• Stay NEUTRAL, new MYR6.50 TP from MYR6.80, 3% upside. Bursa Malaysia’s 1Q23 results met expectations with sequentially improved securities average daily value (SADV) and higher opex being key highlights. Sentiment on the Malaysian equities market seems weak still and we believe the risks to management’s MYR2.2-2.4bn SADV guidance for FY23 are tilted to the downside. As valuations appear fair, we stay NEUTRAL on the counter.

• 1Q23 results review. 1Q23 net profit of MYR56.2m (-17% YoY) met expectations at 24% of our full-year forecasts. YoY, weaker securities and derivatives market activity led to subdued revenue from securities trading (-15%) and derivatives trading (-8%). Opex also added 11% YoY, led by higher marketing and development costs. QoQ, net profit improved 15% on the back of positive Jaws while CIR improved to 51% from 54% in 4Q22 (1Q22: 44%). ROE for 1Q23 stood at 29% (4Q22: 26%, 1Q23: 35%).

• Operational highlights. 1Q23 saw sequential growth in SADV to MYR2.28bn (+9% QoQ, -15% YoY) on greater participation from local institutions and retailers. The derivatives market, however, was brought down by weaker crude palm oil price volatility. The average daily contracts (ADC) traded for crude palm oil futures (FCPO) was down 8% YoY and 10% QoQ. This quarter saw 10 new listings recorded, in line with the exchange’s target of 39 listings for the year.

• Guidance and outlook. YTD, SADV of MYR2.16bn is slightly shy of the MYR2.2-2.4bn number expected for this year. BURSA is taking active measures to improve liquidity in the securities market, including ramping up marketing efforts to increase foreign participation as well as improving accessibility towards smaller listed companies via the Bursa RISE scheme. The group is also aiming to launch its voluntary carbon exchange platform in 2H23, though we understand the contribution to earnings will be minimal in the early years. Guidance for opex growth remains at single digit.

• Forecasts and TP. We tweak our forecasts downwards by 2-3% as we factor in lower SADV and derivatives ADC assumptions in line with the YTD performance. Our 2023 SADV target is now MYR2.29bn (from MYR2.33bn). We also ascribe a lower P/E multiple of 22.5x (from 23.0x, in line with 5-year mean) on FY23F EPS given the prolonged weak sentiment on the Malaysian equities market, with no immediate market catalysts in sight. Our TP is lowered to MYR6.50, inclusive of a 5% ESG premium.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 5 May 2023