MARC has affirmed its long-term and short-term financial institution (FI) ratings of A+ and MARC-1 with a stable outlook on Kenanga Investment Bank Berhad (Kenanga).
Kenanga’s strong competitive position in the domestic stockbroking industry from which it has been able to generate moderate-to-strong income remains the key factor for the rating affirmation. This is supported by the investment bank’s healthy capitalisation level. The exposure of its income generation to capital market volatility is the main moderating factor.
Having built an extensive network of remisiers, Kenanga has been able to sustain its market share in retail trade, which stood at 27.0% of total trading value of Bursa Malaysia as at end-1Q2021 (2020: 26.7%). Its trading value includes online share trading (Rakuten Trade) that has continued to gain traction with the total number of accounts increasing to 197,022 as at end-1Q2021 (2020: 165,799 accounts). This share trading platform, co-owned with Japan-based Rakuten Securities, Inc., generated trading value of RM14.7 billion and contributed about 20% of Kenanga’s trading value in 1Q2021.
For 1Q2021, total income rose significantly to RM221.3 million (1Q2020: RM116.1 million) on the back of a sharp increase in trading activities, continuing with the momentum in 2020 when it recorded total income of RM818.8 million, up by 85% y-o-y. Apart from stockbroking fees, the investment bank also generates interest income from its gross loan portfolio of RM2.0 billon as at end-1Q2021 (1Q2020: RM1.9 billion). The loan portfolio comprises share margin financing and term loans. We note that as with most investment banks, cost-to-income ratio is high at 83.7% for 1Q2021 (2020: 85.5%) given the commission-based income structure of its dealer base.
Kenanga’s consolidated Common Equity Tier 1 ratio remains strong at 19.1% as at end-2020, providing a buffer against asset quality issues. For 2020, its gross impaired loans stood at a manageable 2.19% (industry average: 3.15%). The bank also has sizeable liquid assets of 32.3% while its liquidity coverage ratio stood at 114% in 1Q2021 (2020: 164%).
Contacts:
Farhan Darham, +603-2717 2945/ farhan@marc.com.my;
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my;