BURSA: Exchange Operator Meets Expectations Amid Cost Controls, Target Price Raised

The company, a leading financial exchange operator, delivered financial results for the full year 2025 that were broadly in line with expectations, despite a notable decline in net profit. Analysts at TA Securities have reiterated their positive stance, upgrading the target price to RM10.20, citing stronger earnings forecasts and an attractive valuation.

Performance Review

For FY25, net profit stood at RM250.2mn, closely matching TA Securities’ forecast of RM250.8mn. However, this represented a 19.3% year-on-year (YoY) decrease in earnings. The moderation of Return on Equity (ROE) to 30% from 37% in the prior year reflects the challenging operating environment. Total operating revenue for the year declined by 7.4% to RM701.8mn, primarily driven by a 13.3% YoY fall in trading revenue. Securities trading revenue saw a steeper 19.2% YoY decline, attributed to lower Average Daily Value (ADV). Derivatives trading revenue also slightly decreased by 0.9% YoY.

Conversely, non-trading revenue segments provided a crucial cushion, increasing by 5.0% YoY. This growth was primarily fueled by higher Depository Services (+5.8%), Member Services & Connectivity (+5.2%), Listing & Issuer Services (+4.9%), and Data Business (+3.9%). Operating expenses climbed by 4.5% YoY to RM390.1mn, largely due to increases in depreciation, IT maintenance, administrative expenses, and staff costs. This led to an increase in the cost-to-income ratio to 54%, up from 48% in FY24. The company declared a final dividend of 14.0 sen, bringing the total FY25 dividend to 28.0 sen, with a payout ratio of 91%.

Market activity indicators softened during the year. Total ADV contracted significantly, and retail ADV notably declined by 30.6%. Foreign institutions also saw a reduction in their ADV. The overall trading velocity softened, and total funds raised decreased by 24.5% YoY. Furthermore, the market experienced a total net foreign outflow of RM22.3bn, contributing to a narrower foreign shareholding level.

Future Outlook and Strategic Direction

Despite the near-term headwinds in the securities market, exacerbated by ongoing geopolitical volatility, management maintains an optimistic outlook. Resilient domestic growth and a stable political backdrop are anticipated to bolster investor confidence and facilitate a recovery in foreign fund flows. The company projects total IPO market capitalisation to reach RM28.0bn in 2026 and expects non-trading revenue to grow by more than 10% YoY. However, ROE is anticipated to moderate to between 27-30%, mainly due to elevated operating costs stemming from continued investments in technology and systems.

The exchange operator is making significant progress across its strategic pillars for 2025, with plans to strengthen its foundation for sustainable growth in FY26. Key initiatives include enhancing market vibrancy through broader product offerings and improving the quality of its IPO pipeline. Additionally, the company aims to accelerate growth in data and digital services, exploring sustainability solutions and AI-driven monetisation. Strategic partnerships and selective M&A opportunities are also under consideration to expand distribution channels and strengthen technological capabilities.

Valuation and Recommendation

TA Securities has revised its target price upwards to RM10.20 from RM8.80, representing a potential upside of 13.1% from the last traded price of RM9.02. This upward revision reflects stronger earnings forecasts and an updated risk-free rate assumption of 3.5%. The target price is based on an implied FY26 Price-to-Earnings Ratio (PER) of 26.1x, incorporating a 3% ESG premium. Consequently, TA Securities has upgraded its recommendation from “Hold” to BUY.

Key downside risks to the target price include a potential decompression in risk premiums, further declines in trading velocity, a weaker-than-expected improvement in the derivatives market, lacklustre retail sentiments, and the inability to reverse foreign outflows.