BURSA’s 1HFY24 results met expectations with the group opting to raise its earnings guidance. However, they may be more conservative compared to our view that the trading landscape in Malaysia could stay robust on the back of better trading sentiment and investment themes. We tweaked higher our FY24F-FY25F forecasts by 1% each, and TP to RM10.00 (from RM9.90). Maintain MARKET PERFORM.

1HFY24 within expectations. BURSA’s 1HFY24 net profit of RM155.5m made up 49% of our full-year forecast and 53% of consensus full-year estimate.

YoY, 1HFY24 operating revenue gained 29% largely on the back of stronger trading activity in the securities market, as ADV for the period came in at RM3.27b (+67%). This translated to a core net profit of RM155.5m (+50%) after adjusting for one-off provisions captured in relation to past IT infrastructure.

QoQ, 2QFY24 operating revenue also improved by 7% thanks to better comparative ADV at RM3.62b (1QFY24: RM2.93b) which spilled over to a 7% increase in the quarter’s earnings.

Outlook. With market participation seeming to sustain and likely to support trading revenues in the near-term, the group is more confident in increasing its pretax profit target of RM293m-RM323m to RM361m- RM379m. However, this is still shy of our FY24F projection of RM427m as we believe that ADVs could remain robust (with our full-year target of RM3.5b) led by stickier participation by institutional and foreign investors. The economics and earnings prospects of local markets could be fuelled by further developments in the data centre and AI space, alongside perceived prosperity in Johor. This could further carry onto FY25 with our ADV projection of RM3.6b.

Forecast. Our FY24F-FY25F earnings were slightly increased by 1% from model updates post-results.

Maintain MARKET PERFORM and TP of RM10.00 (from RM9.90). Our TP was raised following earnings revision against an unchanged 25.0x PER, in line with its global financial exchange peers’ average. 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. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

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 - 1 Aug 2024