KENANGA MANAGING DIRECTOR'S MANAGEMENT DISCUSSION AND ANALYSIS

GROUP MANAGING DIRECTOR’S MANAGEMENT DISCUSSION & ANALYSIS Continued Resilience in Our Financial Position We continued to maintain healthy capital adequacy and liquidity within the Group. As at 31 December 2019, our capital adequacy ratios are at 23.18% and 22.73%, at the Group and Company levels respectively. These remain well above the 10.50% level set by Bank Negara Malaysia, including a capital conservation buffer of up to 2.50%, if imposed. Liquidity Coverage Ratio remained above 120%, well beyond the regulatory requirement of 100%, while Net Stable Funding Ratio averaged above 100% for the year. This has placed us in a good position to meet the new mandatory ratio of 100% which will take effect in July 2020. Our RM250 million Tier-2 compliance subordinated debt programme remain in place as part of our capital contingency plan. We have only issued RM25 million of the debt as at 31 December 2019, with room to raise further capital if necessary. Positive MARC Ratings We maintained the ratings of A+ and MARC-1 from the Malaysian Rating Corporation Berhad (“ MARC ”). The affirmed ratings are a validation of on our strong competitive position, healthy capital position, profitability metrics and funding profile. We will continue to strive for higher ratings by continuing to improve our financial performance. Our subsidiaries, Kenanga Investors Berhad and Kenanga Islamic Investors Berhad were affirmed an Investment Manager Rating of IMR-2 by MARC, reflecting its well-established investment processes, sound risk management practices and strong operating track record. OPERATIONAL REVIEW Segmental Review: Equity Broking Our Equity Broking (“ EB ”) division registered a PBT of RM9.5 million for FYE2019, against a loss before tax (“ LBT ”) of RM13.5 million for the year ended 2018, mainly due to a reversal of provision of impairment, offset by lower brokerage income and interest income in 2019. Bursa Malaysia ended a volatile year on a dampened note. The KLCI was down 6.02% or 101.82 points, and the KLCI’s market capitalisation was reduced to RM1.04 trillion as investors traded on a cautionary stance. The lacklustre sentiments drove total volumes down by over 15%. Despite the headwinds, our EB division achieved an increased market share of 9.6%, reinforcing Kenanga Group, as the third largest stock broker in the country. Through an expanded product line-up, innovative services, and systems-driven workflow efficiencies, it managed to offset the impacts of reduced trades from institutional clients, as well as, reduction in margin income. In addition to the rollout of digital platforms catered for younger traders, and new products such as SBL for more sophisticated investors, it also set up a Corporate Client Services unit that provides personalised service to High-Net-Worth individuals and corporate owners – underscoring its multi-pronged approach to pursue the breadth and depth of the retail segment. Investor literacy remains top of EB division’s agenda with workshops, webinars and nationwide roadshows conducted throughout the year. To get closer to today’s digitally connected customers, an app-based instant messaging service, Telegram, was mobilised as a new touchpoint to disseminate trading ideas and opportunities, empowering its followers to make decisions on the go. Segmental Review: Investment Banking and Treasury The Investment Banking (“ IB ”) and Treasury divisions as a whole registered a PBT of RM24.7 million, an increase of 9.8% from the year before. Investment Banking Investment Banking registered a higher PBT of RM12.7 million in FYE2019, relative to the RM20.5 million the year before mainly attributable to higher interest income, and advisory fees income but partially negated by lower placement fees and fees on loans.