KUALA LUMPUR (Sept 4): TA Securities Research has valued ACE Market-bound Mercury Securities Group Bhd at 20.5 times financial year 2023 (FY2023) earnings per share (EPS), arriving at a fair value of 28 sen.

In a note on Monday, the research house, which does not have a rating on the stock, said Mercury Securities’ stockbroking business is a significant revenue contributor, which accounted for 69.73% of total revenue for FY2022.

It said the provision of advisory services under the corporate finance segment accounted for 30.27% of total revenue for FY2022.

TA Securities estimates Mercury Securities to record a 30.4% year-on-year (y-o-y) decline in FY2023 earnings of RM12.3 million due to lower placement fees and lower utilisation of margin financing facility services from the margin clients year-to-date (YTD).

“Furthermore, the stockbroking segment is impacted by decreasing brokerage fees along with declining average daily trading activities due to lower trading activities from retail and institutional investors.

“We also forecast softer contributions from the corporate finance segment due to a decrease in advisory fees and the company securing fewer new mandates YTD compared to 2022.

“We foresee a slight earnings recovery of 3.1% for FY2024 to RM12.7 million and 3.8% for FY2025 to RM13.2 million on the back of a pickup in market and corporate activities,” it said.

For valuation purposes, the research house compared Mercury Securities to peers with similar operations, such as Kenanga Investment Bank and Apex Equity Holdings.

“Tagging a 15% discount to the industry’s average PE (price-earnings) ratio of around 24.1 times to Mercury Securities' FY2023 EPS, we arrive at a fair value of 28 sen/share.

“We believe the discount to be warranted as there is uncertainty surrounding its earnings, which stems from the absence of a new corporate finance team to fill the earnings gap,” it said.