KENANGA ANNUAL REPORT 2019

K E N A N G A I N V E S T M E N T B A N K B E R H A D A n n u a l R e p o r t 2 0 1 9 12 GROUP MANAGING DIRECTOR’S MANAGEMENT DISCUSSION & ANALYSIS As part of our plan to enable full mobility to our remisiers, we launched a new platform this year which has digitalised most of the core workflows, unlocking new levels of efficiencies. We expect to enable full mobility for our remisiers by end of 2021 – where onboarding clients, trades and settlement, as well as, remisiers’ business management can be executed anywhere, through this remisiers’ service portal. Further to this, we will be exploring the adoption of Cloud-based solutions this year, which will bring about greater scalability, faster speed-to-market and further cost effectiveness. Our joint-venture with Japan-based Rakuten Securities Inc., Rakuten Trade Sdn Bhd, which has now been operating for three years as Malaysia’s completely online equity broker, continues to record remarkable growth. It doubled its subscription base from the year before, recording 47,500 accounts at the end of 2019, and registering almost RM8 billion in trading value on Bursa Malaysia. This was attributed to three innovative rollouts – Contra 2.0 (enhancement to their Contra Account launched in 2018), ID Linkage in partnership with AirAsia BIG and improved eKYC (e-Know Your Customer). In a move to advance our digital capabilities, we formalised a three- year Digitisation Roadmap to further streamline focus and resources, accelerate implementation, and ultimately optimise cost structure. Approved by the Board of Directors in 2019, the Roadmap charts a holistic framework that supports the generation of new ideas, in tandem with driving transformative initiatives within our existing businesses. 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.