Analysts offer mixed outlook on Bursa Malaysia

The market’s recovery path will be a volatile one, given opposing news flow between vaccines and a still elevated Covid-19 count

by ASILA JALIL / pic by TMR

ANALYSTS gave mixed views on Bursa Malaysia Bhd’s outlook for the year despite the company’s strong results in 2020 amid expectations of an uneven recovery for the local stock market.

Hong Leong Investment Bank Bhd (HLIB Research) analyst Jeremy Goh said Bursa Malaysia is currently off to a good start with the average daily trading value (ADTV) in January standing at RM5.04 billion versus RM5 billion the month prior.

“We believe the market’s recovery path will be a volatile one, given opposing news flow between vaccines and a still elevated Covid-19 count.

“The first half of 2021 will very much be a trading market, as investors actively rotate back and forth between recovery plays and gloves, auguring well for ADTV,” he said in a note yesterday.

The firm maintained its ‘Buy’ call on Bursa with an unchanged target price (TP) of RM11.46 based on a 30 times price-to-earnings ratio (PER) tagged to financial year 2021 (FY21) earnings per share.

Goh said there would be an upside to HLIB Research’s estimates if Bursa Malaysia’s ADTV is sustained at current levels compared to its FY21 RM3.36 billion assumption.

Bursa recently posted a 103% year-on-year (YoY) net profit rise to RM377.75 million for FY20, attributed to the improved performance in the securities and derivatives market.

Turnover for the year jumped 59% YoY to RM798.97 million on the back of higher trading revenue for the securities and derivatives market.

The stock operator also declared a final dividend of 26 sen per share and a special dividend of eight sen per share for FY20.

AmInvestment Bank Bhd (AmInvestment) maintained its ‘Buy’ recommendation on Bursa with a higher fair value of RM10.30 per share from RM9.65 per share previously, pegging the stock to FY21 PER of 26 times in line with the average of listed stock exchanges regionally.

The firm raised Bursa’s FY21 and FY22 earnings by 6.3% and 1.9% respectively, reflecting the higher effective clearing fee rate for the securities market.

The research house also maintained its ADTV assumptions for FY21 and FY22 at RM3.2 billion and RM2.8 billion respectively.

On a quarterly basis, Bursa’s net earnings for 4Q20 rose 130.2% YoY to RM104.85 million from RM45.56 million in 4Q19. Quarter-on-quarter, however, its net profit moderated 14% from RM121.94 million in 3Q20.

“It was lower than our projection of RM120 million largely due to higher staff cost and other operating expenses.

“The higher other operating expenses in 4Q20 was attributable to a one-off professional fee of RM4 million for review of information technology systems.

“It was also due to non-recurring provisions of RM13.6 million for the potential tax charges on digital services after the recent change in the scope of the sales and services tax,” AmInvestment noted.

RHB Investment Bank Bhd (RHB Research) analysts Liew Wai Hoong and Fiona Leong also revised its earnings forecasts for FY21 and FY22 by 11% and 2% respectively, mainly on higher securities ADTV assumptions.

“There were no signs of slowing down in January and we expect trading in equity securities to remain buoyant, driven by the resurgence in Covid-19 cases and various forms of lockdown (market volatility), and vaccination programme (recovery theme),” they said in a note.

The research firm reiterated its ‘Buy’ call for Bursa with a higher TP of RM10.80 from RM9.70 reflecting 16% upside, based on unchanged PE of 28 times.

MIDF Amanah Investment Bank Bhd opined Bursa would not see the same level of performance in FY21 compared to FY20 which had been an unprecedented year.

“The situation had reinvigorated retail investors and it seems they continue to remain invested in the financial markets.

“This should bode well for Bursa’s performance this year. However, we believe it will be difficult to sustain the same level of performance in the absence of the volatility swings we observed in FY20,” it said in a note.

The firm expects normalisation in trading activities this year as effects from the Covid-19 pandemic starts to wane once vaccination is rolled out.

It maintained ‘Neutral’ on Bursa with unchanged TP of RM8.90 based on pegging FY21 EPS to PER of 22 times.

MIDF does not foresee the high dividend payout to persist and therefore, it is expecting a dividend of 36 sen for the local bourse in FY21.

It forecast Bursa’s earnings for FY21, FY22 and FY23 to come in at RM325.8 million, RM302.3 million and RM310.5 million respectively.