HLIB Research recommended that investors take advantage of the recent share price strength to lock in some gains.
PETALING JAYA: Bursa Malaysia Bhd
is expected to see further increase in average daily trading volume (ADV) next year before normalising in 2026.
This optimistic view is supported by an anticipation of foreign fund inflows to emerging markets amid expectations of US interest rate cuts.
According to UOB Kay Hian (UOBKH) Research, Bursa’s annual ADV will likely peak at RM3.92bil in 2025, rising from a projected RM3.4bil this year, before trending down to RM3bil in 2026.
The brokerage noted that its 2025 ADV forecast was the second-highest in the stock exchange operator’s history, after an achievement of RM4.21bil in 2020.
For the first half ended June 2024 (1H24), Bursa recorded ADV of RM3.3bil, surpassing UOBKH Research’s full-year estimate of RM3.1bil. As such, the brokerage increased its 2024 ADV forecast to RM3.4bil.
“With the anticipation of US interest rate cuts gaining momentum in 2025 and a consequent increase in foreign inflows into emerging markets like Malaysia, we expect Bursa’s ADV to rise further in 2025 before normalising in 2026 onwards,” UOBKH Research explained.
Despite expecting a further increase in ADV in 2025, however, the brokerage downgraded Bursa to “hold” from “buy” previously, citing limited upside and fairly balanced risk to reward.
It raised its target price for the counter to RM10.32 from RM9.45 on a rolled-forward valuation and higher earnings.
“The stock is currently trading close to its mean price-earnings ratio (PER) of 23 times on earnings that is based on a relatively optimistic RM3.9bil ADV assumption. We believe that this has essentially priced in the current bullish sentiment as typically valuations should compress at the peak of the cycle,” UOBKH Research explained.
“Valuing Bursa at a mean PER of 23 times on our peak cycle 2025 ADV forecast, we derive a new target price of RM10.32,” it added, noting the recent strong share price rally had largely priced in the optimistic ADV outlook.
Another brokerage, MIDF Research, also downgraded its rating for Bursa to “neutral” from “buy”, but ascribed a higher target price for the counter at RM9.30 from RM8.20 previously.
“We expect good prospects for trading activities in Bursa will continue this year from a corporate earnings and valuation point-of-view. We expect robust economic growth and hence corporate earnings,” MIDF Research explained.
“We also anticipate that the continued expectations of the first US rate cuts will allow for the momentum to remain, especially among foreign investors, and this will drive better market valuations,” it added.For the second quarter of 2024 (2Q24), Bursa’s net profit rose 5.5% to RM80.45mil from RM76.25mil in 2Q23, driven by improved market sentiment. Its 2Q24 revenue increased 38.3% to RM199.94mil from RM144.6mil in 2Q23.
For 1H24, the exchange’s net profit rose 17.4% to RM155.48mil from RM132.42mil in 1H23, while revenue rose to RM387.14mil from RM301.1mil in 1H23, driven by a surge in securities trading revenue.
Hong Leong Investment Bank (HLIB) Research said while it expected Bursa’s 2024 ADV to hit a post-pandemic high at RM3.02bil, valuations for the company’s stock were stretched.
“Despite the current buoyant ADV climate, we feel it is difficult to justify further share price upside. Valuations also appear pricey with PER at plus 1.9 standard deviation (SD) above its post pandemic mean (or plus 2.0 SD on a five-year basis) and its PER gap is at a 16% premium to peers, which is plus 2.2 SD above the five-year mean,” it explained.
As such, HLIB Research recommended that investors take advantage of the recent share price strength to lock in some gains.
It maintained its “hold” call on Bursa, with an unchanged target price of RM9.96.
Meanwhile, RHB Research continued to recommend “buy” on Bursa, with an unchanged target price of RM11.25.
The brokerage viewed Bursa’s revised pre-tax profit target for 2024 at RM361mil-RM379mil, up from the previous RM273mil to RM323mil, after a robust 1H24 performance, as still “fairly conservative”.
“We note that this bakes in a fair amount of conservatism, given the uncertain market reactions expected from ongoing geopolitical developments, namely the Middle East conflict and the upcoming US elections,” RHB Research said.
“However, the group sees upside potential coming from its strong initial public offering pipeline as well as continued securities market strength,” it added.
RHB Research said it liked Bursa for its being a proxy to the strong securities market, and are positive on the group’s efforts towards diversifying its offerings beyond traditional trading products.
