Review

• AEHB reported 9M23 net profit of RM5.83mn, up 31.8% YoY from RM4.42mn in 9M22. Results came within expectations, with net profit accounting for 77% of our full-year forecast.

• 9M23 revenue expanded by 23.0 YoY due to higher loan interest income from money lending operations amounting to RM4.86mn (9M22: RM1.46mn) and an increase in stock and securities broking activities amounting to RM27.4mn vs RM24.7mn in 9M22.

• By segment, the stock and securities business reported a slight improvement in revenue due to higher margin interest income, which rose by 27.7% YoY. This helped to cushion lower brokerage income (-0.7% YoY), which was impacted by lower YoY trades due to the weak market condition. The reactivation of the money lending operations in 3Q22 saw the segment contribute revenue and PBT of RM4.86mn and RM2.63mn, respectively.

• Sequentially, net profit climbed by 36.2% QoQ. As highlighted in our update report (dated 24 October 2023), we can expect stronger earnings due to better brokerage income (+19.0% QoQ) and margin and interest income (+9.5% QoQ).

• The group’s net cash and bank balances, including short-term funds, stood at RM67.7mn as of 30 September 2023, down from RM104.0mn in Dec 2022. Meanwhile, AEHB has total bank borrowings amounting to RM4.0mn.

Impact

• No change to our earnings estimates.

Outlook

• We continue to envisage modest earnings growth for AEHB in FY23, primarily supported by a more stable securities market. We believe that ongoing efforts by Bursa to fortify the trading ecosystem, enhance market vitality, and attract greater foreign participation will contribute to an upswing in trading activities and market volumes. We note that the stock and securities segment still accounts for a sizeable 84% of total revenue, followed by moneylending at around 15%.

Valuation

• Tagging a P/B ratio of 0.7x, based on the peer’s average, to AEHB’s FY24e BV, we maintain the TP at RM1.19. However, we downgrade the stock from hold to SELL in light of the narrowed risk-reward potential resulting from the recent increase in the share price.

Source: TA Research - 29 Nov 2023