Chong: ‘A crisis comes every seven to 10 years and should never be wasted.’
Maybank Kim Eng’s strategy to grow when others are cautious is paying off
MARKETS were falling and the global stage was in turmoil as it became apparent on that Wednesday morning that the next president of the US would be Donald Trump.
However, Maybank Kim Eng CEO Datuk John Chong was cool as a cucumber as he sat down for a chat with a team from StarBizWeek at Maybank’s headquarters.
For the 47-year-old Chong, who has been with the banking group for over 20 years , market volatility is something that he is very used to dealing with.
In fact, he appears to thrive on it and has over the past few years, been working on a business model, which in his own words, “can withstand market volatility.”
“A crisis comes every seven to 10 years and should never be wasted,” Chong, who oversees the group’s entire regional investment banking (IB) operations says.
A combination of prolonged low interest rate policies around the world and a global economic slowdown has impacted the earnings of investment banks in recent years.
Generally, deal flows have been slow, causing major global investment banks such as Deutche of Germany to shrink their operations.
But Chong sees the changing landscape as an opportunity to grow market share.
“While other global investment banks have been scaling down operations in the region, we think it’s as an opportunity to tap market share.”
Going by the numbers, Maybank Kim Eng seems to have taken its own advice.
Based on data from content, analytics, and technology provider Dealogic, the group is ranked No. 1 in Asean for IB and advisory (IB&A) and mergers and acquisitions (M&A) by completed deals as at end Oct 2016.
For the first half of the year, it posted a 14.1% year-on-year growth in income and 26.4% growth in pre-tax profit.
“Our deal pipeline for 2017 and 2018 remains strong despite the challenging market conditions.”
Recall, Maybank IB Bhd and Singapore’s Kim Eng Holdings Limited were merged in 2011 to become Maybank Kim Eng.
With the merger, it had immediate exposure to 10 countries as well as an associate company, Anfaal Capital which helps the group with its distribution of products and services in the Middle East.
Of the 10 countries, 6 are in Asean and are its core markets, namely Malaysia, Singapore, Thailand, Indonesia, Philippines and Vietnam.
Outside Asean, it has Hong Kong which is a distribution hub, Mumbai, Saudi Arabia, US (both in New York and San Francisco) as well as London. These are key areas of distribution especially for its initial public offerings (IPOs), Chong says.
“Because there were different cultures between us and Kim Eng, for the first three years, it was very important to make sure that the merger was done properly.
“Ours is a people’s business and the key thing is the talent pool.”
“Honestly, we have done that very successfully and since then, have formed a formidable team centred on our core values which include teamwork, integrity and growth.
In the first few years of the merger, the group also focused on building its institutional equities team which lend support to its IB business.
It also worked on building its research team, a somewhat contrarian move as this segment is often seen as a cost-centre more than anything else.
“We have built a strong research house that is resource-based and it provides thought leadership to all our clients in the region and globally. Research is unique and you need to be on the ground to know what is happening. Half of my team in Mumbai are research people.”
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Staying regional
Maybank Kim Eng’s two main pillars are its IB&A which include its debt capital markets, project financing, ECM (equities capital markets), corporate finance and M&A as well as the other pillar, which is equities comprising retail and institutional equities. It has another business called ECDG - (equities, commodities, derivatives group) but this is a smaller part of the business and growing well.
Chong says, a good proportion of the deals Maybank Kim Eng has done so far has been regional.
“It’s not just a Malaysian play for us- 40% of our income is from Malaysia, the rest of it is from outside the country, it’s about 40% to 50%, depending on the year,” he says.
Some of the notable M&A transactions it has completed include the Shakeys Pizza deal in Philippines and Berli Jucker’s acquisition of BIG C Super Center Plc in Thailand.
“We are working on a number of other opportunities in Malaysia and throughout the region. I expect Maybank Kim Eng to remain very active across Asean in the M&A space over the next two years,” Chong says.
Clearly, there will be challenges.
And one of the biggest challenge is shrinking deal volumes and fees, Chong points out.
In this regard, he says the group’s diversification across products and geographies has helped buffer it against the challenging environment.
“We’ve seen a number of the regional and global banks making significant cutbacks or even withdrawing from Asean and consolidating into Hong Kong.
“We see this as an opportunity to build stronger relationships with our Asean client base, penetrate deeper into the Asean market and gain market share.”
With margins and commission from equities expected to be further pressured over the next three to five years, a big push is to go online. Currently about 44% of its equities business is already online regionally.
Meanwhile, while the general consensus is that the IPO market is listless, Chong begs to differ.
In Malaysia, there has so far been 10 IPOs compared to 13 last year.
“I wouldn’t categorise the IPO market as being listless, but clearly there’s been a lack of large IPOs in 2016,” Chong says.
He points out though, that this “phenomenon” is not peculiar to Malaysia as IPO market conditions have been challenging throughout the region.
“I also disagree with the suggestion that companies prefer to list overseas, rather than Bursa Malaysia. There has only been one company that listed overseas this year and we are currently pitching a number of large IPOs, and even though these companies have the option to list overseas, they choose to list in Malaysia.”
Chong also points out that there’s still a lot of opportunities in the equity market fund raising space, but this has been more focused on rights issues and placements rather than IPOs.
Maybank Kim Eng completed a couple of rights issues including Malaysia Building Society’s US$710mil which is the largest rights issue exercise in Malaysia this year.
It was also the sole advisor and placement agent for Sime Darby Bhd’s recent RM2.3bil primary share placement, the third largest primary issuance in Malaysian corporate history.
“The total demand for this deal was RM6.2bil which shows that there’s still strong liquidity in the market and appetite for the right deals.”
Chong believes that there’s likely to be a pickup in equity fund raising activity in 2017. “A number of companies have pushed their capital raising plans from 2016 to 2017, so I expect activity to pick up next year.”
He says that the theme moving forward is infrastructure play and the region could require up to US$600bil worth of capital expenditure for infrastructure projects. A big portion of this will come from Indonesia.
Cost control
It comes as a surprise that unlike most IBs, cost is not particularly an issue for Maybank Kim Eng.
Chong attributes this to the organisation’s tight control on overall cost.
“From the onset, we have kept an eye on costs by ensuring productivity and efficiency so that we can focus on driving growth.
“In our business, one of our biggest challenges is market volatility, especially on the stockbroking side. So we have always made sure that we have discipline on cost because that is something we can control.”
He declines to disclose the IB’s cost-to-income ratio (CIR), but says that “it is probably one of the lowest in the region among peers.”
He adds that the organisation has never had to undertake staff rationalisation and has no plans for this.
Its parent company the Maybank group, meanwhile, has a CIR of 48.7%, largely in line with the industry.
“We also have a strong diversification of markets as well as products.
“So when some markets are slower than others, obviously we have other markets where we can tap into. Today, we can see the fruits of that.”
All in, Maybank Kim Eng has roughly about 3,000 staff, of which about 700 to 800 are based in Malaysia.
A huge bulk of its staff is also in Thailand, where it has 60 stockbroking branches, making it the largest stockbroking house there with the largest market share.
In Thailand, about 80% of its business is from retailers.
