• Keep BUY and MYR7.50 TP, 12% upside and c.4% FY24F yield. Bursa Malaysia is set to release its 3Q23/9M23 financial results on 31 Oct 2023. Based on the improved securities market performance in 3Q23, we believe headline profit growth will be strong YoY but likely flattish QoQ, as stronger securities trading revenue could potentially be offset by weaker derivatives income and higher expenses. Stay BUY on expectations of a stronger 2H23 following improved sentiment on domestic equities.

• Rebound in securities trading activity. BURSA recorded a 3Q23 securities average daily value (SADV) of MYR2.24bn, up 17% QoQ and 28% YoY. We believe this was due to renewed investor interest in domestic equities, particularly in sectors such as construction and property. This should translate to improved trading revenue on a QoQ and YoY basis. 9M23 SADV stood at MYR2.15bn, down 3% from 2022 SADV. Despite the strong momentum seen in October, we believe our initial forecast of MYR2.33bn for 2023 is likely to be missed, and thus, we lower our forecast to MYR2.22bn. Our revised estimate implies 4Q23 SADV of MYR2.4bn (stable from Sep 2023). Our SADV forecasts for 2024 and 2025 are maintained at MYR2.44bn and MYR2.56bn.

• Derivatives a slight drag. 3Q23 derivatives average daily contracts (DADC) slipped 6% QoQ (-9% YoY) to 73,372 contracts on lower crude palm oil futures trades, though partially mitigated by greater FBM KLCI futures trades. We are not overly concerned as derivatives still form a relatively small (<20%) portion of total operating revenue, hence the impact of lesser trades to earnings is not expected to be severe.

• Other highlights. 3Q23 saw nine new listings, of which two were on the Main Board, while the remaining seven were on the ACE market. This brings the 9M23 total to 25. BURSA claims that it has a healthy pipeline of IPOs to reach its target of 39 IPOs in 2023, although some of these could be carried forward to 2024. Meanwhile, the Bursa Carbon Exchange (BCX) platform for the trading and facilitating of off-market transactions of carbon credits commenced operations on 25 Sep 2023. The first two trading days reportedly saw a total volume of 16.5k carbon credits traded, but this should not contribute meaningfully to revenue and earnings in the near term.

• 3Q23 results preview. While we have no formal 3Q23 forecasts, total operating revenue should demonstrate robust growth YoY and QoQ, offset by higher expenses QoQ (recall that Bursa had reversed MYR27.7m in provisions for a tax-related expense in 2Q23). We conclude that headline profit could be flattish QoQ and strong YoY. At the core level, however, growth should be positive (we estimate 2Q23 core profit to be c.MYR54m).

• We lower FY23F net profit by 3% but maintain FY24F-25F. Our TP is kept at MYR7.50, obtained from pegging a 22.5x P/E (in line with its long-term mean) to FY24F EPS, with a 6% ESG premium pencilled in. 

Source: RHB Securities Research - 20 Oct 2023