KUALA LUMPUR (Oct 18): PublicInvest Research has retained its "neutral" rating on Apex Equity Holdings Bhd after the group resumed its money lending business, which is expected to offset the sluggish performance in brokerage income.

Apex Equity resumed its money lending business in the third quarter of fiscal year 2022 (3QFY2022), generating profits of RM1-2 million per quarter to help mitigate challenges. Overall, the money lending segment has contributed 16% of the group's revenue and maintained a profit margin of over 50%, attributed to a relatively high effective interest rate payable on a monthly basis.

“...Given a lacklustre 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 2HFY2023 earnings, mainly supported by profit from the money lending segment. Our earnings forecasts remain unchanged,” said PublicInvest in a note on Wednesday.

The research firm maintained its profit forecast for Apex Equity, with a projected 10% earnings growth for FY2023, along side a target price (TP) of RM1.20, based on a price to book ratio of 0.7 times.

The house said despite the slow recovery in Bursa Malaysia's trading activities, Apex delivered satisfactory results for the first half of fiscal year 2023 (1H2023), with quarterly profits consistently around RM2 million. 

Apex's stock and securities broking segment showed improved revenue and pre-tax profits after a dip in 3QFY2022.

As of September 30, 2023, outstanding loans or advances amounted to RM68.8 million, with 78% extended to corporates and 22% to individuals. 

PublicInvest is less optimistic with regards to expectations of Apex's stock and securities broking segment in 2HFY2023, given a 5% year-on-year (y-o-y) decline in stock trading value on Bursa Malaysia and an increase in trading volume of 14% y-o-y in the first nine months of FY2023.

However, the money lending segment is expected to deliver Apex higher earnings in FY2023 due to the rising cost of funds, leading to higher effective lending rates. 

Apex Equity shares were unchanged at RM1.10 during noon break, translating into a RM234.9 million market capitalisation.