In 1HFY21, Bursa Malaysia's earnings result met consensus expectation at 60% of full-year estimate, but disappointed Kenanga Research at 55% of its full-year projection.
There was a lower-than-expected average daily trading value (ADV) of RM3.8bil in 2QFY21 as compared to Kenanga's expected RM4.4bil, leading to the earnings disappointment.
However, the research house believes the increasing digitalisation could still add value as it facilitates greater retail participation.
While average month-to-date ADV has fallen 18% to RM3.09bil, retail participation had risen to 39% in 1HFY21 as compared to the FY17-19 average of 23%.
Retail ADV also rose to RM1.74bil as compared to FY17-19 average of RM512mil.
Kenanga added that while political uncertainty is likely to keep foreign investors on the sidelines, this could be offset by growing retail ADV.
Kenanga slashed FY21-22 earnings by 5% to 10% on lower FY21-22 ADV but maintained that Bursa's valuation remained appealing as it was trading at a 28% discount to its peer, Singapore Stock Exchange.
"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 17x PER or c.RM6.95 per share (-2.0SD from mean), implying ADV of c.RM2.5b," said Kenanga.
The research house upgraded Bursa to "outperform" from "market perform" but lowered its target price to RM8.20 from RM8.80 based on FY22 price-earnings ratio of 20x or minus-one standard deviation from mean.