Higher trading volumes forecast for Bursa in 2024

PETALING JAYA: Bursa Malaysia is anticipated to enjoy higher average daily trading volumes (ADV) in 2024 as investor sentiment improves, but analysts have a mixed view of how 2023 fared for the company.

UOB Kay Hian (UOBKH) Research is one of the more optimistic brokerages.

This is as it expects the securities exchange operator to benefit from higher ADV for 2023 and moving into 2024, having raised Bursa Malaysia’s ADV to Rm2.16bil and Rm2.4bil for the years, respectively, which is above the historical ADV mean of Rm2.1bil.

The research house expects the increased trading of securities on the exchange to be driven by improving foreign net inflows into the equity market and improved global investor sentiment.

“We expect second half 2023 (2H23) ADV to strengthen to Rm2.35bil versus 1H23’s ADV of Rm1.94bil and the momentum should be further sustained into 2024 (Rm2.4bil), as increasing global risk on the equity market sentiment takes centre stage,” it stated in a recent report on Bursa Malaysia.

UOBKH Research added that Bursa Malaysia’s current share price was trading at 23 times its 2024 price-to-earnings ratio (PE) multiple, but given the current positive market sentiment, the PE valuation may increase above its mean, leading the research house to believe the risk-toreward profile favours more upside for the stock.

It has a “buy” call on the company with a target price (TP) of RM7.85 a share.

This is based on 25.5 times its 2024 PE and backed by the peaking of the interest rate cycle in the United States.

Kenanga Research, however, expects the company to underperform from a “market perform” call.

This is on the fact that the ADV for the fourth quarter (4Q23) was lower than expected at Rm2.16bil, as opposed to the research house’s expectation of Rm2.4bil.

The ADV was also weaker on-year at Rm2.06bil in 2023 (Rm2.07bil in 2022).

“Despite the disappointment in 4Q23’s ADV, we opine that the anticipated tailwinds would be more pronounced in 2024.

“We had also observed that foreign inflows are rising, possibly spurred by lower expectations on Federal Reserve rates throughout 2024 which may divert interest in money market products back towards equities and derivative securities,” it noted in its report on Bursa Malaysia.

Kenanga Research also said it expects 2024 ADV on Bursa Malaysia to average about Rm2.4bil.

That said, the brokerage has adjusted lower its financial year 2023 (FY23) and FY24 earnings forecast for Bursa Malaysia by 2% and 1%, respectively.

Kenanga Research’s forecast pre-tax profit of Rm326.5mil for Bursa Malaysia is within the company’s FY23 target of Rm295mil to Rm326mil.

However, this comes with the inclusion of a Rm27.7mil reversal of provisions.

Kenanga Research noted that against the nine-month 2023 core earnings of Rm165.2mil, Bursa Malaysia’s 4Q23 earnings could land between Rm54mil and Rm59mil.

The research house has an unchanged TP of RM6.25 a share on Bursa Malaysia, based on 20 times PE for 2024, which is in line with its global financial exchange peers’ average and pre-pandemic valuations.

Kenanga Research added that while Bursa Malaysia could see an earnings uplift from better trading volumes in 2024, its risk-to-reward profile could be unfavourably skewed following its recent price rally.

“Its expected dividend yield of about 4% may appear unattractive for yield seekers as compared to the 5% to 6% offered by other financial services stocks,” the research outfit noted.