Published December 29, 2008

Kim Eng, CIMB-GK eyeing regional brokerages

Downturn provides opportunities to gain market share in next 3-6 months

By JAMIE LEE

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BROKERAGES CIMB-GK Securities and Kim Eng Securities are looking to buy regional broking houses over the next three to six months, senior executives told BT recently.

Making offers: Ms Fong says that acquisitions would help brokerages get quicker access to the local players' client and broker bases

This comes as broking companies move to expand their market share in Asia during the downturn, seeing regional diversification as a means to grow their business.

'We would love to buy brokers,' said CIMB-GK Securities chief executive Carol Fong, who added that acquisitions would help brokerages get quicker access to the client and broker bases established by local players.

She said that the company had recently made offers to brokerages in Singapore and Malaysia but were rejected.

'We have made a couple of approaches already but I don't think anyone is up for sale,' she said. 'We'll knock on the door six months down the road and see what happens.'

'Indian brokers, at the height, traded at nine or 10 times book. Now, they are trading at half (time) book. It might get lower.' - Mr Ong, Kim Eng

Kim Eng is mulling purchases in India and Vietnam, executive director Ong Seng Gee told BT recently, adding that the company has had 'exploratory' talks with brokerages there.

'Indian brokers, at the height, traded at nine or 10 times book,' said Mr Ong. 'Now, they are trading at half (time) book. It might get lower.'

'It's not a market that we had actively pursued because valuations had gone out of whack. But when the price is right, we will be there,' he added.

Kim Eng currently has an office in India to service institutional clients.

The company - which in February sold a 11 per cent stake to Japan's Mitsubishi UFJ Bank - is also open to making acquisitions in Vietnam, where the company has just entered this year and has broken even, said Mr Ong.

'If there are opportunities and there are securities houses that are in financial distress, we don't rule out the possibility of making an acquisition to gain market share,' he said, adding that Kim Eng is now among the top 30 brokers out of more than 200 in Vietnam.

The listed brokerage has a cash flow of about $400 million, according to its fiscal third quarter statement.

This comes amid falling valuations of broking houses across the region.

Brokerages in Asia-Pacific are now trading at an average of 4.22 times their price-to-book (P/B), Reuters data showed.

Top Korean brokerage Samsung Securities is now trading at 1.85 times, Japan's largest securities company Nomura is trading at 0.71 times.

Kim Eng is trading at 0.68 times while the largest brokerage here, UOB Kay Hian, is trading at 0.71 times.

Brokerages are also aiming to diversify into the corporate finance business, rather than rely on a pure stockbroking business.

Kim Eng's corporate advisory and asset management divisions, which now contribute about 17 per cent to the company's revenue, could double that over the next five years, said Mr Ong, adding that the company hopes to launch its first Japan fund through its new asset management venture with Mitsubishi UFJ soon.

For the full story on how brokers are coping in the current downturn, read the January issue of Pulses