We upgrade our call to MP and raise our TP by 48% to RM9.90 as we refresh our valuations in accordance to regional averages. Thanks to 2QCY24’s stronger-than-expected average daily value (ADV) readings, we raise our ADV outlook to RM3.5b/RM3.6b as we believe sentiment could sustain into the medium term, albeit still lower than CY20’s pandemic-driven ADV of RM4.2b.

2QCY24 ADV at RM3.61b (+23% QoQ, +103% YoY). The period’s ADV reported substantially better results owing to the past year’s low base, also outpacing our initial projection of RM2.9b for the quarter. We saw stronger interests within the large cap space, fuelled by: (i) moderating expectations for looser monetary policies, (ii) investment themes heightened by news flow and developments on data centres and AI, as well as (iii) better prospects tied to Johor’s economic prosperity.

Greater levels possible to be sustained. Led by the above, we opine more institutional and foreign investors could stay invested and seek trading opportunities from the progressive development of these themes. Meanwhile, the delayed expectations on global interest rate cuts could support a stronger equity performance view in the medium- term. That said, downside risks could come from higher-than-expected inflation spurred by the rationalisation of subsidies impacting overall spending and economic growth, hence hindering corporate earnings. This may also be tied to prolonged weakness in MYR.

Forecast. Post update, we relook at our ADV assumptions for the remainder of CY24/CY25 and raise our ADV outlook to RM3.5b/RM3.6b (from RM2.7b/RM2.75b, respectively). This translates to 18%/19% increase to earnings.

With regards to 2QFY24’s upcoming core results, we project earnings to possibly report between RM80m-RM85m (which is stronger by 11% QoQ and 70% YoY fuelled by stronger ADV reports).

Upgrade to MARKET PERFORM (from UNDERPERFORM) with a higher TP of RM9.90 (from RM6.70). In addition to the higher earnings, we recalibrate our applied FY25F PER to 25x (from 20x), in line with its global financial exchange peers’ average which have also seen appreciation in valuations. Current rates are also akin to pandemic levels (25x-26x PER), which we believe could be reflective of similar sentiment in line with heightened trading activities.

We also like BURSA as: (i) it serves as a proxy to participation in our local bourse, and (ii) its ROE accelerates in a market upcycle thanks to its lean cost structure.

Risks to our call include: (i) lower-than-expected trading volume in the securities and derivatives markets, (ii) higher-than-expected opex, and (iii) fewer initial public offerings.

Source: Kenanga Research - 15 Jul 2024