A N N U A L R E P O R T 2021
COVER RATIONALE The financial services landscape is constantly evolving. Emerging technologies like artificial intelligence and machine learning, compounded by the ever-changing client expectations and preferences, are rapidly redefining how financial institutions deliver services. At Kenanga, we are always challenging ourselves to push boundaries and design meaningful products and integrated solutions, that resonate with our client needs. As we navigate forward, we aim to seize the tremendous growth opportunities that lie in digital and innovation, to create an interconnected and seamless ecosystem for all our clients and partners. 48th Annual General Meeting DATE: 26 May 2022, Thursday TIME: 11am VENUE: Level 19, Kenanga Tower 237, Jalan Tun Razak, 50400 Kuala Lumpur, Wilayah Persekutuan, Malaysia Our Reports The Annual Report 2021, Corporate Governance Report 2021 and Sustainability Report 2021 are our primary reports. Supplementary information are available on our website: www.kenanga.com.my Kenanga is committed to making a difference in the environment. Play your part by opting to download a softcopy of our reports at www.kenanga.com.my/investorrelations/AGM2022 or by scanning the QR code below. ANNUAL REPORT - Provides an overview of Kenanga Group’s financial performance, as well as, business highlights of the year. SUSTAINABILITY REPORT - Provides an understanding of Kenanga Group’s sustainability ambitions, initiatives and progress, as well as, how it is integrated across the business. CORPORATE GOVERNANCE REPORT - Provides an overview of Kenanga Group’s corporate governance and how it facilitates effective management to deliver longterm value for the company.
Inside this Report 3 OUR SUSTAINABILITY APPROACH 20 1 WE ARE KENANGA Kenanga At A Glance 02 Who We Are 04 Corporate Structure 05 Corporate Information 06 5 FINANCIAL STATEMENTS Five (5)-Year Group Financial Summary 133 Five (5)-Year Group Financial Highlights 133 Directors’ Report 134 Statement by Directors 141 Statutory Declaration 141 Independent Auditors’ Report 142 Shariah Committee’s Report 147 Consolidated Statement of Financial Position 148 Statement of Financial Position 149 Statements of Profit or Loss and Other Comprehensive Income 150 Consolidated Statement of Changes in Equity 152 Statements of Cash Flows 155 Notes to the Financial Statements 157 6 SHAREHOLDERS’ INFORMATION Analysis of Shareholdings 352 List of Thirty (30) Largest Shareholders 353 Substantial Shareholders, Directors and Group Managing Director’s Interests in Securities 354 7 ADDITIONAL INFORMATION Notice of 48th Annual General Meeting 355 Statement Accompanying Notice of 48th Annual General Meeting 362 Corporate Directory 363 Proxy Form 2 MESSAGE FROM CHAIRMAN AND GMD Chairman’s Message 08 Group Managing Director’s Management Discussion & Analysis 12 4 HOW WE ARE GOVERNED Founder Emeritus & Adviser’s Profile 58 Profile of the Directors 60 Group Managing Director’s Profile 68 Senior Management’s Profiles 69 Corporate Governance Overview Statement 78 - Principle A : Leadership & Effectiveness 79 - Principle B : Effective Audit & Risk Management 98 - Principle C : Relationships with Stakeholders 100 Ethics and Compliance Statement 108 Statement on Risk Management & Internal Control 119 Audit Committee Report 123
Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD 02 Kenanga Investment Bank Berhad Annual Report 2021 Kenanga At A Glance INTRODUCTION Today, Kenanga Investment Bank Berhad is an award-winning leading independent investment bank in the country with a continuous commitment towards driving col laboration, innovation, digital isation and sustainabi l ity in the marketplace. As the largest independent investment bank in Malaysia, the Group’s digital ambitions include building a robust digital ecosystem that meets the needs of its clients and businesses. Some of its game-changing products include Malaysia’s fully online digital stockbroking platform Rakuten Trade and a fully artificial intelligence (“A.I.”) robo-advisor, Kenanga Digital Investing. > 1,300 employees Assets under Management RM18.8 bil FY2021 First Malaysian investment bank to join the United Nations Global Compact Expanded our commitment and contribution from three (3) UN Sustainable Development Goals (“SDGs”) to eleven (11) SDGs moving forward Awarded the ‘Highest Returns to Shareholders Over Three Years’ at The Edge Billion Ringgit Club & Corporate Awards 2021 > 500,000 clients
How We Are Governed Financial Statements Shareholders’ Information Additional Information 03 KENANGA’S DIGITAL JOURNEY Key Highlight Highest Profit in the Group’s History as an Investment Bank Profit Before Tax 2019 2020 2021 RM43 million RM135 million RM148 million 2016 Rakuten Joint Venture Kenanga entered into a joint venture with Japanese internet giant Rakuten Group, Inc. 2019 Launch of Remisier Portal Kenanga launched a new portal to enable remisiers to work remotely. 2021 A Stake in Tokenize Xchange Kenanga received approval from Securities Commission Malaysia to acquire 19% stake in Digital Asset Exchange Platform, Tokenize Xchange. 2017 Back Office Digitalisation Kenanga completed back office digitalisation to enhance efficiencies. 2020 E-Wallet Launch with Merchantrade Kenanga launched an e-wallet with Merchantrade and later acquired a 4.99% stake in the company. 2021 Fintech Fund Kenanga signed a collaboration agreement with Malaysia Debt Ventures Berhad to jointly establish a Fintech Fund aimed at developing the venture capital industry in Malaysia. 2017 Launch of Rakuten Trade Kenanga and Rakuten jointly launched Rakuten Trade, Malaysia’s first fully digital equity broker. 2020 Partnership with CapBay Kenanga entered into partnership with CapBay to digitalise first-in-Malaysia factoring solution unifying both, private and public sector receivables under one platform. 2022 Launch of a Robo-Advisory Platform Kenanga launched a fully A.I.-driven robo-advisory platform, Kenanga Digital Investing.
Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD 04 Kenanga Investment Bank Berhad Annual Report 2021 Who We Are Establ ished for more than for ty- f ive (45) years, Kenanga Investment Bank Berhad ( “the Group” ) is a f inancial group in Malaysia wi th extensive exper ience in equi ty broking, investment banking, t reasury, Islamic banking, l isted der ivat ives, investment management , weal th management , st ructured lending and t rade f inancing. Agility We are nimble and quick to respond with creative, customised solutions to meet our stakeholders’ needs, both internally and externally. Collaboration We are supported by an integrated network of colleagues and partners. We believe in consolidating our knowledge and working together for the best solutions. Trustworthiness Professionalism, integrity and transparency are values we hold dear. We are fully committed to ethical practices and strive to always maintain credibility in all that we do. Future Facing We are constantly pushing boundaries. Our pursuit of digital innovations will help create a world of wealth for every aspect of our stakeholders’ lives.
How We Are Governed Financial Statements Shareholders’ Information Additional Information 05 Corporate Structure Kenanga Investment Bank Berhad Note: All the above companies are incorporated in Malaysia unless stated otherwise. Kenanga Investors Berhad 100% K & N Kenanga Holdings Berhad 100% Kenanga Nominees (Tempatan) Sdn Bhd 100% Kenanga Nominees (Asing) Sdn Bhd 100% Kenanga Management & Services Sdn Bhd 100% ECML Berhad 100% ECML Nominees (Tempatan) Sdn Bhd 100% Avenue Kestrel Sdn Bhd 100% SSSB Management Services Sdn Bhd 100% Kenanga Futures Sdn Bhd 100% Kenanga Capital Sdn Bhd 100% Kenanga Private Equity Sdn Bhd 100% Rakuten Trade Sdn Bhd 50% Rakuten Trade Singapore Pte Ltd (Formerly known as Kenanga Singapore Pte Ltd) (Incorporated in Singapore) 50% Kenanga Islamic Investors Berhad 100% I-VCAP Management Sdn Bhd 100% KUT Nominees (Asing) Sdn Bhd 100% KUT Nominees (Tempatan) Sdn Bhd 100% Kenanga Funds Berhad 100% Al Wasatah Al Maliah Company (Incorporated in the Kingdom of Saudi Arabia) 29.6% Kenanga Vietnam Securities Joint Stock Corporation (Incorporated in Vietnam) 49% Kenanga Investment Corporation Ltd (Incorporated in Sri Lanka) 45% Kenanga Capital Islamic Sdn Bhd 51%
Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD 06 Kenanga Investment Bank Berhad Annual Report 2021 Corporate Information BOARD OF DIRECTORS YAM TAN SRI DATO’ SERI SYED ZAINOL ANWAR IBNI SYED PUTRA JAMALULLAIL (“TAN SRI DATO’ SERI SYED ANWAR JAMALULLAIL”) Chairman/ Independent Non-Executive Director LUIGI FORTUNATO GHIRARDELLO Non-Independent Non-Executive Director ISMAIL HARITH MERICAN Non-Independent Non-Executive Director LUK WAI HONG, WILLIAM Independent Non-Executive Director JEREMY NASRULHAQ Senior Independent Non-Executive Director NORAZIAN AHMAD TAJUDDIN Independent Non-Executive Director KANAGARAJ LORENZ Independent Non-Executive Director CHOY KHAI CHOON Non-Independent Non-Executive Director Members • Luk Wai Hong, William • Kanagaraj Lorenz Members • Luk Wai Hong, William • Jeremy Nasrulhaq • Luigi Fortunato Ghirardello • Ismail Harith Merican GROUP GOVERNANCE, NOMINATION & COMPENSATION COMMITTEE NORAZIAN AHMAD TAJUDDIN - Chairman Members • Norazian Ahmad Tajuddin • Kanagaraj Lorenz GROUP BOARD RISK COMMITTEE LUK WAI HONG, WILLIAM - Chairman Members • Luk Wai Hong, William • Jeremy Nasrulhaq EMPLOYEES’ SHARE SCHEME COMMITTEE NORAZIAN AHMAD TAJUDDIN - Chairman SHARIAH COMMITTEE DR. GHAZALI JAAPAR - Chairman AUDIT COMMITTEE JEREMY NASRULHAQ - Chairman GROUP BOARD DIGITAL INNOVATION & TECHNOLOGY COMMITTEE KANAGARAJ LORENZ - Chairman Members • Luk Wai Hong, William • Luigi Fortunato Ghirardello • Norazian Ahmad Tajuddin • Jeremy Nasrulhaq • Choy Khai Choon Members • Dr. Mohammad Firdaus Mohammad Hatta • Dr. Fadillah Mansor • Luigi Fortunato Ghirardello • Choy Khai Choon
How We Are Governed Financial Statements Shareholders’ Information Additional Information 07 GROUP EXECUTIVE COMMITTEE DATUK CHAY WAI LEONG Group Managing Director Kenanga Investment Bank Berhad LEE KOK KHEE Executive Director, Head, Group Equity Broking Business Kenanga Investment Bank Berhad DATUK ROSLAN HJ TIK Executive Director, Head, Group Investment Banking and Islamic Banking Kenanga Investment Bank Berhad CYNTHIA WOON CHENG YEE Head, Group Treasury Kenanga Investment Bank Berhad ISMITZ MATTHEW DE ALWIS Chief Executive Officer/ Executive Director Kenanga Investors Berhad AZILA ABDUL AZIZ Chief Executive Officer/ Executive Director and Head of Listed Derivatives Kenanga Futures Sdn Bhd CHEONG BOON KAK Group Chief Financial and Operations Officer Kenanga Investment Bank Berhad MAHESWARI KANNIAH Group Chief Regulatory and Compliance Officer Kenanga Investment Bank Berhad NIK HASNIZA NIK IBRAHIM Head, Group Human Resource Kenanga Investment Bank Berhad TAI YAN FEE Group Chief Risk Officer Kenanga Investment Bank Berhad WOO KING HUAT Chief Credit Officer Kenanga Investment Bank Berhad AUDITORS ERNST & YOUNG PLT (202006000003 (LLP0022760-LCA) & AF 0039) Chartered Accountants Level 23A, Menara Milenium Jalan Damanlela Pusat Bandar Damansara 50490 Kuala Lumpur Wilayah Persekutuan Malaysia PRINCIPAL BANKERS • AmBank (M) Berhad • CIMB Bank Berhad • Malayan Banking Berhad • RHB Bank Berhad • Standard Chartered Bank (Malaysia) Berhad STOCK EXCHANGE LISTING BURSA MALAYSIA SECURITIES BERHAD Main Market : Financial Services Stock Name : KENANGA Stock Code : 6483 Listing Date : 2 November 2016 SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR JEREMY NASRULHAQ E-mail : jeremyn@kenanga.com.my GROUP COMPANY SECRETARY NORLIZA ABD SAMAD (CCM PC NO.: 201908002139) (MAICSA 7011089) REGISTERED OFFICE KENANGA INVESTMENT BANK BERHAD Registration Number: 197301002193 (15678-H) Level 17, Kenanga Tower 237, Jalan Tun Razak 50400 Kuala Lumpur Wilayah Persekutuan Malaysia Tel : +603-2172 2888 Fax : +603-2172 2999 URL : www.kenanga.com.my E-mail : kenanga@kenanga.com.my SHARE REGISTRAR BOARDROOM SHARE REGISTRARS SDN BHD Registration Number: 199601006647 (378993-D) 11th Floor, Menara Symphony No. 5, Jalan Prof. Khoo Kay Kim Seksyen 13 46200 Petaling Jaya Selangor Darul Ehsan Malaysia Tel : +603-7890 4700 Fax : +603-7890 4670 E-mail : BSR.Helpdesk@ boardroomlimited.com Website : www.boardroomlimited.com
08 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD Chairman’s Message Achieving success with integrity, our core priority Dear Shareholders, I t gives me great pleasure to repor t that Kenanga Investment Bank Berhad ( “KIBB” or “Kenanga Investment Bank” ) and i ts Group of Companies ( “Kenanga Group” or “the Group” ) recorded i ts second consecut ive best per forming year since i t became an investment bank. This sol id per formance was del ivered despi te the most chal lenging of ci rcumstances character ised by the ongoing chal lenges of the COVID-19 pandemic and the cont inuing disrupt ions beset t ing the global and domest ic markets. Our Sustainability Approach For more information on our sustainability approach, please visit our sustainability microsite by scanning the QR code. GOOD GOVERNANCE Read more on page 30 Read more on page 36 SUSTAINABLE ECONOMIC GROWTH ENVIRONMENTAL STEWARDSHIP Read more on page 42 EMPOWERING PEOPLE AND COMMUNITIES Read more on page 46 “We are acutely aware of the impact we make as a leader in the investment banking indust ry and the wider Malaysian f inancial communi ty, par t icular ly wi th respect to the broadening of our commi tments to protect the planet and i ts people.”
09 How We Are Governed Financial Statements Shareholders’ Information Additional Information For the Financial Year Ended 31 December 2021 (“FY2021”), Kenanga Group registered a Profit Before Tax (“PBT”) of RM148.2 million, which exceeded our record achievement of RM134.7 million in 2020, while Profit After Tax stood at RM118.8 million, up 16.2% from the year before. This outstanding performance was primarily attributable to the strong performance in our equity broking, asset and wealth management, as well as, private equity investment businesses. The Group rose above the challenges of this global crisis to yield a second bumper year, which not only testifies to its commitment towards being adaptable, resourceful and resilient, but also a validation of the strong leadership and great courage demonstrated at every level of the organisation. SHAREHOLDER’S VALUE The Board of Directors is pleased to declare an interim dividend of 10.50 sen per share, the highest dividend pay-out since being listed on Bursa Malaysia Securities Berhad (“Bursa Securities”) in 1996, amounting to RM77.1 million in dividends payable for FY2021. ETHICS AND GOVERNANCE One of the key milestones of the year was the successful implementation of the third and final phase of the Group’s Ethics Blueprint. This multi-year programme has culminated in the implementation of a clear Ethics Governance Structure throughout the Group, crystallising a culture of doing the right thing and the fundamental philosophy of achieving success with integrity. During the year, we held our fifth annual Fraud Awareness Week (“FAW”), which was the centrepiece of a month-long fraud awareness campaign that united over 500 participants in a move to promote the fight against fraud, bribery, and corruption. Themed Reinforcing Ethical Values through Regulatory Dynamism, delegates of public listed companies, professional bodies, as well as, representatives from the Malaysian AntiCorruption Commission, Bursa Malaysia Berhad, the Securities Commission Malaysia, Bank Negara Malaysia, and Employees Provident Fund, were engaged in interactive games, quizzes and seminars designed to enhance awareness on trends and practices surrounding fraud prevention and detection. We are pleased that we have managed to expand an internal campaign which we started five (5) years ago, into an industry call to action to combat fraud, and at the same time, respond to the United Nations Global Compact’s 10th Principle which emphasises the need for businesses to work against corruption in all its forms. We recognise that to truly move the needle and unite on the fight against fraud requires industry players, regulators and customers to band together. There is so much more to be done and we are committed to working together with all stakeholders to drive a conscious process that is solutions-focused, to enable us to win the war against financial crime and promote a culture that encourages ethical conduct. A full account of our efforts can be found in the Ethics and Compliance Statement on pages of 108 to 118 of this Annual Report. CORPORATE GOVERNANCE Raising the bar for good corporate governance has always been a priority for Kenanga Group. Throughout the years, the Group strives to align itself with locally, as well as globally recognised best practices and standards towards the internalisation of a transparent, ethical and compliant culture within the Group. During the year, the Board of Directors identified action plans to embed into Kenanga Group’s governance framework, the best corporate governance practices in relation to board leadership and effectiveness, audit and risk management, integrity in corporate reporting, as well as meaningful relationship with stakeholders, aligning itself with the revised Malaysian Code on Corporate Governance issued by the Securities Commission Malaysia in April 2021. In strengthening the Board of Directors’ oversight on Kenanga Group’s corporate governance, the Board of Directors had expanded the scope of its Group Nomination & Remuneration Committee to cover the stewardship of the Group’s governance structure, framework and policies. To reflect this enhanced roles and responsibilities, the committee was re-designated as Group Governance, Nomination & Compensation Committee. The adoption and implementation of corporate governance policies and practices as detailed in the Corporate Governance Report for 2021, which is available on Kenanga’s website, demonstrates the Board of Directors and senior management’s seriousness in building the Group’s long-term resilience to meet the challenges in a fast-evolving business landscape.
10 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD SUSTAINABILITY We are acutely aware of the impact we make as a leader in the investment banking industry and the wider Malaysian financial community, particularly with respect to the broadening of our commitments to protect the planet, its people and our stakeholders. To accelerate the integration of ESG aspects into the business operations and to augment oversight and overall accountability, a formal management committee was established during the year. Chaired by the Group Managing Director, Datuk Chay Wai Leong, the Group Sustainability Management Committee (“GSMC”) draws on the expertise from a multi-disciplinary membership from across various specialisations within the Group, to drive comprehensive sustainability-driven strategies in line with regulatory expectations, as well as our own goals. The GSMC reports to the Group Governance, Nomination & Compensation Committee, and the Board of Directors of Kenanga Investment Bank. In the same year, we were also proud to become the first Malaysian investment bank to join the United Nations Global Compact Network, the world’s largest corporate sustainability initiative. Participation involves commitments to global standards of sustainability and integrity, and we look forward to meaningful collaboration in the areas of capacity-building, knowledge exchange and engagement programmes. Laying the ESG groundwork for the years ahead, a dedicated Sustainability teamwas set upduring the year andaSustainability Framework was established alongside a Climate Change Risk Management Framework to mainstream climate-related risks in our governance processes and business operations. One of our immediatepriorities is todevelopmore comprehensive data and to promote more thorough disclosures. In line with this, we are releasing our first standalone Sustainability Report, which accompanies this Annual Report. In addition to maintaining the rigorous sanitising schedules of our premises, routine COVID-19 tests, provision of supplies such as masks and self-test kits, monthly subsidies were provided to employees affected by the disruptions, while daily meal provisions were offered to those who had to work on-site. The COVID-19 Committee continued to provide the assurance of vigilance in monitoring, tracking and responding to the constantly developing situation. Another major calamity that had a profound impact to the country, was the disastrous floods in December which displaced tens of thousands of Malaysians. While our branches and the majority of our employees were not impacted, we managed to swiftly extend help to twelve (12) of our employees and their families through the Tengku Noor Zakiah Staff Outreach Fund, dedicated solely to aid employees in time of need. Responding to increasing social and community needs especially in the COVID-19 environment, Kenanga launched The HumanKIND Project at the start of the year, to empower Malaysian social enterprises working with marginalised communities. Through this campaign which advocated compassion, kindness and empathy, the Group raised over 5,000 orders for Café Includes, a business run by a team of people with disabilities, helping to keep their doors open despite the multiple long-drawn movement control orders. Through consistent outreach efforts, the Group is committed to maintain its long-standing support for the many social enterprises in the country that affect positive social change and transform lives through the creation of opportunities that unlock potential, build self-esteem and enable independence. The focus on the heal th, safety and wel lbeing of our employees, cont inued to take cent re stage throughout 2021, as the count ry bat t led the thi rd wave of the pandemic that resul ted in the major i ty of our employees retaining the work- f rom-home ar rangement f rom the year before. PEOPLE AND COMMUNITY
11 How We Are Governed Financial Statements Shareholders’ Information Additional Information LOOKING AHEAD While the world looks forward to the second year of postCOVID recovery, we are acutely aware of the long-term impacts of the pandemic and its variants on our business operations. Kenanga Group has adapted quickly to the new normal over the course of the year, and the Board of Directors anticipates that the Group’s future growth and resilience will be built on the foundations of sustainability and good governance that we are laying today. In the year under review, Kenanga Group continued to innovate on multiple fronts, developing new capacities, products and platforms to provide our clients a much more seamless experience. Moving forward, we will continue to future-proof through investments in digital technologies that is relevant to the needs of our clients and our business. I am confident that Kenanga Group will continue to thrive and grow in the coming years, thanks in equal measure to the forethought and leadership in the past, which has laid the ground for our present prosperity, as well as the exceptional dedication and hard work of every member of this Group in building on that legacy for the future. BOARD MOVEMENT On behalf of the Board of Directors, I wish to record our appreciation to Datuk Syed Ahmad Alwee Alsree and Dato’ Richard Alexander John Curtis who stepped down as Deputy Chairman as well as, Non-Independent Non-Executive Director of Kenanga Group in June 2021 respectively, having each provided exemplary stewardship to the Board of Directors for over a decade. We wish them both, all the best for the future. I also wish to take this opportunity to bid a very warm welcome to Mr. Choy Khai Choon, a representative of Cahya Mata Sarawak Berhad, who joined KIBB’s Board of Directors in December 2021 as a Non-Independent Non-Executive Director. Mr. Choy brings to our Board of Directors, over forty (40) years of extensive experience in the financial sector, including six (6) years as President/Chief Executive Officer of Cagamas Berhad. APPRECIATION I would like to express appreciation and gratitude to Kenanga Group’s Founder Emeritus and Adviser, YM Tan Sri Dato’ Paduka Tengku Noor Zakiah Tengku Ismail whose continuing trust, confidence and friendship have been a great boon throughout my second year of leadership of Kenanga Group. I would like to thank my colleagues on the Board of Directors for their support and advice throughout the year, as well as the Management and employees of Kenanga Group for going above and beyond the call of duty to meet the extraordinary needs of these challenging times. Finally, I wish to convey my appreciation towards our valued customers, business partners, suppliers and shareholders for their trust in the Group, as well as, Bank Negara Malaysia, Securities Commission Malaysia and Bursa Malaysia Berhad for their advice and support. TAN SRI DATO’ SERI SYED ANWAR JAMALULLAIL Chairman
12 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD Group Managing Director’s Management Discussion & Analysis Historic Results PBT RM148.2 million PAT RM118.8 million Second consecutive best performing year through innovation and diversification Dear Shareholders, Whi le there were signs of recovery in 2021 wi th economies around the wor ld gradual ly reopening af ter prot racted lockdowns caused by the COVID-19 pandemic, i ts rebound was hampered by new threats, par t icular ly the spread of the Del ta and Omicron var iants, which spur red the cont inuing inter rupt ions to supply, concerns about inf lat ion, as wel l as f inancial and social st resses f rom almost two years of constant disrupt ions. Read more on page 18. Read more on page 17. Read more on page 16. Read more on page 16. Read more on page 18. Segmental Review Stockbroking Investment Banking Futures Broking Money Lending and Financing Stockbroking division maintained a PBT of RM86.4 million, similar to the PBT of the year before. Given the markets’ volatility that led to increase in hedging activities on Derivatives Exchanges, Kenanga Futures Sdn Bhd (“KFSB”) registered a lower Loss Before Tax (“LBT”) of RM1.8 million, relative to the LBT of RM2.7 million in 2020. The Group’s Asset and Wealth Management division recorded exceptional growth in registering a PBT of RM34.9 million, almost tripling the PBT of RM13.6 million from 2020. The Group’s Structured Lending and Trade Financing division recorded a PBT of RM1.6 million compared to RM1.9 million the preceding year. Investment Banking division registered PBT of RM20.6 million, compared to RM34.0 million over the previous year. Dividend Declared 10.5 sen Earnings Per Share 16.3 sen Annualised Return on Equity 11.6% Asset and Wealth Management
13 How We Are Governed Financial Statements Shareholders’ Information Additional Information Online Platforms: We offer clients and investors access to a range of digital platforms from online trading portals to portfolio management tools, as well as, mobile applications to make trading and investing easier. www.kenanga.com.my/online-platforms “This magnitude of synergy is possible only through the exceptional level of teamwork, communication and unity of purpose, that continue to characterise the true Kenanga spirit.” The Malaysian economy also faced these same external pressures, with Gross Domestic Product (“GDP”) contracting by 4.5% in the 3Q 2021 after expanding 16.1% in 2Q 2021 due to the implementation of strict lockdown measures in July as part of the National Recovery Plan. Overall, however, the Malaysian economy rebounded by 3.1% over the course of the year, following the sharp contraction in 2020. In its ongoing effort to support economic recovery, Bank Negara Malaysia maintained the Statutory Reserve Ratio at 2.0%, as well as the Overnight Policy Rate (“OPR”) of 1.75% - levels it instituted at the beginning of the pandemic. Notwithstanding these volatile conditions, Kenanga Investment Bank delivered a new all-time high performance since being an investment bank. Profit Before Tax (“PBT”) surged to RM148.2 million, while Profit After Tax (“PAT”) increased to RM118.8 million, exceeding all expectations. This historic result—coming on the back of a record high PBT of RM134.7 million and PAT of RM102.3 million in 2020—was fuelled by outstanding performance in equity broking, asset and wealth management, as well as, gains from recognising some of our private equity investments. For the year ended 31 December 2021, Earnings Per Share stood at 16.3 sen, up 12% while, annualised Return on Equity stood at 11.6%, up 7.7%. While the global market turmoil of 2020 gave us first-hand evidence of the benefits of digitalisation, 2021 showed us how a business model built on diversity of revenue streams could not merely survive but thrive in a situation of prolonged volatility and uncertainty. In this respect, I am honoured to report that the Group was recognised by The Edge Billion Ringgit Club for its excellent performance and was awarded the coveted accolade of ‘Highest Returns to Shareholders Over Three Years’. I take this opportunity to commend every member of Kenanga Group whose grit and determination to succeed have contributed directly to the outstanding financial results, that once again make us proud to be a part of this family.
14 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD BEATING THE ODDS The year 2021 was a year of two halves for the Malaysian capital markets. The first half was largely shaped by the same robust momentum that fuelled our bumper year in 2020. The retail-driven strong trading volumes on Bursa Malaysia Securities Berhad (“Bursa Malaysia”) led to the excellent performance in our stockbroking business. However, this momentum moderated sharply in the second half of the year, as the country was hit by multiple headwinds—the reintroduction of lockdown measures in the middle of the year due to surging COVID-19 cases, as well as concerns over new taxes introduced under Budget 2022. The FBM KLCI which hovered above 1,600 points at the start of the year, slipped below 1,500 points during second half. Daily average trading value weakened to RM4.1 billion in December from a high of RM10.6 billion in February. The waning market conditions, spurred the urgent need for our businesses to swiftly pivot to capture new opportunities. Guided by the same customer-centric approach, deep-rooted in our DNA, the leadership teams of the Group’s various core business units joined hands to accelerate alternative investment solutions, which allowed us to respond to new demands and tap new opportunities that served to mitigate some of the impacts from the volume decline in the equities market. On the whole, while our stockbroking business continued to contribute the lion’s share of our 2021 bottom line, it is worth noting that both our asset and wealth management and private equity businesses made significant strides that allowed us to thrive through the tumultuous year to deliver a stellar performance that beat the odds—a testimony to the strength of our diversification strategy. I am confident that this magnitude of synergy is possible only through the exceptional level of teamwork, communication and unity of purpose, that continue to characterise the true Kenanga spirit. As we met the volatility and challenges of the year head-on, we were committed to ensure we did not lose momentum in terms of planning for future growth. Throughout the year, our teams continued to design and develop new systems, advance automation for efficiencies and was constantly looking at new ways to approach the market with innovative solutions. 2022 will be an exciting year, as we launch our proprietary A.I.- driven robo-advisory Kenanga Digital Investing, and look forward to the rollout of digital onboarding and automated margin financing capabilities on our trading platform (www.kentrade. com.my), that will set the stage for more seamless and optimal client journey and experience. Our Foreign Exchange Remittance platform is also expected to go live this year, further increasing digital distribution of our products and enhancing accessibility to the largest and most liquid market in the world. Over the last five (5) years, Kenanga has been building its digital footprint in the financial and wealth management space through various strategic collaborations while growing our in-house digital competencies. As a result, we now have the full spectrum of ready digital wealth services for the retail market that ranges from foundational or ‘less risky’ to the advanced or ‘more risky’ product ranges. With the key building blocks in place, the next three (3) years for Kenanga will be an exciting one as we will focus on scale and growth through a two-prong approach. One of it involves consolidating all our digital wealth services onto a single wealth platform where data analytics will be used to drive cross-selling and synergies between our various services with the aim of providing hyper-personalised financial planning features. The other involves our Wealth-as-a-Service approach where digital platform providers can easily choose from our wide range of digital wealth services and easily plugin these offerings into their ecosystems so that they can complement their existing services with wealth services. This will ultimately enable Kenanga to achieve scale in a sustainable manner. As mentioned by our Chairman, Tan Sri Dato’ Seri Syed Anwar Jamalullail in his message, sustainability, is without a doubt, front and centre for the Group. During the year, Kenanga was included into the FBM EMAS Index, a validation of our growing market presence and serves as an encouragement for us to further advance our ESG agenda. For the first time this year, we are releasing a standalone Sustainability Report which outlines enhanced disclosures of our ESG activities and progress in 2021. Scan this QR code to visit our sustainability microsite.
15 How We Are Governed Financial Statements Shareholders’ Information Additional Information CORPORATE HIGHLIGHTS In February 2021, our Asset and Wealth Management division, Kenanga Investors Berhad (“KIB”) completed the acquisition of I-VCAP Management Sdn Bhd (“I-VCAP”), an award-winning Shariah compliant investment management service provider, focused on Islamic Exchange Traded Fund (“ETF”) products. The acquisition will serve to broaden the division’s product suite and investment expertise while also providing greater access to the U.S. market, thus providing additional breadth and depth to investment solutions available to our clients. In a move to catalyse growth of technology-driven enterprises in the country, Kenanga Investment Bank, in March 2021, joined hands with Malaysia Debt Ventures Berhad (“MDV”), a Government-linked agency focused on financing emerging technology, to set up a new fund intended to increase access to capital for the fintech and technology start-up sectors in the country. Under the strategic partnership, Kenanga Group and MDV will act as joint managers and co-investors in the establishment of a new RM300 million fund intended to support the growth of fintech companies, as well as the continuing development of Malaysia’s burgeoning venture capital industry by providing fintech companies access to financing from inception to the pre-Initial Public Offering (“IPO”) stage. The collaboration will leverage on both our expertise in equity and debt financing, as well as investment capabilities and established capital market access. In the same month, we were awarded a Digital Investment Manager licence from the Securities Commission Malaysia, allowing us to provide a proprietary robo-advisory platform to investors. At the time of this statement, we have just rolledout a fully A.I-driven robo-advisory platform, Kenanga Digital Investing, to overwhelming market interest, and we anticipate this innovative product, boasting competitive rates and stateof-the-art technology, will resonate well with many first-time investors in the country. With the marked shift towards online transactions in recent years, exacerbated by the pandemic and digital advancements, it was imperative for us to rethink our branch network in the country. To date, we have rationalised twelve (12) branches nationwide, with all our remisiers operating on the Remisier Mobility Platform that provides them the flexibility to service their clients remotely. This re-organisation, on the back of declining over-thecounter transactions, is not only expected to derive operational efficiencies but also, cost synergies over time. Our private equity arm had an exceptional year in 2021, with Fund I vintages maturing and in the harvesting period. In 2021, we saw one of our Fund I investee companies successfully undertake an IPO which allowed us to crystalise a significant investment gain, and another investment is also expected to seek liquidity event via listing on Bursa Malaysia in 2022. During the year, we also invested in licensed digital asset exchange player, Tokenize Technologies Sdn Bhd under our Fund II, which focuses on early stage companies. The investment in Tokenize is a landmark investment as it is the first investment by a financial institution in the cryptocurrency space in Malaysia. FINANCIAL POSITION As at 31 December 2021, capital adequacy ratios were 28.3% and 29.8% at Group and Company levels respectively, which were in excess of the minimum regulatory capital adequacy of 10.5% set by Bank Negara Malaysia, including a capital conservation buffer of up to 2.5% if imposed. Liquidity Coverage Ratio was 152%, well above the regulatory requirement of 100% while Net Stable Funding Ratio averaged at 114%, above the mandatory minimum of 100%. The Group maintained A+ and MARC-1 ratings from the Malaysian Rating Corporation Berhad (“MARC”), which noted our strong competitive position, sound capital position, profitability and funding profile despite weakened capital market conditions. As always, we will continue to work towards achieving the best ratings by constantly improving our financial performance. For the same period, our subsidiary KIB and its wholly-owned subsidiary Kenanga Islamic Investors Berhad (“KIIB”) maintained MARC IMR-2 ratings, affirming our commitment to wellestablished investment processes and sound risk management practices.
16 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD SEGMENTAL REVIEW Following record high trading volumes on the Main Market of Bursa Malaysia in FY2020, the market trended downwards especially in the second half of FY2021 due to public health concerns from the COVID-19 pandemic and a general lack of investment catalysts. Despite the dip, our Stockbroking division maintained a PBT of RM86.4 million for the year ended 2021, similar to the PBT of the year before. Overall, the division maintained its market share of 12.5% attributable to its ongoing focus on the retail market, as well as an increasingly diverse revenue stream and client base, which includes the retail market, as well as institutional and proprietary trading segments. As with previous years, our joint venture Rakuten Trade, Malaysia’s first fully online stockbroking platform, continued to perform well despite adverse economic and financial conditions. Rakuten Trade expanded its retail market share from 6.60% to 7.14% with increases in customer acquisition and retention supported by new services such as its foreign share-trading facilities which was unveiled at the start of 2022. As at 31 December 2021, active accounts on Rakuten Trade stood at 237,000, up from 166,000 at the end of the previous year. Rakuten Trade remains the fastest growing stockbroker in the market. Building on the work of previous years, the Stockbroking division continued efforts to improve investing literacy by exploring avenues of outreach to new customers, as well as enhancing investment understanding amongst our existing retail customers. In 2021, we continued to produce webinars and social media content on a broad range of financial and trading topics. It is very encouraging to note that our efforts over the year continued to gain recognition for excellence in the industry, including two (2) Bursa Excellence Awards in 2021 for ‘Best Overall Equities Participating Organisation’ (Champion) and ‘Best Retail Equities Participating Organisation - Investment Bank’ (Champion). Stockbroking The unfavourable market conditions from the second year of the COVID-19 pandemic had a negative impact on capital market Investment Banking activity throughout the year. As a result, the Investment Banking division registered PBT of RM20.6 million, compared to RM34.0 million over the previous year. In the equity capital market, the division took part in the successful listing of Mobilia Holdings Berhad on the ACE Market, with a retail offering oversubscribed by 92 times and share price closing at a 141% premium over the IPO price. The division also participated in the listing of Ramssol Group Berhad on the ACE Market, and completed the transfer listing of Nova Wellness Group Berhad from the ACE Market to the Main Market, with two (2) further IPOs on the ACE Market slated for early 2022. For equity private placements, the division acted as principle adviser and placement agent for JAKS Resources Berhad, as well as placement agent/manager for Dayang Enterprise Holdings Berhad. In the debt capital market, the Investment Banking division was joint lead manager in the successful RM2.005 billion maiden Sukuk Murabahah issuance undertaken by the Federal Land Development Agency, as well as its subsequent issuance of RM354 million in November 2021. The division was also the joint lead manager in the RM1.9 billion Sukuk issuance by DanaInfra Nasional Berhad, and the RM350 million Sukuk Murabahah placement by Prasarana Malaysia Berhad, which was 2.29 times oversubscribed despite adverse market conditions. The division also acted as financial adviser, sole principal adviser, lead arranger and lead manager for the RM200 million sukuk programme for Sin Heng Chan (M) Berhad, with the deal being recognised as ‘Project Infrastructure Finance Deal of the Year (Malaysia)’ at the Asian Banking and Finance 2021 Corporate & Investment Banking Awards. In corporate banking, it maintained a prudent approach in the management of credit risk due to ongoing concerns about the pandemic. Its loan portfolio currently stands at RM592 million, and the division will maintain a cautious and selective lending approach as we move forward into FY2022. In Islamic finance, steps were taken to align its operations with the Group’s sustainability drive, as well as the Securities Commission Malaysia’s Capital Market Masterplan 3 requirements for greater mobilisation of Islamic capital market solutions to address the Sustainable Development Goals agenda. In this respect, the division continues to act as Shariah Adviser to KIB in the areas of Islamic funds and private mandates. The division’s Shariah Committee remains keenly aware of latest developments in digital assets, Islamic fintech and ESG investing, and continues to act as Shariah Adviser for sukuk programmes by the Group’s debt capital markets clients.
17 How We Are Governed Financial Statements Shareholders’ Information Additional Information Asset and Wealth Management Kenanga Investors Group (“KIG”), which consists of KIB, KIIB and I-VCAP, is the Group’s asset and wealth management division. Its offerings range from conventional collective investment schemes and portfolio management to alternative investments intended to help retail investors gain better access to sophisticated investment instruments normally available only to institutional or accredited investors. Notwithstanding the weak economy and several national COVID-19 lockdowns, KIG recorded exceptional growth in FY2021, registering a PBT of RM34.9 million from higher earnings frommanagement and performance fees, almost tripling the PBT of RM13.6 million from 2020. KIG’s overall assets under administration (“AUA”) increased to RM18.8 billion from RM13.8 billion to ensure consistency of digits billion in 2020 as investors sought to diversify their portfolios in a challenging market environment. We also completed our acquisition of I-VCAP in early 2021, with the complementary nature of its ETF business broadening KIG’s reach, product suite and investment expertise. In the area of sustainability, KIG has been a signatory to the Malaysian Code for Institutional Investors since 2017 and recently became a member of the Institutional Investors Council. Following its commitment to working with asset owners, regulators and market participants to support the Malaysian ESG landscape, KIG has developed its own Sustainability Blueprint to generate measurable value for all stakeholders. Alongside its intention to have more ESG products in its line-up, KIG will also seek to convert selected existing funds (both global and domestic) to meet ESG requirements, as well as to participate in investee company resolutions in the interests of good corporate governance for sustainable and consistent returns. KIG was also appointed to the Industry Competence Framework Advisory Panel for the Malaysian Capital Market project undertaken by the Securities Industry Development Corporation. Its product suite saw expansion through the launch of several notable funds in the market namely, the Kenanga Sustainability Series: Frontier Fund, which invests primarily in the securities of global, innovative companies specialised in products and services that are linked to technologically-driven innovations with long-term sustainable growth potential, and the Kenanga Waqf Al-Ihsan Fund, an open-ended fund that invests in a diversified portfolio of Shariah-compliant equities, sukuk and other Islamic money market instruments. In accordance with waqf principles, half of the derived income will be distributed to sectors such as education, healthcare, economic empowerment and environmental preservation or development. KIG was also named fund manager for Dana Wakaf Bencana (“the Fund”) which aims to provide emergency relief by channeling resources to parties affected by climate change-related disasters, as well as future pandemics. The Fund will be receiving a portion of the RM10 million allocated in Budget 2022 as part of its initial seed funding, which will be invested directly into a wholesale fund established and managed by KIG. For performance in 2021, KIG won several industry accolades including Refinitiv Lipper, FSMOne Recommend Unit Trusts Awards and Asia Asset Management’s Best of the Best Awards. KIG also won recognition at the 2022 Best of the Best Awards for: ‘Malaysia Best Impact Investing Manager’, ‘Best Application of ESG (ASEAN)’, ‘Malaysia Best Equity Manager’ (fourth consecutive year), ‘Malaysia CEO of the Year’, ‘Malaysia CIO of the Year’ and ‘Malaysia Best House for Alternatives’. In March 2022, KIG received a total of five (5) awards at the Refinitiv Lipper Fund Awards Malaysia 2022 which included the ‘Overall Best Mixed Asset Group - Malaysia Provident’ Award. Accompanying this were individual fund wins awarded to Kenanga Growth Fund for ‘Best Equity Malaysia Fund over 10 Years’, Kenanga Malaysian Inc Fund for ‘Best Equity Malaysia Diversified over 3 Years’, Kenanga Growth Opportunities Fund for ‘Best Equity Malaysia Small & Mid Cap over 5 Years’ and Kenanga Diversified Fund for ‘Best Mixed Asset MYR Flexible over 10 Years’. Meanwhile, FY2021 PBT for the Group’s Treasury business was RM9.1 million, down RM11.6 million from the previous bumper year due to significantly lower trading income in 2021 in keeping with the unfavourable market conditions, although this was cushioned by higher net interest income from higher net interest margins. Despite these adverse conditions, the Group’s Treasury business maintained stable funding throughout the year with Liquidity Coverage and Net Stable Funding Ratios remaining well above the mandatory 100% minimums.
18 Kenanga Investment Bank Berhad Annual Report 2021 Our Sustainability Approach About This Report We Are Kenanga Message From Chairman and GMD The Group’s Structured Lending and Trade Financing division recorded a PBT of RM1.6 million in FY2021 compared to RM1.9 million the preceding year. This was due primarily to the reduction of the financing loan book to RM64.7 million in 2021 from RM71.1 million in 2020 as a result of loan maturity, as well as weaker market demand for asset monetisation and structured lending. Given these challenges, the division intensified digital marketing efforts over the year, launching a new dedicated website (www. kenangacapital.com.my) and enhancing social media engagement, as well as stakeholder engagement particularly with remisiers and other members of the Kenanga Group. The division also began Futures Broking Given the markets’ volatility that led to increase in hedging activities on Derivatives Exchanges, Kenanga Futures Sdn Bhd (“KFSB”) registered a lower Loss Before Tax (“LBT”) of RM1.8 million, relative to the LBT of RM2.7 million in FY2020. KFSB has made best use of this period to rollout several corporate and business development initiatives as part of the Group’s longterm sustainability objectives. The first was the launch of a new strategic business blueprint, ASCENT 2023, which will serve as the foundation for KFSB’s business development over the next three (3) years. Over the course of FY2021, KFSB undertook its fifth annual nationwide retail campaign (Accelerate into the Future) to encourage greater retail client trade of Bursa Malaysia Derivatives products as well as those listed on the world’s largest financial derivatives exchange, CME Group. Furthermore, KFSB also continued with its popular online public outreach and education efforts, with a series of twenty-eight (28) live webinars and five (5) Facebook Live sessions focusing on futures and derivatives trading in Malaysia. These initiatives also included the April 2021 launch of KF Virtual Trading - a trading simulation platform designed to introduce derivatives trading to retail clients who are new to these products. KFSB continues to be recognised as top Malaysian futures broker with two (2) awards received during Bursa Excellence Awards 2021, which are the ‘Best Institutional Derivatives Trading Participant’ (Champion) and ‘Best Overall Derivatives Trading Participant’ (2nd Runner Up). RISK MANAGEMENT Navigating through the unpredictability and many uncertainties amid the turbulent macro-economic and market conditions during the year, the Group continued to exercise prudence and diligence in our risk management practices. Many challenges were overcome with resilience and agility in managing the key risks particularly in the context of credit risk and market risk portfolio in view of the increased dynamism in trading activities and demand for the Group’s digital services. We continued to maintain meticulous risk management oversight and management processes that emphasise the enforcement of established policies and procedures. In order to promote sustainability and preserve the quality of our assets, we took on a conservative risk approach with a more selective and defensive risk posture to safeguard the health of our portfolios. Throughout the year, we conducted comprehensive risk review assessments, scenario analyses, stress test and performed rigorous adaptations of appropriate facility and trading strategies in regard to their respective exposures. This proved effective as events unfolded and resulted in well-contained and managed credit and market risk portfolios. The Group remains fully committed to strengthening risk resilience, as well as, enhancing of our risk management approaches, methodologies and strategies. We have put in place risk management processes, complemented by a robust governance structure, implementation of policies and procedures, established methodologies, as well as risk processes that are constantly reviewed and enhanced. In 2021, our main focus was on providing a secure and safe environment to our employees and customers, persevered the stability of all critical operations to support business continuity, responded swiftly to operational vulnerabilities in our process and minimised disruption in our supply chain. As the pandemic continued to pose risks to our operational resilience arising from digital adoption and a significant shift in working arrangements, efforts were made to fortify the vibrancy of Operational Risk Management and Business Continuity Management of the Group to ensure the preparedness, responsiveness and robustness in managing event risk especially in this unprecedented COVID-19 pandemic environment. Money Lending and Financing working in close partnership with CapBay, a leading supply chain financial technology company, to provide seamless access to digital supply chain financing solutions. These efforts are expected to begin yielding positive results moving into 2022 as the economy gradually reopens and normalises once again.
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