BURSA Malaysia Bhd may have chalked up another stellar quarterly performance but analysts are sceptical that such momentum is sustainable.
No doubt the stock exchange operator has posted robust trading volumes, they contend that the outlook remains uncertain as the domestic economic recovery is subject to various downside risks from softer corporate earnings, weak labour market conditions, fragile consumer confidence and – not forgetting – the domestic political debacle.
On the external front, global economies remain weak especially with concerns over the resurgence in COVID-19 cases, rising geopolitical risks arising from an ongoing trade war and obviously, the outcome of the U.S. presidency election.
“Despite turning in a solid nine-month performance due to heightened volatility in the market, we continue to observe that the macro fundamentals remain poor,” wrote TA Securities Research analyst Li Hsia Wong in a results review.
“As expected, net outflow of foreign funds continued in the 3Q 2020 and could likely persist.”
Notwithstanding pockets of opportunities emerging from the COVID-19 pandemic in the form of a surge in demand for medical-related products and technology-related companies, the research house cautioned that additional liquidity fuelled by the loan moratorium and interest rate cuts in the earlier part of the year would gradually dry up.
“That said, we note that the market was mostly driven by the retail market as retail average daily value (ADV) more than tripled yoy,” observed Li.
Trading participation by retailers on Bursa Malaysia widened to 37% (2019: 25%) of total trading during the 9M FY2020 period while the total ADV broadened to RM4 bil from RM1.98 bil a year ago.
The stock exchange operator saw its net profit for its nine-month FY2020 surged 95% year-on-year (yoy) to RM272.9 mil (9M FY2020: RM144 mil) which exceeded expectations of the analyst fraternity.
On a quarterly basis, its net profit for 3Q FY2020 jumped 159% to RM121.94 mil from RM47.1 mil in the same period last year.
All-in, TA Securities Research reiterated its “sell” rating on Bursa Malaysia despite upping its target price to RM8.30 from RM7.80 previously.
Elsewhere, MIDF Research downgraded Bursa Malaysia to “neutral” from “trading buy” although it revised the target price upward to RM8.90 from RMM6.45 previously by pegging the company’s FY2021 earnings per share to a price-to-earnings ratio of 22 times.
“We believe that the increase in trading interest this year is an exception rather than a ‘new’ normal,” noted analyst Imran Yassin Yusof. “Although this may carry onto next year, we believe that it has already been priced in.”
At 9.46am, Bursa Malaysia was down 8 sen or 0.94% to RM8.44 with 487,400 shares traded, thus giving the company a market capitalization of RM6.83 bil. – Oct 28, 2020
