KEY INVESTMENT HIGHLIGHTS

• Earnings came in above our expectation
• Higher securities trading revenue
• Trading momentum moderated in 3QFY24
• Continued increased costs but better CIR due to higher revenue
• Earnings estimate for FY24 tweaked upwards
• Fully priced in; Maintain NEUTRAL with revised TP of RM8.80

Above expectation. Bursa Malaysia Bhd (Bursa) posted another strong quarter with 3QFY24 earnings growing +42.2%yoy and +6.6%qoq.

Resultantly, 9MFY24 earnings grew +25.1%yoy. This was again above our consensus' expectation at 83.4% and 81.6% of the respective full year estimate. The variation was due to our underestimation of its revenue which came in 86.2% of our FY24 revenue forecast.

Strong revenue growth, main driver for higher earnings. Total revenue in 3QFY24 maintained its strong momentum, increasing +5.7%qoq and +33.1%yoy. This led to 9MFY24 total revenue growth of +30.2%yoy. This was due to strong securities trading revenue which increased +52.9%yoy.

Trading momentum slowed in 3QFY24. Average Daily Value (ADV) (OMT) in 9MFY24 rose +66.3%yoy to RM3.36b (1HFY24: +66.8% to RM3.27b). However, on a sequential quarter basis, 3QFY24 ADV (OMT) was lower by -2.8%qoq to RM3.52b, and average trading volume (OMT) was down -16.9%qoq to 4.07b shares. Despite the lower ADV, trading revenue rose by +3.1%qoq due to the higher number of trading days.

Lower CIR due to higher revenue. OPEX grew +30.4%yoy to RM274.0m with the main driver being higher staff costs (+16.2%yoy).

Bursa continued to increase. There was also a one-off reversal of provision in 9MFY23 which contributed to the higher OPEX in 9MFY24.

Nevertheless, with the better revenue, the cost-to-income ratio (CIR) was still below the 50% mark, at 45.7%, -0.8ppt better than in 9MFY23.

On track to exceed IPO target. Cumulatively, Bursa saw 35 IPOs in 9MFY24 where the IPOs closed at an average of +49.5% premium over its listing offer price. Up to end September 2024, the IPOs raised a total RM6.06b, +95.9%yoy higher. It seems that it is on track to exceed its target of 42 IPOs this year, the highest since 2006, which had 40 listings.

Outlook. We expect Bursa to end the year solidly. Nevertheless, trading activities has moderated recently despite the first rate cut in the US. We opine that this is due to rotation into other markets by foreign funds (such as China following monetary stimulus) and strong US economic data (questioning further rate cuts). In addition, uncertainties have increased stemming from geopolitics amongst others. Therefore, we could see some moderation in sentiment and valuation going forward.

Earnings estimate. We tweak our FY24 earnings upwards by +4.3% to take into account of the better-than-expected revenue in 9MFY24. However, we are maintaining our FY25 and FY26 earnings forecast.

Recommendation. Trading activities continues to be strong thus far this year, driven by "risk-on" mode sentiment from expectation of US Fed rate cuts. However, we observed that trading activities have moderated since the US Fed delivered its first rate cut in September. We believe that this is due to uncertainty of further rate cuts following strong US economic data, which we opine is affecting sentiment. Nevertheless, we expect that the US Fed will continue its monetary policy shift and sentiment will improve. However, we expect equity market valuation to remain relatively stagnant next year, as we anticipate the market will be beset by recurring fears of the US economic slowdown (despite current robust numbers).

Despite this, we believe that the positives have been largely priced in, with current valuations slightly stretched. Hence, we are maintaining our NEUTRAL recommendation. We revised our TP to RM8.80 (previously RM9.30) based on pegging FY25 EPS to a revised PER of 23.5 which is its 2-year average PER (previously 25x which is +1SD to its 2-year average PER), as we reverted its valuation to mean given our views of the market valuation for 2025.

Source: MIDF Research - 1 Nov 2024