UOB Kay Hian Research has stood out among the research house fraternity for its “sell” rating (unchanged target price: RM7) on Bursa Malaysia Bhd despite the stock market operator having posted a stellar 2Q FY2021 performance.
Yesterday (July 29), Bursa Malaysia reported a 2Q FY2021 net profit of RM88.97 mil (3.2% year-on-year [yoy]; -26.7% quarter-on-quarter [qoq]) which together made up a 1H FY2021 earnings of RM210.36 mil (1H FY2020: RM150.96 mil).
The research house based its pessimism on likelihood of the stock market pricing in a continued downward normalisation in average daily trading value (ADTV) well into 2023.
“We expect the stock to register three consecutive years of earnings contraction from 2021-2023 as its ADV is expected to continue normalising downwards off a high base,” opined analyst Keith Wee Teck Keong in a results review.
“Our 2022 ADTV assumptions of RM2.9 bil continues to hover above its pre-COVID-19 mean of RM2.1 bil coupled with the expectations that ADTV will continue to normalise downwards well into 2023.”
Despite an attractive dividend yield of 5.5%, CGS-CIMB Research maintained its “hold” call on Bursa Malaysia with a lower target price of RM7.48 (from RM9.18 previously) as it expect the latter’s 2H 2021F net profit to decline yoy due to lower ADV.
“In view of the more cautious market sentiment, we expect the equity ADTV to decline by 18.5% half-on-half (hoh) to RM3.6 bil in 2H 2021F,” projected analyst Winson Ng.
“In fact, the ADTV fell by 30.7% for the first 18 trading days in July (vs 1H 2021). With this, we project a 21.8% hoh slide in Bursa’s 2H 2021 net profit to RM164.4 mil. We also forecast 2H 2021F net profit dwindling by 27.5% yoy on the back of a 31.7% yoy drop in 2H 2021F ADTV.”
Meanwhile, Kenanga Research upgraded Bursa Malaysia to “outperform (from “market perform” previously) albeit with a lower target price of RM8.20 (from RM8.80 previously) based on FY2022E PER (price-to-earnings ratio) of 20 times while recommending investors to buy the stock on weakness.
“Despite cutting our earnings forecasts, Bursa Malaysia’s valuation (FY2022E PER of 18.6 times) which is trading at a 28% discount to its peer SGX (Singapore Exchange) makes it appealing,” opined analyst Adrian Kok.
“This is especially so given SGX-listed stocks’ tendency to trade at a discount to stocks listed on Bursa Malaysia. The steep discount is more than enough to price in the political uncertainty and we think in a bear case, downside is limited with floor valuation of 17 times PER or circa RM6.95/share.”
That Bursa Malaysia traded at forward PER of circa 21 times with average ATDV of circa RM2.8 bil FY2021-2022E (and dividend yields of 5.4-5.0%) also provides an additional safety net strengthened by an immediate catalyst in the form of an impending economic re-opening, according to the research house.
At 11.30am, Bursa Malaysia was up 19 sen or 2.5% to RM7.79 with 1.13 million shares traded, thus valuing the company at RM6.3 bil. – July 29, 2021
