BELIEVING that trading volumes will remain depressed as investors are sidelined by uninspiring global macros and softer sentiment, Kenanga Research has slashed its target price for Bursa Malaysia Bhd by 10.6% to RM6.30 (from RM7.05 previously) while retaining its “market perform” rating on the stock exchange operator.
The research house foresees that global macros remain unfavourable with recent US inflation rising to 9.1% as of June 2022, culminating in softer market sentiment.
“Locally, while we hope for sequentially better GDP (gross domestic product) numbers from our reopened economy, recessionary concerns may dissuade foreign participation,” projected analyst Clement Chua in a company update.
“Additionally, retail investors may progressively retreat towards safer long-term investment and savings products as Bank Negara Malaysia (BNM) is expected to continue raising OPR (overnight policy rate) by another two 25 bps. This only swells the risk-reward for margin trading unfavourably.”
Kenanga Research has initially anticipated Bursa Malaysia’s FY2022E/FY2023E average daily volume (ADV) to clock in at RM2.70 bil/RM2.60 bil (FY2021: RM3.55 bil) but now opine that levels of RM2 bil/RM2.10 bil are more likely.
Moving forward, the research continues to expect weakness in trading activities as the heyday of heavy trading of healthcare-related (glove) stocks two years ago are unlikely to recur.
That said, Kenanga Research listed the much needed positive catalysts as follows:
- Favourable resolution of the Russia-Ukraine conflict albeit the sentimental boost may not be long lasting as the mending of economic damage would be a medium-term endeavour;
- Earlier-than-expected 15th General Elections (GE15) (ie before 2023); and
- Sustained growth in commodity prices to support trading in the beneficiaries.
Elaborating on prospects, the research house said its slashing of Bursa Malaysia’s ADV would entail the latter’s 2H FY2022 ADV to only average at RM1.7 bil which it does not believe as far-fetched.
“That said, we estimate 2Q FY2022 to report net earnings of RM60 mil-RM65 mil (-30% year-on-year; -10% quarter-on-quarter),” projected Kenanga Research.
“Trading income makes up at least two thirds of Bursa Malaysia’s total income and will likely remain as the lion’s share as its other income from listing and depository services also hinges on the overall sentiment of the equities market.”
The stock market operator is slated to release its results on July 28. At 9.59am, Bursa Malaysia was down 1 sen or 0.16% to RM6.29 with 45,700 shares traded, thus valuing the company at RM5.09 bil. – July 15, 2022
