6% to 8%, the group clarifies that equities brokerage continues to be exempted until further notice, though we do believe it is highly unlikely that this would be lifted. Regardless, any increase in values arising from the implementation of SST would be channelled through brokers and will not be seen in BURSA’s books.

3. Carbon Exchange receptive but may need time to mature. The group had launched its voluntary carbon market in Sep 2023 but may still see limited participation in the context of the wider stock market. We opine that this could be due to the need for more comprehensive reporting and classifications needed to be met which could deter organisations from participating. Still, the program will likely remain off-market for now until further traction can be achieved.

We anticipate ADV to come close to RM2.4b in 4QCY23 and throughout CY24. With some clarity from the measures in the recent Budget 2024, local and foreign investors may be more willing to resume market participation. We also expect 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.

Forecast. Relatively unchanged.

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 mediumterm 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 - 1 Nov 2023