This article first appeared in Capital, The Edge Malaysia Weekly on May 27, 2024 - June 2, 2024

Target price: RM9.85 BUY

RHB RESEARCH (MAY 21): We upgrade Bursa (KL:BURSA) from “neutral” and raise our target price from RM8. As Bursa is a prime beneficiary of a more active securities market, we turn more bullish on the stock.

Securities average daily value (SADV) this year as at May 17 stood at RM3.2 billion — the highest level on record, excluding the Covid-19 period. We think the current level is sustainable, given: i) the strong surge of positive news flow affecting multiple sectors; ii) ample liquidity to be invested in the domestic equity market, on top of the prime minister’s directive for government-linked companies to invest a bigger portion of funds domestically; and iii) further structural reforms from the Madani government. We raise our SADV forecast for 2024 to RM3.2 billion (from RM2.8 billion) in view of our refreshed optimism.

In 2017 and 2018 (the previous two record-breaking years for SADV), Bursa traded at a premium to its long-term mean of circa 22 times, reaching as high as 32 times in late 2018. We think it is fair to ascribe a premium valuation to Bursa now, given 2024 (and potentially 2025) could likely see SADV beat the previous record of RM2.6 billion by some distance. Thus, our PER target is raised to 26.5 times (from 22.5 times) — the highest level reached in 2017 — or a +1 standard deviation from its mean.

While we understand that Bursa will prioritise excess cash for investments into new products and platforms, it has a history of paying out special dividends in years of record-breaking SADV — it did so in 2017, 2018 and 2020, the last three record-breaking years. We also note that Bursa currently has a cash pile of RM374 million, higher than the average levels in 2017, 2018 and 2020. For now, we assume no special dividend payments, pending further clarity from management.

We upgrade our SADV forecasts for FY24-FY26 by 10%-14%. Consequently, our net profit estimates for Bursa are raised by 1%-4%, with the higher SADV assumption offset by higher operating expenditure (opex), in line with management’s guidance for 50% cost-to-income ratio. Our target price rises to RM9.85 and includes a 6% ESG premium. Key downside risks include a slowdown in securities market trading activity and higher-than-expected opex.

Target price: RM2.65 BUY

MAYBANK INVESTMENT BANK RESEARCH (MAY 20): We view the latest Variation Order 10 (VO10) award by Kuala Lumpur City Hall (DBKL) positively, as it lays the groundwork for future VOs for ITMAX (KL:ITMAX) to expand the CCTV coverage in the Klang Valley. As the VO10 is only expected to accrete positively from FY27 onwards, we maintain our earnings forecasts for FY24-FY26. Our call and target price, pegged to 1.5 times price-to-earnings growth, remain unchanged.

The VO10 effectively aligns and standardises the contractual end date for all of ITMAX’s CCTV-related contracts awarded by DBKL to Dec 31, 2029. We understand that extending Phase 1’s end date was deemed a prerequisite by DBKL for the issuance of future VOs to expand its current CCTV network. Previously, our forecasts had assumed that ITMAX would potentially add circa 1,000 CCTV units per annum between 2024 and 2026 to the existing DBKL network of 5,000 (5K) CCTVs. Following VO10, our assumption remains unchanged.

KL currently lags larger neighbouring Southeast Asian cities in surveillance camera density. At 5K units, KL is just ahead of Yangon (circa 2.5K) and Manila (>3K) but is substantially behind Ho Chi Minh City (circa 50K), Bangkok (>77K) and Singapore (>100K). DBKL’s Smart City Plan 2021-2025 aims to address this gap.

Target price: RM24.35 BUY

UOB KAY HIAN RESEARCH (MAY 21): The 2QFY24 results of KLK (KL:KLK) came in below our expectation, mainly dragged by share equity loss from its overseas associate Synthomer. However, operating profit is still within our expectation. We expect 2HFY24 earnings to come in higher than that of 1HFY24, with the manufacturing segment set to exhibit the strongest growth (especially the oleochemical sub-segment). We revised our earnings forecast to factor in the larger-than-expected share equity loss from its associate.

KLK reported 2QFY24 net profit of RM109 million (-48% q-o-q, +182% y-o-y), bringing 1HFY24 net profit to RM318 million (-44% y-o-y). The results came in below our expectation, contributing only about 25% of our full-year forecast. But its operating profit came in within our expectation, accounting for 40% of our full-year forecast.

We have lowered our FY24 earnings forecast by 28%, factoring in the share equity loss from Synthomer, and maintain our FY25-FY26 net profit forecasts. We maintain our “buy” call, with the target price lowered from RM24.80 after earnings adjustments, and peg our valuation forward to FY25. We peg our valuation at 17 times FY25F PER, which is a -1 standard deviation to the average five-year mean of the sector.

Target price: RM3.75 BUY

HONG LEONG INVESTMENT BANK RESEARCH (MAY 21): SunCon (KL:SUNCON) reported 1QFY24 core Patami of RM28.7 million (-44.6% q-o-q, +3.1% y-o-y). We deem the results within our/consensus expectation at 16.6%/15.8% of full-year forecasts. The company is typically a slow starter and we believe this trend is more pronounced in FY24 considering billings from its key data centre (DC) project will only pick up from June.

Billings for its DC project is on track to accelerate in 2H. Given the vibrant advanced tech facilities sector, rail projects and potential formalisation of its Vietnam project, upside to assumptions remain. Its current client base could yield more jobs from expansion plans and regional opportunities. The precast segment should continue to benefit from healthy demand in Singapore.

We change our FY24/25 earnings forecasts by -1.3%/+5.9% after lifting replenishment assumptions while adjusting for project progress, and introduce FY26 core Patami forecasts of RM248.8 million.

We raise our target price from RM3.20, with the new price derived by pegging FY25 EPS to 21 times (from 19 times) PER, based roughly on a +0.5 standard deviation on a five-year trading range. We believe this above-average target multiple is warranted due to its Johor and DC exposure.

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