BARISAN Nasional’s (BN) landslide victory in the recent Johor state election which has heightened grapevine talks of an early 15th general election (GE15) should augur well for stock market operator Bursa Malaysia Bhd judging from previous nationwide polls.
Hong Leong Investment Bank (HLIB) Research observed that two out of the past three GEs saw a positive effect on average daily trading volume (ADV) in both the election year (year-on-year increase) and election month (month-on-month increase) with the exception being GE12 (2008) due to the Global Financial Crisis (GFC).
“With the “election clock” ticking, we think investors will eventually start positioning on Bursa to ride on the potential ADV boost,” opined head of research Jeremy Goh in a company update.
“Upgrade to “buy” (from “hold” previously) with target price of RM7.27 (from RM5.95 previously) based on 23.3 times FY2022 PE (price-to-earnings ratio).”
In fact, HLIB Research does not deem Bursa Malaysia’s valuations as excessive with its PE hovering near mean and -19% discount to peers.
Below are HLIB Research’s observation of the past GE outcome:
- GE14 (May 9, 2018): Despite 2017 ADV having a high base back then (RM2.31 bil; +27.6% yoy) – partly due to anticipation of early polls – this sustained into 2018 as well (the election year) at RM2.39 bil (+3.4% yoy). ADV also surged +62.9% mom in May 2018 (the election month) with heightened trading following the regime change.
- GE13 (May 5, 2013): 2013 ADV rose +20.5% yoy to RM1.92 bil during the election year. During the election month (May 2013), ADV soared +59.8% mom.
- GE12 (March 8, 2008): This was a rather unique election year where ADV did not increase yoy but instead plunged -45.8% to RM1.18 bil. However, this was likely attributed to the GFC onslaught which dragged on into 2009 (ADV fell by another -5% yoy). Unlike GE13 and GE14, there was also no mom rise in ADV during the election month (March 2008: -5.1% mom).
All-in-all, HLIB Research raised Bursa Malaysia’s FY2022/2023 earnings by 4.9%/3.0% after updating its model for the latest annual report release and introduce FY2024 earnings.
“Note that we have not explicitly imputed any potential ADV upside from GE15 into our forecast. Should this happen in 2H 2022, the ADV decline in FY2022 should be less profound (we currently project RM2.48 bil; -30% yoy),” projected the research house.
“With increasing probability of an early GE15, we think investors will eventually start angling on Bursa to ride on the potential ADV boost.”
At 10.16am, Bursa Malaysia was up 20 sen or 3.13% to RM6.59 with 895,100 shares traded, thus valuing the company at RM5.33 bil. – March 16, 2022
