KUALA LUMPUR (Oct 23): Bursa Malaysia Bhd, which has an unprecedented earnings run due to historic highs in equity trading activities arising from pandemic circumstances, has received mixed views from analysts on its valuation.

Despite the stock having tapered off from its record high of RM10.36 in August to RM8.80 — a fall of 15.06% — some analysts think the valuation is still rich as the trading volume is set to normalise amid tightening liquidity.

Alliance DBS Research analyst Chin Jin Han said in a report today that with liquidity set to tighten from the resumption of loan repayments and normalising conditions, he expects Bursa Malaysia's earnings to fall in 2021.

While the bourse's earnings for its third quarter of financial year 2020 (3QFY20) are expected to be historic highs in equity trading value and volume, with retail participation remaining strong up until 3QFY20, Chin opines that it would likely normalise over the next year.

"We raise our FY20-22 earnings by 6-18% on higher average daily value traded and average daily volume traded assumptions but maintain our view that FY21 would likely see lower year-on-year earnings," he said.

Chin also opines that the stock is still trading at close to 1SD of its five-year mean — a rich valuation considering earnings are expected to contract over the next year.

"The current stock price seems to imply existing trading conditions will remain buoyant in FY21," said Chin, who pegged the stock at RM7.35, 16.5% lower compared to its current price.

Chin also said that a major rerating catalyst for the stock is a review of the bourse's current fee structures, which have not changed since 2008. However, the current environment indicates a revisit is not within the bourse's near-term plans.

Some analysts, however, think that concerns over the impact of the end of the bank loan moratorium have been priced in.
 
When contacted by The Edge, Hong Leong Investment Bank Research analyst Jeremy Goh said the recent weakness in Bursa Malaysia's share price was probably due to the perception that the end of the loan moratorium period would see a decline in "retail liquidity".

"However, we do not reckon that retail participation will swiftly evaporate. Perhaps some downward normalisation, but to levels that are still higher than the long-term average," he said.

Firstly, he noted that fixed deposit rates are low and equities still provide a viable liquid option for enhanced returns.

Secondly, his studies of individual loan repayments suggest that "moratorium money" was not a key factor in driving retail flows to begin with.

"Thirdly, gloves (a retail favourite) will remain in favour with the rising global Covid-19 count and potential higher weighting in KLCI come November review," Goh added.

He maintains his bullish view on Bursa Malaysia with a "buy" call and a target price of RM11.85.

Maybank Investment Bank Research analyst Wong Chew Hann also said in her recent report that besides the loan moratorium, low interest rates and suspension of equity short selling (from March 23) to mitigate the Covid-19 induced volatility have also contributed to high trading 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's analyst Winson Ng estimated Bursa Malaysia would report a record net profit of RM128.2 million for 3QFY20.

This represents growth rate of 172.1% year-on-year, and a staggering 48.7% quarter-on-quarter versus a 2QFY20 net profit of RM86.2 million, the previous all-time high.

The key driver in 3QFY20 earnings, according to Ng, would be the 200% year-on-year spike in the equity market's average daily trading volume (ADTV) to an all-time high of RM5.8 billion.

"Based on our assumed 3QFY20 forecast net profit, Bursa Malaysia would have chalked up a net profit of RM279.1 million for [the cumulative first nine months of FY20]," said Ng.

Ng also upgrades Bursa Malaysia to a "hold" from "reduce" with a higher target price of RM9.10 (from RM8.60), due to a strong 3QFY20 net profit and improvement in the equity market's ADTV.

Bursa Malaysia plans to release its 3QFY20 financial results on Oct 27.

Bursa Malaysia's shares closed 20 sen or 2.22% lower at RM8.80 today, valuing the company at RM7.12 billion.