Kenanga IB finds its niche

KENANGA Investment Bank Bhd (Kenanga IB), which completed its purchase of rival ECM Libra Investment Bank yesterday, expects the enlarged group to find its niche in retail broking, Sarawak-related deals and independent advisory services.

“These are what will differentiate us from other players out there,” said Chay Wai Leong, group managing director of K N Kenanga Holdings Bhd, which owns the investment bank.

The two will operate as one business entity from Monday, under the Kenanga IB brand, and a new management line-up is expected to be announced soon.

Analysts say finding a niche is important for a player like Kenanga IB – now the country’s largest standalone investment bank (IB) as well as the third largest brokerage by equity trading value – as competition in the investment banking space is heated with there being 12 local IBs in the country, as well as several foreign ones.

“Economic Transformation Programme (ETP) and other government-related deals pretty much go to the bigger IBs such as Maybank, CIMB and RHB, while AmInvestment is quite strong in debt market deals, so finding a niche is pretty important,” observed a banking analyst from a local research.

Kenanga IB, which has the largest remisier network, now has a combined staff strength of 1,300 that it aims to cut down. The bank has hired a consultant to help it with this “rightsizing” exercise.

“I would say, very roughly, we’ll cut about 30 per cent of staff. This will take place over nine to 12 months next year,” Chay said, adding that, however, it has no plans to let go of remisiers as it considers broking to be a core business.

But the bank plans to grow even as it right-sizes. “We are opening new branches and launching new businesses. We have 32 broking branches now and we think between 40 and 50 is the optimum number for us, so we’ve got (a few more) to open,” he said.

Buying ECM helped it double its geographical reach in Malaysia – it now has a presence in 10 states, including Sabah and Perak, and it eventually wants to expand to other states.

Stock exchange data shows that in November, the enlarged Kenanga IB had a 9.95 per cent market share by equity trading value, ranking third after CIMB Investment Bank (10.53 per cent) and RHB-OSK (10.25 per cent).

Chay said next year, the group aims for its revenue to be derived equally from three main businesses – broking, investment banking and treasury and asset management.

“Broking, which is our rice bowl, and asset management will give us recurring income,” he remarked.

The way it stands now, revenue is skewed more towards the brokerage business, but Chay says the investment banking business will pick up very soon as its pipeline for deals is “very strong”.

“Hopefully, in the first quarter of next year, you’ll see our name in some of the bigger deals. In the pipeline, we have, conservatively, three initial public offerings we’ll be doing ourselves. These will be main market listings,” he said, declining to provide more details.

Kenanga IB’s deals so far this year include helping manage Sarawak Energy Bhd’s RM2.5 billion Islamic bond sale, and being principal adviser to Bintulu Port Bhd’s share placement exercise.

The biggest shareholder of the bank’s owner is Cahya Mata Sarawak Bhd, which has a 25.1 per cent stake held through CMS Capital Sdn Bhd.

Kenanga IB also hopes to dominate the independent advisory space, given that there are fewer rivals to compete with now that OSK Investment Bank Bhd was recently acquired by the RHB banking group.

“With fewer players, we can charge higher fees,” Chay remarked.

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