Review

• Bursa reported stronger-than-expected results, as 1HFY24 accounted for 57.1% of our full-year forecast. YTD net profit rose 17.4% YoY to RM155.5mn from RM132.4mn a year ago due to higher operating income. This brings the ROE higher to 37% vs. 33% in 1HFY23. Sequentially, Bursa's net profit also strengthened by 7.2% QoQ, underpinned by stronger operating revenue (+6.8% QoQ).

• A higher interim dividend of 18 sen (1HFY23: 15 sen) was declared, translating to a 94% payout.

• Yearly, Bursa’s 1HFY24 operating revenue expanded by 29.3% YoY to RM374.5mn on the back of an encouraging increase in trading revenue (+41.2% YoY) and non-trading revenue (+10.0% YoY). Securities Trading Revenue accelerated at a stronger pace of 52.6% YoY to RM192.2mn vs RM126.0mn a year ago due to higher Average Daily Value (ADV) and greater velocity. Meanwhile, the Derivatives Trading Revenue also rebounded to grow by a healthy 16.8% YoY, attributed to higher Average Daily Contracts (ADC). Bursa Suq Al-Sila’ (BSAS) trading revenue, however, fell by 5.3% YoY to RM8.4mn from RM8.8mn a year ago.

• The non-trading revenue segment expanded by 10.0% YoY, underpinned by Depository Services, Data Business, and Listing & Issuer Services, with each improving by 16.6%, 15.4% and 6.0% YoY.

• Total operating expenses jumped by 35.5% YoY to RM177.6mn vs RM131.1mn in 1HFY23 due to increases in 1) staff costs (+13.2% YoY) for higher headcount and higher provision for variable costs, 2) Depreciation and Amortisation (+7.0% YoY), 3) IT Maintenance (+20.2% YoY) due to renewal of maintenance contracts and new systems, 4) Marketing & Development (+5.9% YoY) along with 5) higher service fees from a higher number of derivatives contracts traded (+17.9% YoY). With that, Bursa’s cost-to-income ratio rose to 46% from 44% a year ago.

• By segment, Securities Trading Revenue comprised 51% of total operating revenue. Total ADV ballooned to RM3,270mn vs RM1,964mn in 1HFY23. By segment, retail ADV grew to RM733mn (1HFY23: RM553mn), while the ADV by domestic institutions grew to RM1,434mn from RM898mn. Meanwhile, foreign institutions' ADV also improved YoY, doubling to RM1,103mn (1HFY23: RM513mn).

• Trading velocity surged to 42% vs 29% in FY23. Elsewhere, the market capitalisation widened to RM2,028bn from RM1,669bn on 30 June 2023. In 1HFY24, funds raised from new listings and the secondary market stood little changed YoY at RM6.4bn (1HFY23: RM6.5bn).

• Bursa reported a narrower total net foreign outflows of RM0.8bn in 1HFY24, compared to a total foreign net outflow of RM2.3bn in 2023. The foreign shareholding level (by market cap) stood at 19.5% in June 2024. Despite that, by trading mix, trading participation by foreign institutions broadened to 34% (FY23: 30%). Comparing trading participation by retailers and institutions, retail investors are still softer at 22% (FY23: 28%).

• In the derivatives market, the ADC of crude palm oil futures (FCPO) rose to 69,197 in 1HFY24 compared with 63,017 in 1HFY23. Meanwhile, the FBMKLCI futures (FKLI) trading also widened YoY to an ADC of 15,270 from 11,484. Nevertheless, the trading volatility for FCPO declined to 19% (from 32% in 1HFY23), while the trading volatility for FKLI stood at 7% (1HFY23: 7%). Combined, the YoY total ADC traded improved to 84,927 contracts compared to 74,735 a year ago. Of this, 82% of total trades were in FCPO and 18% in FKLI. Encouragingly, we continue to note an increase in foreign participation, as foreign institutions now account for 62% of total ADC traded by investors, followed by Retail (22%). The ADC for T+1 After-Hours Trading surged by 38.8% YoY, contributing 12.1% of total ADC (1HFY23: 9.9%).

• On the Islamic market trading activity front, the BSAS trading revenue accounted for around 2.0% of total operating revenue. In 1HFY24, the segment’s ADV fell by some 11.9% YoY to RM42.7bn. The number of trading participants increased to 365 from 335 in 1HFY23, while the number of Shariah Compliant Stock (in terms of market capitalisation) stood at around 83%. Domestic participants contributed to 83% of total trades. The market capitalisation of Shariah-compliant stocks improved by some 20% YoY to RM1,322mn.

Impact

• We have revised our securities trading velocity assumption to 38% for FY24/25/26, up from the previous estimate of 32%, reflecting strongerthan-anticipated trading activity. Consequently, we have adjusted our net profit projections to RM316.1/337.8/359.7mn for FY24, FY25, and FY26, respectively, from the earlier estimates of RM272.4/291.5/308.4mn.

Outlook

• To date, Bursa has successfully met one of its five headline KPIs for 2024. Our earnings revision aligns with Bursa's updated PBT target, now set between RM361mn and RM379mn, up from the previous range of RM293mn to RM323mn. This growth is anticipated to be driven by increased trading revenue and a 5-7% YoY growth in non-trading revenue. The capital market is expected to benefit from ongoing initiatives to boost trading activity and attract IPOs and new products to enhance market vibrancy. Management is targeting 42 new IPO listings, which are projected to raise a total market capitalisation of RM13bn. Furthermore, we note that the launch of several new products and services in 2024, including Renewable Energy Certificates and the Centralised Sustainability Intelligence (CSI) Platform, has already been accomplished.

Valuation

• We revise Bursa's target price (TP) up to RM10.70 from RM8.20 on the back of 1) the upward revision to our forecast, and 2) rolling valuation base year forward to FY25. Our TP is based on an implied FY25 PER of around 24.5x and a 3% ESG premium. We reiterate our BUY recommendation on Bursa.

• Other key upside risks to our TP include 1) a compression in risk premiums, 2) further pick-up in trading velocity, 3) a stronger-thanexpected improvement in the derivatives market, 4) further improvement in retail sentiments, and 5) the ability to sustain foreign inflows.

Source: TA Research - 31 Jul 2024