PETALING JAYA : Kenanga Research has trimmed its average daily volume (ADV) and earnings forecasts for Bursa Malaysia this year based on the lower than expected ADV.
In a report to clients, the research house said it was maintaining its “outperform” call on the stock exchange operator but with a lower target price of RM9.70 from an earlier RM10.
ADVs for the fourth quarter of 2024 (4Q24) were softer than expected, with foreign investors appearing to exit Malaysian equities to return to US markets following Donald Trump’s win in the presidential election.
This has led to a softer ADV projection for this year of RM3.3bil from the earlier RM3.6bil and a dilution of improved sentiment caused by the news about the Johor-Singapore Special Economic Zone and data-centre boom.
The research house said that the ADV for 4Q24 came in behind its expectations of RM3.80bil, which resulted in a full-year ADV of RM3.16bil opposed to forecasts of RM3.47bil.
The shortfall was attributed to softer-than-expected trading as the market was sidelined while awaiting the results of the US Presidential election in November.
The outcome of Trump’s win also led to a heavy outflow from Malaysian equities of RM7.8bil in 4Q24, which offset the net inflows of RM4.4bil in the previous quarter.
“We anticipate Bursa’s earnings for its fourth quarter ending Dec 31, 2024, to come in between RM65mil and RM75mil to close 2024 at RM311mil.
“As such we are cutting our forecasts for Bursa’s FY24 and FY25 earnings forecasts by 4% and 3%, respectively, to reflect the softer ADVs,” the research house said.
“This translates to a 4Q24 earnings forecast of between RM65mil and RM75mil to make up its revised FY24 earnings of RM311mil which presents a quarter-on-quarter weakness of around 20%.
“We think FY25 earnings will be supported by more fees, which make up around 20% of total revenue. The fee income is expected to come from a higher number of initial public offerings, projected to be around 50, compared with the 42 last year, and better market participation as well as a better performance in derivatives,” the research house added.
Additionally, Bursa’s proposed “value-up framework”, which looks to set performance targets for listed companies in the hopes of driving shareholder value and improving the quality of Malaysian equities, could prompt foreign investors to reconsider the domestic market when implemented, Kenanga Research said.
The research house said its lower target price for the stock came after the earnings adjustments based on an unchanged 25 times price-earnings ratio on earnings per share of 38.9 sen this year and was in line with the average for global financial exchange peers, which have also seen appreciation in valuations.
“Current valuations are also similar to pandemic levels, which we believe could be reflective of similar sentiment in line with heightened trading activities,” the research house said.
