• Downgrade to NEUTRAL from Buy, TP drops to MYR7.90 TP from MYR8.10, 5% upside with c.4% yield. Excluding one-off tax-related gains, Bursa Malaysia’s FY23 results met expectations. The domestic equity market appears to remain vibrant, and this could translate to better earnings ahead for the exchange. However, the positives look largely in the price, which justifies our rating downgrade.

• Results review. BURSA’s 4Q23 headline net profit of MYR59.6m (+22% YoY, -1% QoQ) brought the full-year figure to MYR252.4m (+14% YoY). This was ahead of both our and consensus estimates due to lower-than-expected tax expenses, while full-year PBT was in line with both forecasts. FY23 total revenue grew 3% YoY on stronger securities and non-trading income, albeit mitigated by weaker derivatives income. At the core level, PBT of MYR290m pointed to a 6% YoY decline, on higher opex from increased personnel and tech spend. A final DPS of 14 sen was declared, bringing the full-year total to 29 sen (93% payout), ahead of our 27 sen forecast.

• Upbeat on market outlook. In a press conference on Wednesday, management expressed its optimism in the domestic securities market due to factors such as increased participation from local and foreign funds, a positive macroeconomic backdrop, and improving corporate earnings. No guidance was provided, but our 2024 securities average daily value (SADV) target of MYR2.7bn implies a 17% YoY increase (Jan 2024: MYR3.4bn).

• Fresh new KPIs for FY24. BURSA has a PBT target of MYR293-323m for FY24, implying a flat-to-11% YoY growth (from 2023 core PBT). The target appears conservative, and could see some upward revision – especially if securities trading continues on its strong momentum. Other KPIs include a target of 42 IPOs with a MYR13bn IPO market cap (FY23: 32 IPOs, MYR13.6bn market cap) and two new launches, namely renewable energy certificates and a centralised sustainability intelligence platform. We were also guided for opex growth to range 10-15% YoY, mainly on IT expenditure and general increments for staff.

• No special dividends on the horizon. Pre-pandemic, BURSA was a consistent payer of special dividends, forking out such on five occasions between 2013 and 2020. While its cash pile of MYR424m is currently well above the prepandemic range of MYR200-350m, it is conserving cash to be deployed into strategic initatives – these include IT system renewals, new product launches, and possibly inorganic acquisitions for its data business.

• Cut to NEUTRAL. We lower our earnings forecasts by 3-4% after factoring in higher opex assumptions. Our TP drops to MYR7.90 (from MYR8.10) and includes a 6% ESG premium. We believe expectations of robust securities market performance in 2024 have largely been priced in and, as such, pare down our stock recommendation a NEUTRAL.

Source: RHB Securities Research - 2 Feb 2024