We note that Apex Equity Holdings (Apex Equity) has re-started its money lending business recently. The operations of money lending were temporarily ceased in 2QFY21 but since 3QFY22, this segment has been contributing positively to the group, generating decent profit of RM1-2m a quarter. Given a lackluster stock and securities trading business, we believe the money lending segment would continue to generate earnings to the group to partly offset the impact of slower growth in brokerage income. As such, we expect a flattish 2HFY23 earnings, mainly supported by profit from the money lending segment. Our earnings forecasts remain unchanged. We reiterate our Neutral rating on Apex Equity with an unchanged TP of RM1.20, based on 0.7x PBR.

• Recap on 1H23 performance. Given the slow recovery in trading activities on Bursa Malaysia, Apex has delivered satisfactory results for 1HFY23 with quarterly profit sustaining at c.RM2m. Stock and securities broking segment posted higher revenue and pretax profit contribution, at about RM9m and RM2m a quarter after falling to a low of RM7.2m and RM1m respectively in 3QFY22. We also note that the group has restarted its money lending business since 3QFY22. Although contribution remained low at only 16% of group’s revenue, profit margin was high at over 50%, owing to a relatively high effective interest rate. The interest is payable on a monthly basis. The money lending business has helped to partly mitigate the impact of slower growth in brokerage income following the sharp decline in trading activities since early 2021. As at 30 September 2023, the aggregate amount of outstanding loans or advances amounted to RM68.8m, of which 78% was extended to corporates with the remaining 22% to individuals.

• What to expect in 2HFY23? For 9MFY23, stock trading value on Bursa Malaysia has declined by 5% YoY while volume has increased by 14% YoY. Hence, we are not expecting its stock and securities broking segment to outperform in the coming quarters, perhaps posting lower earnings compared to 1HFY23. However, we believe the money lending segment would deliver higher earnings in 2HFY23 due to rising cost of funds which would lead to higher effective lending rates. We maintain our profit forecasts, projecting a 10% earnings growth for FY23F.

Source: PublicInvest Research - 18 Oct 2023