KENANGA ANNUAL REPORT 2017

Well-Managed Liquidity and Capital Ratios In terms of our capital adequacy, we have remained steady with a total capital ratio of 30.10% and 28.39% at the Group and Company levels respectively, which are significantly higher than Bank Negara Malaysia’s (BNM) minimum capital adequacy ratio and buffer requirement of 9.25%. To further manage our capital, we have launched a RM250 million Tier Two (2) Subordinated Debt programme in March last year. The programme allows the Group to raise capital without having to issue new shares, allowing us to optimise our capital structure. To date, we have issued RM15 million Subordinated Notes for the purpose of business expansion. Our Liquidity Coverage Ratio which stood at 129.39% sits comfortably above BNM’s minimum of 80% as at 31 December 2017. Our Treasury department will continue to manage the ratios dynamically ensuring that we are in compliance with the regulatory ratios and at the same time, manage our costs of funding. External Credit Rating As suggested by our shareholders last year, we have managed to secure better credit rating for Kenanga Investment Bank Berhad (KIBB or the Company). On the back of improved financial performance and financial position, we have obtained a credit rating of A+ from Malaysian Rating Corporation Berhad (MARC), which is two (2) notches higher than our previous rating. We will continue to strive for higher ratings by continuing to improve our financial performance. SEGMENTAL REVIEW: EQUITY BROKING 2017 was a pivotal year for the Equity Broking (EB) division as EB recorded a PBT of RM37.62 million, a significant increase of 133% from 2016’s PBT of RM16.17 million. Revenue increased to RM313.29 million from RM250.85 million in 2016. This was on the back of the strong increase in volume in Bursa Malaysia where EB increased its traded volume by 35% from 2016, that outperformed the industry’s growth of 27%. This was further reflected in its market share which increased from 8.2% to 8.7%. EB’s joint venture with Rakuten Securities, Inc. also broke new grounds. Through its ease in usage, Rakuten Trade has garnered strong sign ups from the young and first (1 st ) time investors. This positive development is crucial in strengthening the Group’s market share amongst online users. Investing in financial literacy continues to be a priority. In addition to seminars, workshops and roadshows, many of which were in collaboration with regulators, the annual KenTrade Trading Challenge was conducted. Originally a simulated online-trading Challenge, it was given a fresh twist allowing its top ten (10) participants to trade with real cash amounting to RM1 million This exciting new element, presented participants the opportunity to experience live trading and attracted an overwhelming twenty thousand (20,000) registrants. The novel approach, gained the Challenge entry to the Malaysia Book of Records as ‘The First Live Stock Trading Challenge’. Lastly, 2017 was also a remarkable year for the Equity Derivatives unit. This unit saw great strides in growth, recording higher revenue by issuing 23% more structured warrants, putting the Group as one of the top three (3) issuers of structured warrants in Bursa Malaysia. Apart from Structured Warrants, the unit continued to derive income from its Over-the-Counter derivatives, providing unique solutions to its growing client base. As a testament to its business growth, the division continued to garner several more awards reflecting its strong market position. Recognised at the 2017 Bursa Excellence Awards, the division was awarded with Best Retail Equities Participating Organisation (First (1 st ) Runner Up) and Best Remisier (Champion). Outlook While some volatility is expected in the market due to the fact that 2018 is an election year, EB remains optimistic on its performance due to positive changes in the industry. With the recent announcement of stamp duty waiver on small-cap, mid-cap stocks and structured warrants, as well as, the liberalisation of margin financing rules, EB expects a boost to its margin business and trading income. The anticipated growth in these two (2) businesses will help offset some of the increase in cost arising from its technological investments that aims to further enhance client experience and further solidify its position in the marketplace. This, coupled with EB’s strong presence in the retail sector as well as, the derivatives market will serve to propel EB to new heights in the coming years. group managing director’s overview Annual Report 2017 15