HONG Leong IB (HLIB) Research has downgraded Bursa Malaysia Bhd to “sell” (from “buy” previously) with a lower target price of RM5.65 (from RM7.95) on the seemingly dimming average daily volume (ADV) outlook stemming from the US recessionary contagion fears and diminishing probability of an early 15th General Election (GE15).
According to the research house, the stock exchange operator’s monthly ADV has been down trending since June as investors stayed on the sidelines given external woes emanating from the aggressive US Federal Reserve monetary policy tightening.
“Worryingly, month-to-date July ADV of only RM1.31 bil (-31% month-on-month) is the lowest monthly showing in almost a decade (ie since December 2012),” cautioned head of research Jeremy Goh in a results review.
“Although we had earlier envisioned an early GE15 to provide the much needed reprieve to ADV in 2H 2022, this possibility seems to be diminishing given recent political news flow. The management is cognisant on the lacklustre ADV climate and assures that it will manage costs prudently.”
Yesterday (July 28), Bursa Malaysia reported a 2Q FY2022 net profit of RM59.5 mil (-12.5% quarter-on-quarter [qoq]; -33.2% year-on-year [yoy]), thus bringing its 1H FY2022’s sum to RM127.4 mil (-39.4% yoy). This accounted for 51%/53% of HLIB Research’s/consensus full year forecast.
With a dimmer near term ADV outlook, HLIB Research has slashed Bursa Malaysia’s FY2022/2023/2024 ADV assumptions by -17%/-14%/-15% to RM2.06 bil/RM2.31 bil/RM2.39 bil (year-yo-date: RM2.22 bil) and consequently lowering its earnings by -9.4%/-5.9%/-8.7%.
“With ADV evaporating, Bursa’s MC (market capitalisation)-to-ADV ratio for July has surged to +3.2SD (standard deviation) above mean – the highest level seen in the past decade,” observed HLIB Research. “Put simply, while ADV has taken a beating, we reckon share price has not adequately corrected to reflect this.”
Kenanga Research also anticipates Bursa Malaysia’s upcoming quarters to show weakness in lieu of unfavourable global macros.
“The supply chain disruptions stirred by the Russia-Ukraine conflict may require significant efforts to mend even if a resolution is achieved,” opined analyst Clement Chua.
“Foreign participants are expected to side line from local markets as the US Fed continue to raise interest rates with our domestic rising OPR (overnight policy rate) (another two 25 basis points hikes expected in 2022) would only further widen the risk-reward profile for margin trading.”
“That said, near-term positive catalysts could include (i) earlier-than-expected GE15 (pre-2023); (ii) positive economic reports (ie lower-than-expected inflation, higher CPI [consumer price index) and GDP [gross domestic product]) locally and internationally; and (iii) sustained performance in commodity prices.”
All-in-all, Kenanga Research reiterated its “market perform” rating on Bursa Malaysia with an unchanged target price of RM6.30 in line with its global exchange peers’ average and pre-pandemic valuations which is fairly valued at current levels.
“Coming away from an equities rally in recent years, the group looks to increase contributions from other products to reduce its sensitivity to market forces,” observed the research house.
“New channels are in the works of being introduced (ie Voluntary Carbon Market, broaden ESG [environmental, social and governance] indices & new Digital Gold Dinar asset class) but we believe they would only be earnings-accretive in the medium-term.”
At 9.27am, Bursa Malaysia was up 8 sen or 1.24% to RM6.51 with 110,900 shares traded, thus valuing the company at RM5.27 bil. – July 29, 2022
