Mercury Securities Group (MERSEC-Stock code 0285) will be making its debut on Bursa ACE Market today. The company operates as a licensed 1+1 broker, providing stockbroking and corporate finance advisory services. Riding on the reduction in stamp duty for shares traded on Bursa Malaysia, we expect MERSEC to register net earnings of RM12m and RM13.2m for FY23 and F24 respectively. BUY with a TP of RM0.30 based on 20x PER over FY24 EPS of 1.5sen, aligning with industry peers on Bursa Malaysia.

MERSEC's stockbroking operations are supported by a network of 6 branch offices across Peninsular and East Malaysia. Backed by a reputable 31-year track record, the company has a total of 58 dealers and remisiers, catering to the needs of both institutional and retail investors. MERSEC is expanding its office space by acquiring 2 new units at Solaris Mont’ Kiara, capable of accommodating up to 40 employees, expected to be operational by 3QFY23. Apart from trading securities listed on Bursa Malaysia, the group also offers access to foreign stock exchanges, primarily in SG, HK and the US.

To further accelerate its business growth, particularly in stockbroking which offers higher margins compared to corporate finance, MERSEC has earmarked RM2.88m IPO proceeds to enhance its digital roadmap, including improve online trading capabilities, upgrade administrative systems, and accelerate online trading marketing efforts. These initiatives are aimed at expanding its market share, as the capability of acquiring new client accounts steadily improved from 20,094 to 20,457 from FY21 to FY22.

Additionally, the expansion of its margin financing facility serves as second growth engine as the group intends to utilise RM26.86m to leverage existing and new clients, primarily within Bursa Malaysia. It's worth noting that margin income accounted for approximately 21%, equivalent to RM9.1m revenue in FY22, reflecting a CAGR of 36.1% since FY19 (RM3.6m). Other related services, such as underwriting fees and placement fees, have also experienced significant revenue growth, with CAGRs of 24% and 103% from FY19 to FY22 respectively. We believe that the continuing growth in these related services will contribute to gross profit margin expansion in the future.

According to Vital Factor Consulting, MERSEC plays an important role in corporate finance advisory, commanding market shares of 9%/32%/14% in term of equity financing, takeover and M&A, as well as the number of IPO listings. Impressively, the group has witnessed substantial growth in its corporate finance segment, serving a total of 86 clients in FY22, marking a 21% increase compared to FY19.

With a robust balance sheet, MERSEC maintains a net cash position of RM50.62m as of 3QFY23 without borrowings. The company has no dividend policy at this juncture.

Source: Rakuten Research - 19 Sept 2023

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