KUALA LUMPUR: The lower average daily trading value (ADV) on the local bourse for the month of July hints at a possibility that earnings may have peaked for Bursa Malaysia Bhd, but analysts believe that there is still value in the stock.
Bursa turned in another stellar performance for the second quarter ended June 30, 2021 (Q2) with a 3.2% year-on-year (y-o-y) rise in net profit to RM89mil, while revenue was up 9.1% to RM196.1mil.
But quarter-on-quarter (q-o-q), net profit declined 26.7% due to a decline in securities trading revenue while trading revenue for derivatives was stable q-o-q with sustained average daily contracts traded.
For Q2, ADV for on-market trades for securities slipped to RM3.8bil versus RM5.1bil in Q1.
“Average month-to-date (July) ADV has fallen 18% to RM3.09bil and while we think earnings have peaked, we believe there is still value to be found,” Kenanga Research pointed out in a report yesterday.
The research house opined that with increasing digitalisation, there could be a further shift towards greater retail participation which was already evident in H1FY21, which would continue to buoy activity on the bourse. It noted that retail participation for the six-months was at 39% compared to the 23% average for FY17-FY19.
Although political uncertainty is likely to keep foreign investors on the sidewalks, Kenanga said this may be offset by growing retail ADV which was at RM1.74bil during the period under review compared to an average of RM512mil for FY17-FY19.
MIDF Research concurred that trading interest continues to be robust among retail investors despite the market weakness seen in Q2.
“We expect that the trading activities momentum will continue in H2FY21. As such, this should bode well for Bursa’s performance this year.
In addition, Bursa is also strengthening its core business such as expanding its product offering and investing in technology,” it said.
As such, MIDF maintained its “buy” call on the counter with an unchanged target price of RM8.90 based on a pegged FY22 earnings per share to price earnings ratio (PER) of 22 times.
Kenanga has also upgraded its rating on the stock to “outperform”, albeit with a lower target price of RM8.20 from RM8.80 previously.
The brokerage also reduced its FY21-22 earnings forecast by 5%-10% in view of the lower FY21-22 ADV assumption of RM3.77bil-RM3.40bil compared to RM4.4bil-RM3.7bil previously, and to take into account higher operating cost (+3%).
Kenanga maintained that valuations for Bursa remain appealing.
“Despite cutting our earnings forecasts, Bursa’s valuation (FY22 PER of 18.6 times) is trading at a 28% discount to its peer SGX in Singapore, which makes it appealing. 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 about RM6.95 per share, implying ADV of about RM2.5bil,” it said.
Kenanga noted that pre-Covid, Bursa traded at forward PER of circa 21 times with average ADV of about RM2.8bil.
Its FY21-22 dividend yields of 5.4%-5.0% also provide an additional safety net strengthened by an immediate catalyst in the form of an impending economic reopening.