MARC Ratings has affirmed its long-term and short-term financial institution (FI) ratings of A+/MARC-1 on Kenanga Investment Bank Berhad (Kenanga). Concurrently, the long-term rating outlook has been revised to positive from stable.

The outlook revision reflects the positive outcome from Kenanga’s revenue diversification strategy that has improved its overall profitability metrics and provides headroom against volatility of its core stockbroking business. The ratings affirmation incorporates Kenanga’s strong market position and lengthy experience in the domestic stockbroking industry. The long-term FI rating would be upgraded if Kenanga’s stronger business profile leads to a resilient financial performance.  

Kenanga’s key businesses include investment and wealth management, investment banking and money lending, besides stockbroking. Its asset size stood at RM7.1 billion as at end-June 2024, equivalent to 13.0% of total domestic investment banking industry assets. MARC Ratings notes that Kenanga has maintained its position as one of the top three stockbrokers since 2019, with a market share of around 10%–13%. In the retail segment, it had a 29.5% market share as at end-1H2024 (end-2023: 30.3%) underpinned by a 738-strong remisier base. While stockbroking remains the largest contributor to Kenanga’s top line, forming 44.1% of total revenue of RM447.3 million in 1H2024, the contribution from investment and wealth management has risen sharply, accounting for 26.5% of total revenue. For 1H2024, this segment’s revenue of RM118.5 million, surpassed the RM100.9 million for full year 2019.

As at end-1H2024, assets under administration (AUA) grew by 8.9% to RM23.9 billion, or at an average of around 13% annually in the five-year period through June 2024. The growing AUA has also led to an increase in recurring management fee income to RM98.0 million in 1H2024 and RM226.5 million in 2023, representing 42.9% of total non-interest income (2020: RM100.6 million; 14.2%). Overall, Kenanga’s business profile has become increasingly diversified in recent years, with the growing proportion of the steadier wealth management business. This has enhanced its financial stability comparable to its rated peers.

For 1H2024, Kenanga posted higher pre-tax profit of RM40.5 million (1H2023: RM35.8 million), largely supported by higher non-interest income and gains from associates and joint ventures. Its stockbroking segment contributed RM13.6 million (1H2023: RM4.7 million) on the back of an increase in trading value by 54.5% y-o-y to RM82.5 billion. Its investment banking segment recorded pre-tax loss of RM3.0 million, largely due to an increase in provisions for credit losses to RM8.3 million (1H2023: RM0.4 million). 

Due to a sharp decline in share prices of several counters in January 2024, triggering forced selling of shares by margin account traders, gross impaired loans ratio rose to 5.85% as at end-June 2024 (end-2023: 3.60%). Given that the impaired account holders have pledged properties for the financing, Kenanga deems the recovery to be strong. It also has put in place a repayment plan of up to two years and expects its impairment levels to reduce over the next 12 months.

Common Equity Tier 1 and total capital ratios stood at 15.9% and 22.6%, lower than the 2023 levels. MARC Ratings views Kenanga’s capital level to be able to provide ample buffer against regulatory requirements. Kenanga largely relies on short-term wholesale customer deposits for funding (56.2% of total liabilities). Kenanga’s high liquidity ratios mitigate funding concentration risk, with its liquid asset ratio standing at 57.1% as at end-1H2024. Liquidity coverage ratio also remained strong at 204% as at end-June 2024 (end-2023: 281%), reflecting its sizeable number of high-quality liquid assets. 

Fahmi Hawari, +603-2717 2946/ fahmi@marc.com.my

Akmal Sadiq, +603-2717 2939/ akmal@marc.com.my 

Yazmin Abdul Aziz, +603-2717 2948/ yazmin@marc.com.my