BURSA's FY24 results met expectations with bumper dividends thanks to an 8.0 sen special dividend declared. BURSA proposed a stronger pipeline of 60 IPOs for FY25 but remains cautious with its earnings guidance. This would fuel our ADV target of RM3.30b on top of fundamentally supportive themes to spur more trading interests. Maintain our TP of RM9.70 and OUTPERFORM call.

FY24 within expectations, special dividends rightly anticipated. BURSA's FY24 net profit of RM310.1m made up 100% of both our full-year forecast and consensus full-year estimates. On top of an 18.0 sen final dividend (full year 36.0sen, 94% payout), BURSA had announced a special dividend of 8.0 sen (total payout 115%) which we had also expected, since it had last declared specials in FY20 (also at 8.0 sen).

YoY, FY24 operating revenue grew by 28% with both securities (+43%) and derivative markets (+27%) registered stronger trading revenues from better sentiment. We note that ADV for CY24 came in at RM3.16b (+54%). Overall, adjusting for FY23's one-off provisions on certain IT infrastructure, core net profit of RM310.1m translated to a 41% gain.

QoQ, 4QFY24 operating revenue declined by 12% on the back of securities markets (-25%) coming off a high base in 3QFY24 where foreign buying interest had peaked for the year. This led to a sequential softness in ADV to RM2.55b (-28%).

Targets met. BURSA had well beaten its FY24 headline KPIs, namely:

- Achieved PBT of RM410.4m vs target of RM361m-RM379m.

- Non-trading revenue growth of 11% vs target of 5%-7%.

- Completed 55 IPOs with a market cap of RM31.4b vs target of 42 IPOs with a market cap of RM13b.

We had previously projected earnings to reflect the stronger delivery as BURSA is typically conservative with its guidance.

Highlights. Going into FY25, BURSA aspires for a stronger IPO pipeline of 60 IPOs (across Main, ACE and Leap Markets) with a total IPO market cap of RM40.2b. The larger base of securities would also fuel its non-trading revenue growth target of 5%-7%. However, the group is still eyeing for a slightly conservative PBT delivery of RM369m-RM408m, below FY24's RM410.4m.

We continue to eye a FY25F ADV of RM3.30b (Jan-YTD: RM2.76b) anticipating the present softness post-Trump inauguration to pass. Trading interest in Malaysian equities could be revitalised by: (i) more beneficiaries emerging from the Johor Special Economic Zone, (ii) data centre developments (constructors and landowners), and (iii) net exporters, benefitting from potential softening of MYR.

Forecast. We tweak our FY25F earnings by -1% as we incorporate FY24's full-year numbers. Meanwhile, we introduce our FY26F earnings which also hinges on a full-year ADV of RM3.30b. A modest 4% earnings growth in projected from higher non-trading services.

Maintain OUTPERFORM and TP of RM9.70, based on an unchanged 25x PER on FY25F EPS of 38.7 sen, in line with its global financial exchange peers' average which have also seen appreciation in valuations. Current valuations are also akin to pandemic levels (25x-26x Fwd. PER, peaking at 35x), which we believe could be reflective of similar sentiment in line with heightened trading activities. Being slightly under 1SD of BURSA's 5-year valuations, we find our applied valuations to be inexpensive. 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 - 28 Jan 2025