With Bank Negara Malaysia (BNM) raising its overnight policy rate (OPR) for the third time in a row to 2.50% early this month while the Ringgit has depreciated by ~10% year to-date, we believe the vibrancy of the domestic capital market will remain subdued in the near term. As Apex Equity derives the bulk of its income from the stockbroking business, we expect a weaker 2HFY22 performance due to a sharp decline in the trading volume and value on Bursa Malaysia. Its latest quarterly results were mostly dragged by a jump in effective tax rate to 38.8%. Although we believe tax rate should normalize in 2HFY22, the anticipation of a further deterioration of market activities has prompted us to cut our FY22F earnings by 10% and FY23-24F earnings by 6%. Our TP is marginally reduced to RM1.05, which is based on 0.65x FY23F price-to-book ratio. In view of the uncertainties surrounding global economies amid the rising interest rate environment, we believe equity markets would remain sluggish moving into 2023. We maintain our Neutral rating on Apex Equity.

• Sluggish domestic equity market. Year to-date, the trading value and volume on Bursa Malaysia has plummet by 47% and 57% respectively, compared to last year, largely attributed to weaker market sentiment following rising inflationary pressures across the globe. Against the backdrop of rising capital outflow and weakening currency, BNM has raised its OPR from 1.75% to 2.50% this year, which has affected sentiment on the domestic equity market. We believe market vibrancy is not likely to recover meaningfully in the near term.

• Outlook. As Apex Equity derives the bulk of its income from the stockbroking business, its growth prospects will be heavily dependent on the domestic capital market. As we expect Malaysia’s sentiment to be adversely affected by external market conditions as well as inflationary pressures on interest rates, we lower our FY22-24F earnings forecasts by 6-10%. On a separate note, two substantial shareholders of Apex Equity have recently filed a lawsuit to stop the tabling of a resolution for the approval of a mandate to allot and issue new shares. The two shareholders, Fun Sheung Development and Yenson Investments, have argued that there is no real urgency and clear purpose for the said resolution. Nevertheless, the High Court has dismissed the summons yesterday and Apex Equity shall proceed with the tabling of the resolution at an extraordinary general meeting scheduled on September 29.

Source: PublicInvest Research - 29 Sept 2022