KUALA LUMPUR (July 29): Hong Leong Investment Bank (HLIB) Research has trimmed its target price (TP) for Bursa Malaysia Bhd by 29% to RM5.65, from RM7.95 previously, amid weaker average daily trading volume (ADV). 

The research house also downgraded the stock to "sell" from "buy", it said in a note on Friday (July 29). 

“The seemingly dimming ADV outlook — from US recessionary contagion fears and diminishing probability of an early 15th general election (GE15) — prompts us to lower our ADV assumption. 

“Consequently, we cut our financial year ending Dec 31, 2022 (FY22)/FY23/FY24 earnings forecasts by 9%/6%/9%. 

“With ADV evaporating, Bursa’s market capitalisation-ADV ratio for July has surged to +3.2 standard deviation above the mean (a 10-year high). Put simply, while ADV has taken a beating, the share price has not adequately corrected to reflect this,” it explained. 

According to HLIB, monthly ADV has been trending downwards since June, as investors remained on the sidelines in the face of external woes caused by the US Federal Reserve's (Fed) aggressive monetary tightening, which triggered recession fears in the US and around the world. 

“Worryingly, month-to-date July ADV of only RM1.31 billion (down 31% month-on-month) is the lowest monthly showing in almost a decade (since December 2012). 

“Although we earlier envisioned an early GE15 providing the much-needed reprieve to ADV in the second half of 2022, this possibility seems to be diminishing given recent political news flows. Management is cognisant of the lacklustre ADV climate, and has assured that it will manage costs prudently,” said HLIB. 

Given the gloomier near-term outlook, HLIB lowered its FY22/FY23/FY24 ADV assumptions by 17%/14%/15% to RM2.06 billion/RM2.31 billion/RM2.39 billion.

Meanwhile, MIDF Research in contrast said despite the economic uncertainties, it expects that trading activities will rebound once the dust settles around expectations that the Fed will reduce the pace of its rate hikes.

“This will improve sentiment and market valuation going forward. Furthermore, we have seen interest from foreign investors starting to return this year. We believe the recent share price decline means that the stock is currently undervalued. 

“Therefore, we are maintaining our ‘buy’ call on the stock. However, we revise our TP to RM7.60 (from RM7.45), as we roll over our valuation to FY23. We peg FY23 earnings per share to a price-earnings-ratio of 20 times,” it said. 

Bursa was up 1.09% to RM6.50 at the time of writing on Friday, valuing it at RM5.26 billion.