KENANGA ANNUAL REPORT 2017

SEGMENTAL REVIEW: INVESTMENT BANKING AND TREASURY The Investment Banking (IB) and Treasury divisions as a whole registered PBT of RM19.70 million relative to RM34.69 million from the year before. The decline was mainly attributable to the performance of the Treasury department which was impacted by the subdued condition of the bond market and a decline in bond values, driven by rate hikes from the United States (U.S.), the slow economic recovery within the European region and the geo-political tensions caused by North Korea. Investment Banking The IB division maintained its momentum, recording a PBT of RM18.35 million, a marginal increase from the year before. The IB division completed several significant deals which underscored its strong performance for the year. The IB division kick-started the year with a private equity transaction involving one of the leading education groups in Malaysia. This is the second (2 nd ) private equity deal that IB was involved in following its assistance in the maiden investment made by Kenanga Private Equity Sdn Bhd in a logistics company. The division completed several notable rated and unrated bonds and Sukuk issuances for Cahya Mata Sarawak Berhad, Sunway Berhad and Titijaya Berhad during the year. It also acted as the joint lead adviser and joint lead manager for several government guaranteed Sukuk issuances, such as Prasarana Malaysia Berhad and GovCo and acted as the principal adviser to the Ministry of Finance of Malaysia on the sale of Bakun Hidro to the Sarawak state government. Capitalising on the improving market environment in 2017, the IB division focused on merger and acquisition advisory and funding, particularly in the take-over exercises of Halex Holdings Berhad, KUB Malaysia Berhad and Dataprep Holdings Berhad, as well as the injection of Widad Builders Sdn Bhd into Ideal Jacobs (Malaysia) Corporation Berhad. The division was also the Principal Adviser for Binasat Communications Berhad’s Initial Public Offering (IPO), the first (1 st ) IPO listing in 2018. Listed on the ACE market, the IPO was oversubscribed by thirty-four (34) times and closed almost 30% higher on the first (1 st ) day of listing. With more traction in the equity capital market in 2017, it also acted as placement agent for Vizione Holdings Berhad, Dayang Enterprise Holdings Berhad, Uzma Berhad and Gabungan AQRS Berhad. It participated in the underwriting of Serba Dinamik Holdings Berhad’s IPO and the rights issue undertaken by MKH Berhad and Hektar REIT. For the Islamic capital market, the Skim Perbankan Islam recorded an unprecedented PBT and Zakat of RM8.16 million. During the year under review, it launched two (2) Islamic margin financing products with the objective of providing Shariah compliant avenues for clients to maximise trading capacity and the need for roll-over facility. Outlook The IB division is cautiously optimistic of the market environment in 2018. The IB division will continue to explore innovative and unconventional fund raising solutions for its clients, strive for higher value fee-based income deals, and take on more corporate and project financing opportunities. Treasury The Treasury division recorded a PBT of RM1.35 million, a significant dip relative to the PBT of the year before at RM15.64 million. The volatile and challenging market environment gravely impacted the overall performance of the division despite steps taken to minimise some of the fundamental risks relating to currency exchange, the U.S. Federal rate hikes and global politics. The challenging bond market environment led to a marked decrease in fixed income trading revenue, partly offset by Foreign Exchange (FX) gains. For the year under review, liquidity management improved significantly as a result of the Treasury division’s persistent sourcing of funds from an array of retail and wholesale depositors. This enabled a reduction in the overall cost of borrowing and at the same time, achieved an average Liquidity Coverage Ratio of above 120% – well beyond the minimum BNM requirement of 80% for 2017. A notable initiative for the year included the roll-out of its Retail Negotiable Instrument of Deposit (RNID) which was well-received by retail depositors, with total amounting to RM35 million at the end of the year. Additionally, the division also focused on expanding its FX client base via cross-selling within the Group, as well as, promotional efforts to enhance its market presence. Outlook The Treasury division will continue with its proven funding strategy to minimise cost of borrowing through partnerships with other business units within the Group to expand the source of deposits. It will maintain its dedicated support to the business lines in respect of products with the shared goal of raising business volumes and profitability for the Group. Structured products and Islamic Treasury will be areas of expansion in the coming year. group managing director’s overview Kenanga Investment Bank Berhad 16