BURSA MALAYSIA BHD
By Affin Hwang Capital Research Hold Target price: RM10.30
AFFIN Hwang Capital Research has downgraded Bursa Malaysia Bhd to Hold from Buy on valuation grounds, following the counter’s share price outperformance.
It also lowered its target price to RM10.30 from RM10.80.
“We exercise more caution on the market as escalating market risks and lofty valuations have caused the market to consolidate in 3Q17,” it said.
For Bursa Malaysia’s 2Q17 result, the research house forecasts a stronger net profit of RM60.5mil compared to RM56.6mil in the preceding quarter, up 22.4% year-on-year and 6.9% quarter-on-quarter.
It said earnings for the quarter will be underpinned largely by income stream from the securities market and is expected to be relatively in line with its 2017 forecast of RM222.6mil.
“Despite expectation of a robust 2Q17, we are turning cautious about Bursa’s outlook as trading volumes have fallen sharply in July 2017,” it said in a note.
It said the upbeat sentiment in 2Q17 did not last, and this was reflected by a 23% monthon-month pullback in the equity market’s average daily trading value (ADV) from RM3.14bil in May to RM2.41bil in June.
Even for month-to-date July 2017, the ADV stood at RM1.88bil as the market slipped into a correction mode, it noted.
The research house said it believed investors’ upbeat sentiment in 1H17 might be dampened by a potential short-term correction in global stocks due to lofty valuations after a long rally as reflected in the Dow Jones Industrial Average, S&P 500 and Nasdaq charts.
Other factors are the tensions between US-North Korea and in the Middle East, rising political gridlock in the US within the Trump administration and fear of a fallout of the Trump presidency as well as the financial implications arising from Brexit.
However, despite rising risk aversion and caution, the research house said Bursa’s share price would remain resilient on the back of corporate earnings recovery, upcoming corporate deals, upcoming budget and general election as well as the long-term commodity upcycle.