PETALING JAYA: The continued rally in the local stock market despite geopolitical tensions and the higher-for-longer interest rate guidance from the US Federal Reserve is lifting the exchange holding company, Bursa Malaysia Bhd , as well.
According to RHB Research, securities average daily value (SADV) as at May 17 stood at a record-high of RM3.2bil, excluding the Covid-19 period.
“We think the current level is sustainable, at least over the medium term.
“As Bursa Malaysia is a prime beneficiary of a more active securities market, we turn more bullish on the stock and upgrade it to a ‘buy’ from ‘neutral’, with a new target price of RM9.85 from RM8,” the research firm said in a note to clients.
It said there is ample liquidity, what more with government-linked companies urged to invest a bigger portion of their funds domestically.
Further structural reforms that is slated to be undertaken by the current administration is also positive as they will drive Malaysia towards its desired goals.
In view of the refreshed optimism, RHB Research has raised its SADV forecast for 2024 to RM3.2bil, from RM2.8bil before.
“We think it is fair to ascribe a premium valuation to Bursa Malaysia now, given 2024, and potentially 2025, could likely see SADV beat the previous record of RM2.6bil by some distance.
“As such, our price-earnings target is raised to 26.5 times from 22.5 times – the highest level reached in 2017 – or one standard deviation from its mean.”
The research firm pointed out that in 2017 and 2018 (the previous two record-breaking years for SADV), Bursa Malaysia traded at a premium to its long-term mean of around 22 times and went on to reach as high as 32 times in late 2018.
On whether there could be special dividends back on the cards, RHB Research said it understands that “Bursa Malaysia will prioritise excess cash for investments into new products and platforms”.
However, it noted that it did pay out special dividends in years of record-breaking SADV, such as in 2017, 2018 and 2020, which were the last three record-breaking years.
Barring capital expenditure requirements, it said the current cash pile looks sufficient to enable a special dividend payment.
“We also note that Bursa Malaysia currently has a cash pile of RM374mil, higher than the average levels in 2017, 2018 and 2020.
“But for now, we assume no special dividend payments, pending further clarity from management,” added the research firm.