KENANGA ANNUAL REPORT 2017

SEGMENTAL REVIEW: STRUCTURED LENDING AND TRADE FINANCING Kenanga Capital Group (KCG) is the structured lending and trade division of the Group which consists of Kenanga Capital Sdn Bhd (KC) and Kenanga Capital Islamic Sdn Bhd (KCI). PBT decreased from RM633,000 in 2016 to RM448,000 in 2017. For the year under review, KCG continued its focus on developing Islamic trade financing products offered through KCI. Its Islamic factoring business had performed well despite a small capital base, registering a PBT of RM1.72 million compared to RM300,000 in 2016. Outlook In 2018, we expect to see improvements in our Structured Lending and Trade Financing division. We will maintain focus on factoring low risk government contracts and seeking opportunities in structured lending to grow our business volume. RISK MANAGEMENT The inherent risks of the Group include interest rate risk and equity market risk, primarily arising from our trading and investment activities. Interest rate and equity risks are mitigated by our established risk limits on portfolio size, value-at-risk and loss triggers. The other key inherent risk is in the form of credit risk arising from our lending position in terms of share margin financing. We have put in place systematic procedures to manage credit risks in a timely manner so as to ensure effective remedial actions that can be undertaken to prevent or minimise any potential financial losses. With continual diligent management, our non- performing loan (NPL) ratio is at 0.02%, one of the lowest in the market. In managing operational risks, we have put in place risk management tools such as Loss Incident Reporting, Risk Control Self-Assessment and Key Risk Indicator to ensure risks are identified, assessed, monitored, mitigated and reported within a structured framework that includes appropriate governance oversight. 2018 OUTLOOK We are cautiously optimistic that the Group will improve its performance in 2018. Given the strong fundamentals of the Malaysian capital markets, we believe that our core businesses of Equity Broking and Investment Banking will continue to grow in 2018. We are also confident that as one of the largest retail brokers, we will benefit from the recent positive announcements by our government to promote retail trading in the stock market. Our Investment and Wealth Management businesses which had shown lower losses in 2017 is expected to turn around in 2018, riding on the momentum of its AUM growth. We expect AUM to increase further to RM11 billion by the end of 2018. The challenging market conditions faced by our Listed Derivatives business are expected to persist in 2018. To reduce reliance on foreign institutional clients, we will focus on diversifying our revenue stream in Futures by providing foreign listed derivatives products to local retail clients, leveraging our ready client base in Stockbroking, Wealth Management and Asset Management to generate new avenues of revenue. We aim to commence the offering of CME Group products to the local market in 2018. We also expect to continue seeing an improvement in our Structured Lending and Trade Financing division as we continue our emphasis on factoring low-risk government contracts and opportunities in structured lending. APPRECIATION I would like to take this opportunity to extend my appreciation to our Founder and Adviser, Tan Sri Dato’ Paduka Tengku Noor Zakiah Tengku Ismail; Chairman, Encik Izlan Izhab and the Board of Directors for their guidance and stewardship of Kenanga Group. I also would like to thank our employees for their continued dedication. My gratitude goes out to our business partners, clients, suppliers and stakeholders for their continued support. On behalf of the Group, I would also like to extend our appreciation to Bank Negara Malaysia, Securities Commission Malaysia and Bursa Malaysia Berhad for their guidance in helping us navigate the regulatory landscape. Finally as always, we wish to record our heartfelt thanks to our valued shareholders for their continued trust and support towards the Group. DATUK CHAY WAI LEONG Group Managing Director group managing director’s overview Annual Report 2017 19