Possible Swings in a Moderate Climate, “Market Perform” Rating for Bursa Malaysia Says Kenanga IB

The earlier-than-expected GE15 has spurred trading activities in Bursa Malaysia in the final quarter of last year (4QCY22) with some momentum expected to spill over into CY23. Kenanga Research has stated in its coverage on Bursa Malaysia that, “the medium-term prospects are likely mixed with better corporate earnings tempered by recessionary-induced concerns”. Hence, the research house reckons a key positive rerating would be the reopening of China possibly propelling overall economic output.

4QCY22 average daily volume traded (ADV) was mostly as expected at RM1.94 billion (+20% QoQ, -23% YoY). This translates to a full CY22 ADV of RM2.06b. Kenanga had expected readings to trail close to RM2.0b with support from the earlier-than-expected GE15. It is observed that peak trading occurred in days subsequent to the formation of the unity government while window dressing activities did bolster the final trading day. With this, the research house believes 4QFY22 reported earnings to register between RM63 million and RM68 million. A final 12.0 sen dividend could also be declared, bringing a full-year payment of 27.0 sen on an anticipated 90% payout which is the low range of BURSA’s historical payout ratio.

CY23 could exhibit mixed signals. Kenanga Research anticipates quantitative merits (i.e. corporate earnings) to be generally stronger on economy normalisation post-pandemic. Qualitatively, sentiment could be marred by concerns of a global recession, likely stemming from unprecedented inflation rates squeezing overall income with cooling measures from tighter monetary policies looking to impede overall economic output.

Kenanga has maintained its CY23 ADV of approx. RM2.30b (+12% YoY). Volatility would be supportive of local trading activities which may be more prevalent in 1Q and 4Q as investors could be more proactive with their positioning whereas mid-year seasons could be met with more moderate, reactive activities.

The research house also stated in its report that it believes “a meaningful positive catalyst to counteract the recessionary pressures may come in the form of China’s reopening. Strict containment measures earlier had effectively restrained economic growth there and crippled certain sectors. Its revitalisation could lead to an influx of demand and spending which could bring buoyancy to sentiment lest said measures were to be reinforced sooner than expected.”

Forecasts. Post update, Kenanga has slightly tweaked its FY22F earnings downward by -0.7% as it updates on year-end closing inputs. Its FY23F assumptions are unchanged.

Kenanga has maintained MARKET PERFORM and target price (TP) of RM6.60. Its TP is based on an unchanged 20.0x FY23F PER, in line with its global exchange peers’ average and pre-pandemic valuations.

Risk-reward ratios appear fair with the lack of strong medium-term catalysts to deliver earnings surprises, cushioned by its solid ROE and stable dividend prospects. There is no adjustment to our TP based on ESG which is given a 3-star rating.

Risks identified include higher/lower-than-expected trading volume in the securities and derivatives markets; lower/higher-than-expected opex; more/fewer-than-expected initial public offerings; and higher/lower-than-expected dividend payout.

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