Kenanga eyes JF Apex

by **Cals** Mon 24 Mar 2014, 04:00

ublished: Saturday March 22, 2014 MYT 12:00:00 AM
Updated: Saturday March 22, 2014 MYT 7:17:31 AM
[size=40]Kenanga eyes JF Apex
BY YVONNE TAN[/size]
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A FRESH round of merger and acquisition (M&A) talks is circulating in the stockbroking space which has in recent years become more and more of a big boy’s domain.
This time round, talks are centred on investment bank K&N Kenanga Holdings Bhdentering into a possible merger with JF Apex Securities, a Kajang-based stockbroking entity which employs over 300 people of which about 100 are remisiers.
“There have been some discussions between both parties but everything is very preliminary, these sort of talk usually take time,” says a source familiar with the discussions.
Such talks follow on the heels of rumours that TA Securities is also a target of K&N Kenanga.
TA Securities has been bandied about as a likely party to be part of the next significant M&A exercise in the stockbroking sector owing to the fact that it remains as one of the last standalone brokers that is owned and run by an individual.
Majority-controlled by Datuk Tony Tiah Thee Kian and his wife Datin Alicia Tiah, TA Securities has been said to be courted by K&N Kenanga but market talk that the two were in discussion was dismissed by the TA group.
Analysts say a merger between K&N Kenanga and TA Securities would pave the way for the former to become a leader in terms of retail base, a position now reportedly held by the merged entity of Affin Investment Bank Bhd and Hwang-DBS Investment Bank Bhd.
Notably, retail investors play a relatively small role in trades, contributing only about a fifth to trading value and volume on Bursa Malaysia, with the rest contributed by institutional investors.
Meanwhile, according to sources, excluding all other income generators such as margin financing interests, dividends and underwriting fees, JF Apex makes a net profit margin of about 9%, believed to be significantly higher than most of its peers.
One of the firm’s strengths is also in its good management of its kiosks located nationwide which enables its clients to conduct trades.
No price tag has been put on the possible deal yet although previous consolidation among local brokers have been done at 1.1 to 1.9 times (x) book value.
Both K&N Kenanga and JF Apex did not respond to StarBizWeek queries.
As at end-February, K&N Kenanga was number three in terms of trading volume and value after CIMB Investment Bank and RHB Investment Bank, enjoying a market share of more than 12% in terms of trading volume and 9.4% in terms of trading value.
Buying JF Apex will nudge it higher on the league table, the source notes, matter-of-factly.
JF Apex’s parent company Apex Equity Holdings Bhd is said to be about 40% controlled by Lim Siew Kim, a daughter of the late Tan Sri Lim Goh Tong.
Lim is also the sister-in-law of Apex executive chairman Chan Guan Seng who has a 9.79% stake in the broking house.
Chan, a veteran stockbroker, is the managing director at JF Apex.
Talks on changes at Apex is not entirely new.
In 2012, a tussle of sorts occurred at the group with Chan and another director, Lew Lup Seong, being ousted from the company only to be re-elected by shareholders two days later.
At that point, it was reported that Lim and Chan were at loggerheads, with the shareholder fight being labelled in the media as a family feud.
The re-election of the duo in a space of just two days indicates that Chan still commands substantial control in the shareholding of Apex.
For the financial year ended Dec 31, Apex made a net profit of RM25.34mil or 12.55 sen per share compared with a net profit of RM26.1mil or 12.87 sen per share for the same period a ear earlier.
Revenue was higher at RM64mil compared with RM47.4mil.
Apex declared lower dividends amounting to 8 sen per share for FY13 compared with 21 sen for FY12.
Its stock was up some 6% to RM1.35 at yesterday’s close.

Intense competition
It’s no secret that the local stockbroking business is not experiencing the best of times.
In fact, competition in the industry had become intense a few years back what with more investors and traders choosing to do their trades online thus doing away with commission for brokers.
Furthermore, margin financing activity from which most brokers make the bulk of their profit from is facing growing competition from conventional banks which are charging competitive rates even as they fight for market share within the banking industry.
In all of these, it is the small stand alone, non-bank backed houses that suffer the most.
There are at least eight of such remaining in the industry, namely JF Apex, Inter-Pacific Securities, M&A Securities, TA Securities, Mercury Securities, Jupiter Securities, Melaka Securities and PM Securities.
Above this are the big boys of the industry – the bank-backed brokerages namelyCIMB Investment Bank, Maybank Investment Bank, AmInvestment Bank, Affin Investment Bank and RHB Investment Bank Bhd.
In recent times, Affin has enlarged its reach swallowing up family-owned Hwang-DBS Investment Bank and is now set to be the second largest brokerage by traded value and volume with a 15% market share behind CIMB’s investment banking business.
The deal saw Affin grow its distribution network by almost four times to 25 branches and 770 remisiers from only six branches and 218 remisiers before that.
Recall, prior to this, the RHB group had bought up OSK Investment Bank while K&N Kenanga acquired ECM Libra Investment Bank Bhd.
Earlier, Maybank had also purchased Singapore-based Kim Eng Securities, setting off the wave of M&A in the local broking space.