KENANGA ANNUAL REPORT 2017

BUSINESS REVIEW FOR 2017 The pre-tax profit (“PBT”) of the Group and the Bank for the financial year ended 31 December 2017 (“FYE17”) are RM40.6 million and RM61.6 million as compared to PBT of RM32.5 million and RM33.6 million respectively in the previous financial year (“FYE16”). The performance of the Group’s respective business segments are analysed as follows: STOCKBROKING Stockbroking division registered a higher PBT of RM37.6 million in FYE17 (FYE16: PBT of RM16.2 million) mainly due to higher brokerage income, interest income and trading and investment income as a result of the improved equity market in 2017. INVESTMENT BANKING Investment Banking registered a lower PBT of RM19.7 million in FYE17 (FYE16: PBT of RM34.7 million) mainly due to lower trading and investment income from bond securities mitigated by higher interest income and placement fees recorded for FYE17. INVESTMENT AND WEALTH MANAGEMENT Investment and Wealth Management registered a lower loss before tax (“LBT”) of RM1.9 million (FYE16: LBT of RM8.1 million) as a result of higher management fee income contributed by higher Assets Under Management (“AUM”) (FYE17: RM8.7 billion; FYE16: RM7.4 billion). FUTURES Futures segment recorded LBT of RM1.1 million in FYE17 as compared to PBT of RM2.6 million in FYE16 mainly due to lower commission income and interest income earned during the year. Income decreased mainly due to lower levels of client activities amid the sluggish market conditions. MONEY LENDING AND FINANCING This segment reported a lower PBT of RM0.4 million in FYE17 compared to PBT of RM0.6 million in FYE16 due to lower financing activities as a result of stiff competition in the market. CAPITAL RATIOS The Group and the Bank remain on a strong financial footing with total capital ratios (before deducting proposed dividends) of 30.102% and 28.390% respectively, and total capital ratios (after deducting proposed dividends) of 28.881% and 27.052% respectively, well above the minimum 8% as prescribe by Bank Negara Malaysia (“BNM”). OUTLOOK AND PROSPECTS FOR 2018 The Malaysian economy registered strong growth in 2017. However, we expect growth rates to be lower in 2018. This relative weakness will be reflected in comparatively subdued demand for Malaysia’s largest export category, electronic and electrical goods, the bulk of which goes to China and the United States of America (“U.S.”). We expect real gross domestic product (“GDP”) growth in China to slow markedly in 2018 as more aggressive efforts are made to bring debt levels under control. This will be followed by a significant, albeit temporary, loss of growth momentum in the U.S. economy, partly influenced by further U.S. Federal Reserve (“U.S. Fed”) rate increases. However, following the newly approved U.S. tax cuts, this should lift U.S. growth prospects thus mitigating the likelihood of a possible economic downturn. Annual Report 2017 77 directors’ report