BURSA: Financial Performance Aligns with Expectations, Target Price Increased

Performance Review

A prominent investment bank reported that its subject company delivered financial results for the first nine months of fiscal year 2025 (9MFY25) that were within expectations. The company recorded a net profit of RM189.3 million, representing 76% of the full-year forecast. Despite this, the year-on-year (YoY) net profit saw a decline of 21.5%. On a quarterly basis, however, the net profit improved by 11.9% quarter-on-quarter (QoQ), primarily driven by stronger trading revenue.

Overall operating revenue for 9MFY25 decreased by 10.4% YoY to RM518.1 million. This was largely due to a 17.4% YoY drop in trading revenue, which includes a significant 25.0% fall in Securities Trading Revenue to RM225.2 million. This decline was attributed to lower Average Daily Value (ADV) and softer trading velocity, which contracted to 32% from 39% in FY24. Retail ADV, in particular, saw a steep decline of 38.0% YoY.

In contrast, non-trading revenue provided a partial cushion, growing 4.4% YoY. This segment’s expansion was supported by higher contributions from Member Services & Connectivity (+6.7% YoY), Depository Services (+9.6% YoY), Listing & Issuer Services (+4.9% YoY), and Data Business (+1.4% YoY). Derivatives Trading Revenue also saw a modest increase of 2.8% YoY, boosted by higher Average Daily Contracts from FCPO.

Operational Efficiency and Costs

Total operating expenses rose by 3.5% YoY to RM282.8 million. This increase was primarily due to higher depreciation and amortisation, increased IT maintenance costs from new contracts, marketing and development expenditures, and general administrative expenses. However, staff costs experienced a modest softening of 2.3% YoY, attributed to lower provisions for performance-based incentives. Despite this, the company’s cost-to-income ratio rose to 53% in 9MFY25, up from 46% in 9MFY24.

Future Outlook and Investment Rating

Looking ahead, the investment bank anticipates near-term challenges for the company, stemming from persistent macro uncertainties and continued foreign fund outflows. Management has consequently revised down its FY25 Profit Before Tax (PBT) guidance to between RM314 million and RM347 million. Elevated operating costs, particularly those related to ongoing technology and system enhancements, are expected to keep earnings under pressure.

Despite these challenges, management remains optimistic about capital-market activity, maintaining its target of 60 new listings for the year, although it has trimmed its total IPO market capitalisation forecast to RM25.2 billion from RM40.2 billion. The new SC fee structure is expected to generate an additional RM28 million to RM34 million annually, with a manageable net earnings impact on the company’s financials.

The investment bank has adjusted its target price to RM0.25, representing a 25.0% potential upside from the last traded price of RM0.20. Based on this revised target price and outlook, the firm has issued a BUY recommendation for the stock.