Apex Equity Holdings (Apex Equity) reported a 25.6% YoY decline in 1QFY24 net profit to RM1.45m. Despite a higher revenue on the back of stronger brokerage income and interest income from its moneylending business,net profit was dragged by higher interest cost as well as higher tax cost. We keep our FY24-26F earnings forecasts unchanged for now as we expect brokerage income to be higher given the increase in trading value and volume. Stockbroking remains its largest contributor, accounting for 84% of total revenue. We maintain our Neutral rating on Apex Equity with an unchanged TP of RM1.20, based on 0.7x PBR.

• 1QFY24 revenue jumped 22% YoY but net profit was down 25.6% YoY. Stock and securities broking segment posted a 21.7% YoY increase in revenue mainly due to higher brokerage, margin and other interest income. The increase in brokerage income was driven by higher trading activities. We note that year to-date trading value and volume on FBM KLCI has increased by51% YoY and 35% YoY, respectively. The moneylending segment posted a revenue growth of 25% YoY due to higher interest income generated. However, net profit was down 25.6% YoY as a result of higher interest expense and tax cost. Interest expense increased from a negligible RM7k in 1QFY23 to RM211k in the current quarter. Meanwhile, its effective tax rate increased from 24.5% to 40.6% due to the recognition of expenses that were not deductible for tax purposes.

• Outlook. We expect market conditions to be better for 1H24, underpinned by healthier domestic economic growth, a steadier corporate earnings growth trajectory due to various growth frameworks unveiled by the government. Meanwhile, the anticipation of a softer monetary policy in the US may see capital finding its way back to emerging markets. The FBM KLCI should remain trading-oriented given the limited fiscal assistance. Although market optimism cannot yet be considered full-blown, conditions do appear to be better from what they were in 2H23. As Apex Equity derives the bulk of its income from the stockbroking business, its growth prospects will be dependent on the vibrancy of our domestic capital market. We also note that following the disposal of Menara Apex in November 2023, the group still has non-brokerage assets such as landbank in Sepang and Ulu Yam. Although there is no further plan to unlock value of non-core assets, we believe the group would not hesitate to do so when opportunity arises in the future.

Source: PublicInvest Research - 28 May 2024