Review

• AEHB reported 1H23 net profit of RM3.59mn, up 4.6% YoY from RM3.43mn in 1H22. Despite that, results came below expectations, with net profit accounting for 42% of our full-year forecast. The variance was due to higher-than-expected admin and general expenses, which climbed by 29.2% YoY.

• 1H23 revenue expanded by 19.1 YoY due to contributions of loan interest income from money lending operations amounting to RM3.35mn and a slight increase in stock and securities broking activities amounting to RM17.5mn vs RM17.4mn in 1H22.

• By segment, the stock and securities business reported a slight improvement in revenue due to higher margin interest income, which rose by 24.6% YoY. This helped to cushion lower brokerage income (-15.6% YoY), which was impacted by lower trades due to the weak market condition. The reactivation of the money lending operations in 3Q22 saw the segment contribute revenue and PBT of RM3.35mn and RM1.85mn, respectively.

• Sequentially, net profit declined by 15.7% QoQ on the back of lower revenue (-0.3% QoQ) and higher admin and general expenses (+2.7% QoQ).

• The group’s net cash and bank balances, including short-term funds, stood at RM66.5mn as at 30 June 2023, down from RM104.0mn in Dec 2022. Meanwhile, AEHB has total bank borrowings amounting to RM5.0mn.

Impact

• We raised the growth assumption for admin and general expenses to align with the 1H23 results. With that, we lower FY23/24/25 net profit estimates to RM7.5/7.7/8.2mn from RM8.6/9.1/9.6mn previously.

Outlook

• We continue to envisage modest earnings growth AEHB in FY23, underpinned by the more stable securities transactions, as we foresee ongoing efforts by Bursa to strengthen the ecosystem, grow the market vibrancy and attract more foreign participation should help spur trading activities and market volumes. Our forecast also assumes that the trading velocity in the market will remain steady at 28% between FY23-25.

Valuation

• Tagging a P/B ratio of 0.7x, based on peer’s average, to AEHB’s FY24e BV, we adjust the TP to RM1.19 from RM1.13. We reiterate a SELL recommendation on AEHB.

Source: TA Research - 30 Aug 2023