9MFY22 net profit of RM177.6m (-39%) is within expectations. The earlier-than-expected GE15 would likely trigger more robust trading in 4QCY22 with consequently better ADVs to kick in. Still, sentiment remains incomparable to pandemic-level trading but a recovering local economy should progressively provide support. Maintain MP with a slightly higher TP of RM6.60 (from RM6.50) as we slightly raise our ADV assumptions for 4QCY22 and FY23.

9MFY22 in line. 9MFY22 net profit of RM177.6m is within expectations, making up 74% of our full-year forecast and 77% of consensus full-year estimate. The reported 3QFY22 earnings of RM50.1mm came closely within our earlier previewed RM50-55m estimate on 5 October 2022. Meanwhile, no interim dividends were declared as the group typically pays biannually.

YoY, 9MFY22 operating revenue declined by 25% owing to the erosion of trading revenue from securities market (-44%). ADV came in at RM2,214m (9MFY21: RM4,135m) as market activities were bogged by comparatively less vibrant sentiment. That said, healthy derivatives trading (+12%) provided some cushion from volatile commodity trends. Though operating expenses were stable (-1%), the softer top line skewed CIR to 46.9% (+11.5ppt). Overall, this translated to 9MFY22 earnings to report at RM177.6m (-39%).

Earlier elections could provide some fuel. The GE15 polling day falling on 19 November 2022 could be a boon for trading activities as investors position their trading exposure in accordance to their expectations of the outcome. Regardless, bumpier trading from here would likely spill over to the following year as policies may adapt according to the political climate. In spite of this, 2023 is still expected to be a rosier year in terms of overall trading as greater economic output are likely to have materialised to support better sentiment and bolster the appetite of the conservative sidelined investors. Save for unexpected developments or worsening of global conflicts, it is possible for foreign investors to return to local markets as uncertainties ease.

Forecast. Post results, we tweak our FY22F/FY23F earnings by +2%/+1%. We raised our 4QFY22 ADV from RM1.80b to RM2.00b to encapsulate more trading activities from the earlier-than-expected GE15 while slightly tweaking our FY23F ADV to RM2.30b (from RM2.23b) on slightly better global macros.

Maintain MARKET PERFORM with a higher TP of RM6.60 (from RM6.50). We raise our TP in line with our earnings adjustment against an unchanged 20.0x FY23F PER, in line with its global exchange peer average and pre-pandemic valuations. Risk-reward ratios appear fair with the lack of strong medium term catalysts to deliver earnings surprises, cushioned by its solid ROE and stable dividend prospects. There is no adjustment to our TP based on ESG which is given a 3-star rating as appraised by us.

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 - 1 Nov 2022