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KUALA LUMPUR (Oct 23): Bursa Malaysia Bhd, which has an unprecedented winning streak due to record highs in equity trading arising from pandemic circumstances, has received mixed opinions from analysts on its valuation.
Despite the stock declining from its all-time high of RM10.36 in August to RM8.80 (a drop of 15.06%), some analysts believe the valuation remains rich as the trading volume will normalize. amidst a liquidity shortage.
Alliance DBS Research analyst Chin Jin Han said in a report today that with liquidity tightening from the resumption of loan repayments and normalization of conditions, he expects Bursa Malaysia’s earnings to fall in 2021 .
While the stock market’s earnings for its third quarter of fiscal 2020 (3QFY20) are expected to be all-time highs in value and volume of stock trading, and retail participation to remain strong through 3QFY20, Chin believes it is likely to be would normalize over the next year.
“We raised our FY20-22 earnings by 6-18% based on assumptions about average daily value traded and average daily volume traded, but we maintain our view that FY21 will likely see lower gains year-on-year,” he said.
Chin also believes the stock is still trading around 1SD from its five-year average, a rich valuation considering earnings are expected to contract over the next year.
“The current price of the stock seems to imply that the existing trading conditions will remain optimistic in fiscal year 21,” said Chin, who pegged the stock at RM7.35, 16.5% lower compared to its current price.
Chin also said that a major catalyst for the stock appreciation is a review of the exchange’s current fee structures, which have not changed since 2008. However, the current environment indicates that a review is not within plans to short term of the stock market.
Some analysts, however, believe that concerns about the impact of the end of the bank loan moratorium have been discounted.
When contacted by The Edge, Hong Leong Investment Bank Research analyst Jeremy Goh said the recent weakness in Bursa Malaysia’s share price was likely due to the perception that the end of the loan default period would see a decline. in “retail liquidity”.
“However, we do not believe that the retail share will evaporate quickly. Perhaps some downward normalization, but at levels that are still higher than the long-term average,” he said.
First, he noted that fixed deposit rates are low and stocks still offer a viable liquid option for better returns.
Second, their studies of individual loan repayments suggest that “moratorium money” was not a key factor in driving retail flows to begin with.
“Third, gloves (a favorite in the retail sector) will continue to be in favor with the growing global Covid-19 count and potential higher weighting in KLCI in the November review,” added Goh.
He maintains his bullish view on Bursa Malaysia with a “buy” call and a price target of RM11.85.
Maybank Investment Bank Research analyst Wong Chew Hann also said in her recent report that in addition to the loan default, low interest rates and the suspension of short sales of shares (as of March 23) to mitigate the volatility induced by Covid-19 have also contributed to the high commercial activities since April.
She upgrades the stock to “hold” from “sell” with an unchanged target price of RM9.30.
In his report yesterday, CGS CIMB analyst Winson Ng estimated that Bursa Malaysia would report a record net profit of RM128.2 million for 3QFY20.
This represents a growth rate of 172.1% YoY and a staggering 48.7% QoQ versus a 2QFY20 net profit of RM 86.2 million, the previous all-time high.
The key factor in 3TFY20 earnings, according to Ng, would be the 200% year-on-year spike in stock market average daily trading volume (ADTV) to an all-time high of RM5.8 billion.
“Based on our net profit forecast for 3QFY20, Bursa Malaysia would have made a net profit of RM279.1 million per [the cumulative first nine months of FY20]”said Ng.
Ng also improves Bursa Malaysia to “hold” from “reduce” with a higher price target of RM9.10 (from RM8.60), due to a solid 3QFY20 net profit and an improvement in the stock market ADTV.
Bursa Malaysia plans to release its 3TFY20 financial results on October 27.
Bursa Malaysia shares closed 20 sen or 2.22% lower at RM8.80 today, valuing the company at RM7.12 billion.
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