Don't Miss the Opportunity Again – Kenanga's Offering at a 6.1% Indic Yield

Highlights:

• In Q1FY2026, Kenanga’s revenue remained stable, with a marginal decline of 0.5% YoY to RM208.6 million. Profit before taxation and zakat declined by 55% YoY, mainly due to higher operating expenses.

• Kenanga’s credit profile remained solid despite the decline in its CET1 ratio to 14.78%, as the moderation was primarily driven by higher risk-weighted assets (RWAs) rather than a weakening in its capital position. The ratio remains well above the regulatory minimum of 7% (including capital conservation buffers).

• Asset quality improved, with the net impaired loan ratio declining to 4.77% from 6.11% as at December 2025, mainly due to recoveries of previously impaired accounts.

• Investors should remain mindful of key risk factors, including intensifying competition within the Malaysian brokerage industry and broader macroeconomic uncertainties.

• Investors with a higher risk tolerance may consider the upcoming AT1 perpetual issuance, which offers an indicative yield of 6.1% (approximately +270bps yield pick-up over the 5-year MGS).

Kenanga Investment Bank (KIBB) is one of Malaysia’s well-established financial institutions, primarily recognised for its expertise in investment banking, stockbroking, and wealth management. In addition, it also offers unit trust funds and portfolio management solutions to both retail and institutional investors through its asset management arm.

Following our previous article update in April, Kenanga has returned to the Malaysian market with another AT1 perp issuance.

For more details, refer to our previous article: 

Idea of the Week: Kenanga’s 6.1% AT1 Perpetual Offers a Compelling Yield Opportunity

Here’s the latest update (Q1FY2026):

·       Kenanga delivered a mixed revenue performance during the quarter, with revenue edging down by 0.5% YoY to RM208.6 million.

·       This was primarily due to weaker contributions from the investment banking division (-16% YoY to RM55.4 million) and the listed derivatives division (-20% YoY to RM6.3 million).

·       We believe this reflects market-driven headwinds rather than any deterioration in Kenanga's underlying business. While management did not provide a detailed breakdown of the weaker trading and investment income, we believe the softer performance was primarily due to heightened market uncertainty, including geopolitical tensions in the Middle East and rising Malaysian Government Securities (MGS) yields, which weighed on capital market activity and trading conditions. Similar trends can be witnessed across the industry, with AmBank's investment banking division recording a c.13% YoY decline in revenue, while Hong Leong Investment Bank's revenue fell by approximately 10% YoY over the same period.

·       Nevertheless, these declines were largely offset by stronger contributions from the stockbroking division (+7% YoY to RM78.7 million), asset and wealth management (+10% YoY to RM68.9 million), and corporate and others (+17% YoY to RM4.5 million).

·       Operating expenses increased by approximately 10%, mainly driven by higher administrative and general expenses, as well as increased personnel costs.

·       As a result, Kenanga’s profit before taxation and zakat fell by 55% YoY to RM6.9 million, despite its top-line performance remaining relatively stable.

Credit highlights

-          Kenanga's capital position remained robust, with a CET1 ratio of 14.78% as at 31 March 2026, despite a gradual moderation since 2021. It is still above the minimum regulatory threshold of 7% (inclusive of capital conservation buffers).

-          We view the decline in the CET1 ratio as manageable, as it was mainly attributable to growth in risk-weighted assets (RWA), which increased the denominator of the CET1 ratio, rather than any weakening of the Group's capital base.

Table 1: CET 1 ratio and RWAs (RM’000)

 Source: Company Reports, iFAST Compilations. Data as of 31 March 2026.

-          In terms of asset quality, the net impaired loan ratio improved to 4.77% as at 31 March 2026 from 6.11% as at 31 December 2025, mainly driven by recoveries of previously impaired accounts. This was largely in line with our expectations, as highlighted in our previous article. Share margin financing constitutes the largest portion of Kenanga's loan portfolio (~60%), with the majority of these facilities secured by collateral. As such, we expect further recoveries and potential provision write-backs as collateral is realised to recover impaired exposures.

-          As at 31 March 2026, Kenanga's Liquidity Coverage Ratio (LCR) stood at 201%, comfortably above the regulatory minimum requirement of 100%, providing the Group with a strong liquidity buffer. This also reflects the bank's prudent and conservative approach to liquidity management.

-      Overall, we believe Kenanga's credit and liquidity profile remains resilient, underpinned by its sound capital position, improving asset quality, and strong liquidity buffers. Accordingly, we believe the Group remains well positioned to meet its debt obligations.

Key risks

Intensifying competition in the brokerage industry – Kenanga’s stockbroking segment may face pressure, given the attractive rewards and promotional campaigns offered by other competitors.

Macroeconomic risk – As an investment bank, Kenanga’s earnings performance is closely tied to the macroeconomic environment. During economic downturns, weaker portfolio and market performance, along with reduced investor participation and trading activity, may weigh on Kenanga’s earnings profile.

Upcoming Issuance

Kenanga is issuing an AT1 perpetual NC5, with an indicative yield of 6.1%. The issuance size is expected to be RM50 million. The issuance is non-rated, although the issuer is rated ‘A+’ by MARC.

Given that this is an AT1 instrument, investors should be aware of the inherent risks associated with AT1 perpetual securities:

1. Loss absorption feature – The issuance may be written down if Kenanga fails to meet regulatory capital requirements.
2. Non-call risk – The issuer may choose not to redeem the instrument on the first call date.
3. Coupon deferral – The issuer has the right to cancel periodic distributions (i.e., coupon payments) at its discretion. Any cancelled coupon payments are non-cumulative and will not be payable in the future. However, coupon cancellation will trigger the dividend stopper provision, restricting the issuer from making distributions to shareholders during the period of non-payment.

Target Book Close Date: End of business day 12 August 2026 (option to close early)

Our view

Overall, we believe Kenanga's earnings and credit profile remain resilient at this juncture. The upcoming AT1 NC5 perpetual offers an attractive investment opportunity for investors, with an indicative yield of 6.1% (representing a yield pick-up of approximately 270bps).

That said, investors should be aware of the inherent risks associated with AT1 instruments before investing. These include loss absorption features, non-call risk and coupon deferral. As such, this AT1 perp is more suitable for investors with a higher risk tolerance and a clear understanding of the structural features and risks associated with AT1 instruments.

In addition, investors should remain mindful of the increasingly competitive industry landscape. The emergence of new competitors and more aggressive promotional campaigns could place pressure on Kenanga's earnings and profitability over the medium term.

Table 2: Recommended Bonds

Source: BSM, iFAST Compilations. Data as of 20 July 2026.