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CIMB eyes Jupiter Securities for joint venture with Chinese brokerage

Mar 17. 2017
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CIMB GROUP Holdings Bhd is looking at acquiring Jupiter Securities Sdn Bhd from Olympia Industries Bhd for more than 50 million ringgit (Bt394 million) as part of a larger corporate exercise to facilitate its joint venture (JV) with China Galaxy Securities Co Ltd.

Sources said that CIMB was looking at acquiring Jupiter Securities mainly to get an additional licence for its stock broking business that would eventually merge with China Galaxy Securities as part of a wider exercise to expand its reach and reduce cost.

At the moment, CIMB already has a stock broking licence under its investment bank (IB). 

However, sources said it required another licence for the JV company that it is setting up with China Galaxy Securities to operate in Malaysia.

“CIMB would like to park all its stock broking business in the region in the JV with China Galaxy Securities. To do this, it would need a licence to operate in Malaysia through that JV.

“CIMB IB’s licence is for itself only,” a source said.

Jupiter Securities is a smallish broking firm that is loss-making and is presently a subsidiary of Main Market-listed small-cap numbers forecast operator company Olympia.

While gaming is Olympia’s mainstay business, it also has other business divisions including property and financial services through Jupiter Securities.

In the financial year ended Dec 31, 2016 (FY16), Jupiter Securities posted a narrowed loss to 1.39 million ringgit from 2.5 million in FY15.

For FY16, Jupiter Securities raked in 6.99 million ringgit in revenue, which was lower than the 7.57 million ringgit revenue reported in FY15.

The financial performance of Jupiter Securities is affected by market share and trading volume, the company said.

For an acquisition price tag of 50 million ringgit, Jupiter Securities is priced at 7.14 times sales for FY16, while its asset size is still unknown at this time. 

The stock broking business is generally a tough business to operate in and players usually lose money.

CIMB’s cost of running the business is estimated at 600 to 700 million ringgit , noted RHB Research in an earlier report.

And these costs are expected to be lowered following the JV with China Galaxy Securities that is expected to be completed by the first half of this year.

China Galaxy Securities is one of the biggest Chinese securities companies and is listed on the Hong Kong Stock Exchange with more than eight million customers that conduct its business mostly online.

Its economies of scale and reach pave the way for it to sustain its business in the ultra-competitive world of broking. The JV is on a 50:50 basis between both the companies.

The stock broking industry in Malaysia is quite fragmented and this acquisition will be the first for this year, but in recent times, other similar acquisitions have taken place.

Last year, KAF Investment Bank Bhd successfully privatised KAF-Seagroatt & Campbell Bhd for 248.64 million ringgit or 2.70 ringgit a share with the purchase of the remainder of the 76.74 per cent stake. 

The mandatory general offer came after KAF Investment entered into an agreement to buy a 76.74 per cent stake in KAF-Seagroatt from Akka Sdn Bhd, Akka Holdings Sdn Bhd, Datuk Khatijah Ahmad and Thariq Usman Ahmad. 

The KAF privatisation was first announced in 2015.

A similar consolidation was seen in the IB space then in 2013 when Hwang-DBS (M) Bhd (HDBS) sold its IB business to Affin Holdings Bhd for 1.36 billion ringgit.

HDBS also sold its 51 per cent stake in its equity research unit to Alliance Financial Group Bhd for 393,945 ringgit in cash. 

Other stand-alone smallish stock broking companies that are in the market with a licence to operate in the local IB space include SJ Securities Sdn Bhd, Mercury Securities Sdn Bhd, TA Securities Holdings Bhd and M&A Securities Sdn Bhd.


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