2QCY23 Average Daily Value (ADV) for Bursa Malaysia (BURSA) amounted to RM1.78b, falling short of Kenanga Research (Kenanga) anticipated RM2.1b for the period.
“We had expected seasonal softness as compared to 1QCY23 ADV of RM2.14b but market participation could have likely been undermined by as a result of lower overall confidence post-March 2023 global banking crisis keeping long-term investors highly cautious,” said Kenanga.
Meanwhile, heightened US Fed rates could have further encouraged the exit of foreign shareholders while the weakening ringgit was unsupportive of domestic appetite.
With the gradual improvement of macro factors, Kenanga anticipates progressive improvement of market sentiment as well as trading activities. Kenanga also envisages subsiding recessionary signals as well, on delivery of local economic readings which would drive corporate earnings in the coming quarters.
That said, given the higher base seen in CY22, a comparative easing should be expected. Meanwhile, favourable state elections could also be a booster to market activities.
“We revised our CY23F ADV to RM2.08b, from RM2.21b. Following our adjustments for the disappointing 2QCY23, we also lower our 3QCY23 target to RM2.0b as trading softness may still prevail,” said Kenanga.
However, this may be offset by the government’s recent reduction in stamp duty to 0.10% which could incentivise higher retail participation. Kenanga’s 4QCY23 ADV target of RM2.4b remains unchanged, reflecting more meaningful diversion of headwinds.
Trading activities aside, BURSA’s performance could be supported by higher service fees from a stronger initial public offering pipeline for the year. Meanwhile, new initiatives may be revenue accretive. With this, Kenanga expects its 2QFY23 reported earnings to register between RM50m and RM55m.
The research house maintains its Market Perform call and target price of RM6.25. Risk-reward ratios appear fair with the lack of strong medium-term catalysts to deliver earnings surprises cushioned by its solid return on equity and stable dividend prospects.
Risks to Kenanga’s call include the higher/lower-than-expected trading volume in the securities and derivatives markets, lower/higher-than-
expected operating expenses, more/fewer-than-expected initial public offerings, and the higher/lower-than-expected dividend payout.
