WITH the unabating COVID-19 infection rate taking a toll on the economy – and inevitably hurting investors’ pocket – it can be envisaged that Bursa Malaysia Bhd is unlikely to expect a repeat of last year’s ‘liquidity-flushed’ retailer-driven frenzy.
In fact, UOB Kay Hian Research is expecting the local bourse to register a relatively sharp 25% quarter-on-quarter (qoq) decline in its upcoming 2Q FY2021 earnings in tandem with a lower average daily value (ADV) of RM3.7 bil in 2Q 2021 vs RM5.1 bil in 1Q 2021.
“Month-to-date July 2021 ADV has continued to normalise downwards to RM3.2 bil while prevailing ADV is even lower at below RM2.5 bil given the ongoing uncertainties,” projected analyst Keith Wee Teck Keon in a company update.
“Despite the anticipation of an improving market sentiment and better clarity on eventual economic re-opening, we are still penciling in a downward normalisation in 2022 ADV to RM2.9 bil vs 2021’s high base of RM3.7 bil,”
While excess liquidity is still ample, UOB Kay Hian Research believe that it will be partially diverted to economic activities as the economy re-opens. A case in point is that the banking system current account savings account (CASA) growth has been gradually tapering off from a peak of 24% year-on-year (yoy) in January to 16% yoy in May.
Given that its 2022 ADV assumptions of RM2.9 bil continue to hover at above its pre-COVID-19 mean of RM2.1 bil – coupled with the expectations that ADV will continue to normalise downwards well into 2023 – the research house expects Bursa Malaysia to post two consecutive years of earnings contraction from 2021-2023.
This has prompted UOB Kay Hian Research to downgrade Bursa Malaysia to “sell” with a lower target price of RM7 (previously RM9.10).
“Our initial target price was based 21 times PE (price-to-earnings ratio) on a blended average of 2021-2022 earnings forecast,” projected the research house.
“However, given the forward nature of the market, we took the opportunity to roll forward our target price to 2022 where we are expecting a 19% yoy contraction in earnings while retaining our 21 times PE peg.”
At 11.30am, Bursa Malaysia was down 1 sen or 0.13% to RM7.69 with 118,600 shares traded, thus valuing the company at RM6.22 bil. – July 14, 2021
