BURSA Malaysia Bhd could face a dampener from the rise in stamp duty from 0.10% to 0.15% coupled with the removal of a RM200 stamp duty cap per contract note as per what was recently proposed by Budget 2022.
This, according to UOB Kay Hian Research, could impact retail trading volumes by reducing the level of day trading and to a smaller extent institutional volume.
“We believe that the market has not fully priced in this downside risk as valuations at mean PE (price-to-earnings ratio) remains rich relative to above mean ADV (average daily volume) projections which is at risk of further downward normalization,” contended analyst Keith Wee Teck Keong in a company update.
As a result, UOB Kay Hian Research has slashed Bursa Malaysia’s target price to RM6 (from RM7 previously) while maintaining its “sell” rating following its earnings cut.
Given concerns and prevailing trends, the research house further revised downwards its 2021, 2022 and 2023 ADV assumptions to RM3.60 bil, RM2.40 bil and RM1.90 bil from RM3.70 bil, RM2.90 bil and RM2.30 bil respectively.
“Despite our reduced ADV assumption, we opine that there could still be downside risk to our 2022 ADV assumptions as November’s ADV assumptions are already hovering below our 2022 assumption of RM2.40 bil even before the punitive stamp duty cap removal comes into effect,” UOB Kay Hian Research pointed out.
Moving forward, the research house expects the market to price in a continued downward normalisation in ADV well into 2023. Bursa Malaysia is trading at 23 times 2022 PE (price-to-earnings ratio) which in line with its historical mean PE of 23 times.
“However, given the fact that our 2022 ADV assumptions of RM2.4 bil continues to hover above its pre-COVID-19 mean of RM2.1 bil coupled with the expectations that ADV will continue to normalise downwards well into 2023, we think the market will continue to price in such downward normalisation by valuing the stock at below mean PE valuations,” reckoned UOB Kay Hian Research.
“This is compounded by the fact that we expect Bursa Malaysia to register three consecutive years of earnings contraction from 2021-2023 off an exceptionally high ADV base.”
At the close of today’s mid-day trading, Bursa Malaysia was down 4 sen or 0.61% (at its 52-week low) to RM6.56 with 622,500 shares traded, thus valuing the company at RM5.31 bil. – Nov 23, 2021
