1QFY22 earnings of RM68.0m (-44%) is within estimates, as trading volumes were expectedly lower in lieu of a more subdued (though still higher than pre-pandemic) trading environment. That said, the financial markets are expected to stay vivid as sentiment could be buoyed by constantly shifting macros amid an economic recovery. Maintain MP on a higher TP of RM7.05 (from RM5.85) as we return to pre-Covid valuations.

1QFY22 came in as expected. 1QFY22 net earnings of RM68.0m came within expectations, making up 24%/27% of our/consensus full-year estimates. No dividend was declared which is typically paid biannually.

YoY, 1QFY22 operating revenue declined by 29% to RM161.0m, attributed by the plunge in ADVs to RM2,586m (1QFY21: RM5,078m) which translated to softer trading revenue from securities (-47%). The period in review also lacked the overly heightened sentiment seen from the healthcare-related stocks boom in 2021. There were some improvements coming from derivative trading revenue (+3%), albeit at a significantly smaller scale as compared to securities. CIR creeped up to 23.8% (+7.0ppt) due to the lower top-line, but operating costs was well managed. All-in, 1QFY22 net profits clocked in at RM68.0m (-44%).

QoQ, overall income stayed relatively flat, as softer securities-driven income (+3%) was alleviated by more derivative activities (+9%) which was fuelled by a more upbeat commodities cycle. While costs remained relatively stable, a 12% savings in other operating expenses led 1QFY22 earnings to come in 5% better QoQ.

Fishing for trading opportunities. FY22 will continue to look pale in comparison to FY21. That said, our softer ADV estimates (FY22E: RM2.7b vs. FY20: RM4.2b, FY21: RM3.6b) still holds to firm ground against pre-Covid levels. We reckon that a broadly higher trading interest (particularly in the retail space) will drive participation at least in the medium-term amidst lingering global and local uncertainties as they may also create trading opportunities. Ongoing headlines include: (i) Russia-Ukraine conflict and its spill-over impact to commodity prices; as well as (ii) expectations for rate hikes by both US Fed and Bank Negara Malaysia. Ongoing economic recovery may also lead investors placing bets on potential strong performers and beneficiaries. As such, we reckon foreign investors may return to increase their allocation of Malaysian equities into their portfolios.

Post results, we tweak our FY22E/FY23E earnings by -2%/+3% on model updates.

Maintain MARKET PERFORM as we raise our TP to RM7.05 (from RM5.85). We roll over our valuation base year to FY23E EPS while raising our applied PER to 20.0x (5-year mean, from 17.0x) which we deem as normalising valuation parameters to pre-pandemic level. The group has been persistently vying for methods to improve efficiency which is testament to its leading ROEs. Additionally, though the group has been benefitting from equities rally in recent years, management has been proactively working towards developing other revenue streams to cement its long-term sustainability.

Risks to our call include: (i) higher/lower-than-expected trading volume in the securities and derivatives markets, (ii) lower/higher-than-expected opex, (iii) more/fewer-than-expected initial public offerings, and (iv) higher/lower- than-expected dividend payout.

Source: Kenanga Research - 29 Apr 2022