KUALA LUMPUR: Investors could consider positioning themselves in Bursa Malaysia Bhd given the heightened probability of a general election over the horizon, said Hong Leong Investment Bank (HLIB) research.
The research firm, which noted that the stock exchange operator's 1Q22 earnings prospects will likely be sequentially unexciting, believes Bursa could be a beneficiary of an early GE15.
"We see upside potential to average daily traded value (ADV) in 2H22, fuelled by heightened trading around the impending general election, which we are betting to happen between Aug-Oct (after the MoU expires but before the East Coast monsoon).
"Two out of the past three GEs (GE14 and GE13) have had a positive effect on ADV during the election year (YoY increase) and election month (59-63% m-o-m surge) – the exception was GE12 due to the onslaught of the GFC," it said in a note.
HLIB said Bursa is an apolitical play that benefits from a boost in average daily traded value but without the political linkages, which makes it a compelling investment proposition.
Beyond GE15, the broker said the market could react positively should the election outcome see the victor secure a convincing mandate, which is plausible given the results of the recent state polls in Johor, Melaka and Sarawak.
"Although the share price has risen 9% since our BUY upgrade on March 16, we continue to see further upside down the road as investors eventually start angling on Bursa with increasing probability of an early GE15.
"Our target PE is raised from 23.3x to 25.5x (+1.5SD above 5Y mean) and consequently, our TP increases from RM7.27 to RM7.95," it said.
For 1Q22, HLIB forecasts earnings of RM68mil, which will be 5.2% improved quarter-on-quarter and 43.7% lower year-on-year, representing 27% of its full-year forecast.
"While we note the q-o-q increase in ADC (and to a lesser extent, ADV), the impact to bottomline will be partially watered down by fewer trading days (61 vs 63).
"On a YoY basis, the estimated steep decline is rather expected given the abnormally high base in SPLY (second strongest quarterly ADV in its history) due to recovery sentiment back then from the global vaccine rollout which drove trading euphoria," it added.