Bursa Malaysia (BURSA MK) FY23 earnings are in-line, into FY24, Maybank Investment Bank Berhad (Maybank IB) forecasts lower net profit (-7% YoY) after a higher base in FY23 due to a positive one-off.
Maybank IB, in a note today (Feb 2) said, based on their revised equity ADV forecast of MYR2.5b, valuation (at 25.8x FY24E PER) is nearing +1SD of its 10Y mean.
Maybank IB have raised their TP to MYR7.00 (+45sen) but D/G the stock to SELL as they believe valuations have run ahead.
Bursa’s FY23 boosted by reversal in provision
FY23 net profit of MYR252m (+11% YoY) was 100%/103% of house/ street forecasts.
Excluding MYR31m reversal in provision for SST on digital services, FY23 net profit was down 3% YoY as higher opex (IT maintenance, staff costs) and depreciation offset 1% higher operating revenue (oprev). Staff cost, as % of oprev, was 28.4% (FY22: 26.5%) due to capacity building.
Equity ADV picked up to MYR2.29b (2022: MYR2.18b) but derivative volume fell 7% YoY on lower FCPO contracts (-9% YoY).
As for 4Q23, net profit was down 1% QoQ on flattish equity trading revenue as lower effective clearing fee rate offset higher ADV (+21% QoQ), while derivative trading revenue retraced 4% QoQ.
A final 14sen DPS brings FY23 DPS to 29sen, 93% DPR.
Raising ADV assumption, tweaking earnings
The Jan 2024 equity ADV was a strong MYR3.35b, with the run rate ahead of our MYR2.3b forecast for 2024.
Maybank IB raises their 2024 ADV forecast to MYR2.5b (2023: MYR2.29b), expecting ADV to soften post CNY.
YoY, Maybank IB expects the higher trading activities in 2024 to be supported by execution of macro blueprints launched in 2H23, thus lifting confidence on Malaysia’s longer term growth trajectory.
Maybank IB said the raised equity ADV forecast leads to earnings upgrade by 2%/1% for FY24/FY25E, after incorporating also higher opex assumptions especially that relating to IT maintenance and staff costs.
MYR7.00 revised TP
Acknowledging upside possibility to their MYR2.5b equity ADV forecast for 2024, Maybank IB pegs on a higher PER target of 24x (+0.5SD, previously 22x or mean) to FY24E earnings, deriving a higher TP of MYR7.00 (previously MYR6.55).
Assuming mean valuation (22x PER), the current share price implies MYR3b equity ADV for 2024 which could be overly optimistic.
Biggest proxy for a vibrant equity market
CGSCIMB, in its Company Note today said Bursa’s FY23 net profit was below their expectation (96% of our forecast) but above street estimate (106% of Bloomberg consensus estimate). The equity market had a strong start in 2024F as equity ADTV surged by 48% in the first 20 trading days in 2024F (vs. ADTV in 4Q23).
CGSCIMB upgraded Bursa to an Add on the above two factors as they project 15% growth in ADTV in 2024F.
FY23 net profit below forecasts but above street estimates
Bursa Malaysia’s FY23 net profit was 4% below what was forecasted due to lower-than-expected equity revenue arising from weaker average daily trading value (ADTV) for the equity market.
However, its FY23 net profit was above at 106% of Bloomberg consensus estimate. FY23 DPS of 29 sen (15 sen interim DPS and 14 sen final DPS) was in line with CGSCIMB’s forecast of 29 sen.
A good start for the equity market in 2024
In the first 20 trading days in 2024F (from 2 Jan 24 to 30 Jan 24), the equity market recorded an ADTV of RM3.2bn (inclusive of off-market transactions), translating to strong growth of 48% compared to the ADTV in 4Q23.
The uptick in ADTV was not a surprise to us as market sentiment has been lifted by the improved political stability in Malaysia following the state elections on 12 Aug 23 (in which the unity government managed to maintain control of the state governments in its three key states).
Raising target price
CGSCIMB maintains their FY24-25F EPS forecasts. For their DDM valuation, they raises their assumed EPS growth rate for the interim growth phase from 5% to 7% given the improved outlook for the equity market, arising from the following – (1) greater political stability following the state elections on 12 Aug 23 and (2) various measures under the Ekonomi Madani framework that would help to lift investors’ confidence (and ultimately, market sentiment).
This leads to an increase in CGSCIM/s target price from RM6.90 to RM8.50 (cost of equity of 9.1%; terminal growth rate of 4%).
Biggest proxy for a vibrant equity market; upgrade to an Add
CGSCIMB upgrades Bursa from Hold to Add as they see it as the biggest beneficiary of the improved outlook for the equity market, supported by greater political stability and various initiatives implemented by the government (under Ekonomi Madani) to boost Malaysia’s economic growth.
Based on their forecasts, equity income would contribute circa 44% of Bursa’s revenue in FY24-26F.
A potential re-rating catalyst would be their projected 15% increase in equity ADTV in FY24F and CGSCIMB’s expected expansion in ROE for Bursa from 29.5% in FY24F to 31.5% in FY26F.
Potential downside risks would be a decrease in trading activities in the equity and derivative markets, wider-than-expected increase in operating expenses and weaker stable income.
Rich Valuations Amidst Higher Trading
Meanwhile, Kenanga Research (Kenanga) said today BURSA’s FY23 results met expectations with hopes for better ADVs to carry earnings.
The group’s multi-asset status should also diversify its dependency on securities, and derivatives trading albeit will likely remain an insignificant profit contributor in the medium term. Per its guidance, the group hopes for up to 42 IPOs in FY24.
Kenanga maintains Underperform as its rich valuations could be unjustified but with a higher TP of RM6.45 (from RM6.25) as they roll valuation base to FY25F.
FY23 within expectations
BURSA’s FY23 core net profit of RM215.9m met expectations at 97% of a full-year forecast but missed consensus full-year estimates by 8%. This comes after accounting for RM31.4m reversal from SST provisions for digital services from Jan 2020 to Mar 2022.
YoY, FY23 operating revenue was stable with flat trading revenue from securities amidst a full-year ADV of RM2.05b (FY22: RM2.06). Cost-to income for the group improved slightly, at 48.1% (+0.4ppt), despite a 9% increase in personnel cost due to the one-off reversal of SST provision of RM31.4m. This led FY23 net profit to report at RM247.3m (+9%). Adjusting for said reversal, core FY23 net profit would come in at RM215.9m (-5%).
QoQ, 4QFY23 operating revenue declined by 3%.
Although securities ADV was slightly higher at RM2.16b (3QFY23: RM2.13b), the group reported lower contributions from derivatives and other revenue streams. Coupled with higher staff costs reflected during the period, 4QFY23 core net earnings came in at RM50.4m (-17%).
Outlook
Bursa had rebranded itself to be a multi-asset exchange with the launch of its Bursa Gold Dinar mobile app to make investing in gold more accessible. This supports part of the group’s broader 2024- 2026 strategic roadmap in which it hopes to, on top of its key securities business, widen its derivative offerings to a broader international level and to strengthen other revenue streams (data solutions) for which it hinted it is open to considering inorganic growth opportunities.
Meanwhile, the group had indicated the following headline KPIs for its FY24:
1. Profit before tax of RM293m-RM323m (which we think could be conservative given the strong ADVs seen in Jan 2024)
2. Non-trading revenue growth of 5%-7%
3. 42 IPOs and RM13b total IPO market cap.
Forecast
Kenanga’s FY24F numbers are relatively unchanged on the back on an ADV assumption of RM2.40b (+17% YoY), signalled by returning interest from foreign investors and more moderate interest rate expectations.
Meanwhile, they also introduced their FY25F earnings which are supported by an ADV of RM2.55b.
Kenanga maintains UNDERPERFORM with a higher TP of RM6.45 (fromRM6.25) on a roll over of their valuation base year to FY25F on an unchanged 20.0x PER, in line with its global financial exchange peers’ average, and pre-pandemic valuations.
Risk-reward ratios appear fair with the lack of strong medium-term catalysts to deliver earnings surprises cushioned by its solid ROE and stable dividend prospects.
There is no adjustment to their TP based on ESG given a 3-star rating as appraised by them.
