Despite the average daily value on KLSE being disappointing as sentiment was not met with favourable conditions once again, analysts at Kenanga anticipate downside pressures to be fairly limited going forward as the macro outlook stabilises.
Second quarter ADV amounted to RM1.78b, falling short of our anticipated RM2.1b for the period. Kenanga said it had expected seasonal softness as compared to first quarter 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. 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 (including the stabilisation of interest rates with a 3% OPR expectation), the house anticipates progressive improvement of market sentiment as well as trading activities. It 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 (in-house CY23 GDP target at 4.7% vs. CY22 GDP of 8.7%). Meanwhile, favourable state elections could also be a booster to market activities.
Subsequently, Kenanga is revising its Q3 ADV to RM2.08b (+1% YoY), from RM2.21b. Following adjustments for the disappointing 2Q, it also lowered the 3Q target to RM2.0b (from RM2.2b) as trading softness may still prevail. However, it added this may be offset by the government’s recent reduction in stamp duty to 0.10% (from 0.15%, capped at RM1,000 per contract) which could incentivise higher retail participation. The 4Q ADV target of RM2.4b remains unchanged, reflecting more meaningful diversion of headwinds.
Post update, Kenanga lowered the full 2023 earnings by 3% due to the abovementioned softer ADV inputs. The updated pre-tax earnings forecast remains within the group’s FY23 target of RM295m-RM326m. Trading activities aside, BURSA’s performance could be supported by higher service fees from a stronger IPO pipeline for the year (up to 39 IPOs targeted from FY22 of 35 new listings). Meanwhile, new initiatives (recently launched carbon credit auction and upcoming debt fundraising platform, Bursa Gold Dinar) may be revenue accretive. With this, Kenanga expects its 2QFY23 reported earnings to register between RM50m and RM55m.
Overall the house maintains a MARKET PERFORM and TP of RM6.25. TP is based on an unchanged 20.0x FY24F PER, in line with its global financial 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.
