Dear Shareholders,

It is our pleasure, on behalf of the Board of Directors to present the Annual Report and Audited Financial Statements of JcbNext Berhad (“JcbNext” or “the Group”) for the financial year ended 31 December 2022. As always, I hope you and your families are well and safe, making the best of the times that we are in.

FINANCIAL PERFORMANCE

For the financial year ended 31 December 2022, the Group recorded revenue of RM9.53 million, profit before tax of RM25.60 million and a profit attributable to shareholders of RM23.57 million, representing year on year (“yoy”) increase of 50.0%, 40.0% and 40.3% respectively. The growth is brought about by an increase in dividend income from equity investments from RM3.46 million in 2021 to RM7.16 million in 2022. The Group’s associate, in particular 104 Corporation, also posted a strong set of numbers which contributed to a 10.1% increase in our share of profits from associates. We had also continued to sell shares of 104 Corporation in the open market during the year which contributed gains amounting to RM5.03 million to our bottom line. The Group’s operating expenses had increased slightly by 8.1% yoy with the increase attributed to staff returning to the office, higher professional fees and a slight increase in directors’ fees. It is good to see growth in dividends received from our equity investments which is in line with our objective of growing free cash flows which can then be distributed back to you, our shareholders. The higher dividend income also means our dependence on our associates, in particular 104 Corporation, is gradually reducing and we can have a more diversified income base.

To have a balanced picture of the financial performance of the Group during the year, we would also have to look into the consolidated statement of financial position, specifically in equity. Despite net profit attributable to shareholders being RM23.57 million, the Group’s net assets only grew 1.1% yoy or RM3.92 million. The Group’s equity investments designated at fair value through other comprehensive income (“FVOCI investments”) had decreased by RM8.13 million during the financial year due in line with the bear market environment of 2022. Translation losses with respect to 104 Corporation also contributed to another RM7.29 million decrease to our net assets. After accounting for the payment of the final dividend for 2021 amounting to RM4.62 million, net assets or shareholders’ funds increased from RM344.88 million in 2021 to RM348.80 million in the current financial year.

As at 31 December 2022, our total assets stood at RM350.79 million with shareholders’ funds recorded at RM348.80 million (net asset per share of RM2.64), compared with RM346.78 million and RM344.88 million (net asset per share of RM2.61) as at the end of 2021. With liquid cash and short-term investments in money market funds totalling RM69.00 million, and no debt, we continue to actively search for acquisition opportunities and believe we are positioned well to enter into long-term partnerships when such opportunities eventually arise.

A detailed discussion on the Group’s financial performance can be found in the Management Discussion and Analysis included in this Annual Report.

DIVIDEND

The Board of Directors is pleased to propose a final single-tier dividend of 6.0 sen per share for 2022 (2021: 3.5 sen). The proposed dividend is subject to shareholders’ approval at the forthcoming Annual General Meeting.

CORPORATE DEVELOPMENTS

In the area of investments, the Group had, during the year, invested approximately RM40.07 million in various investments predominantly in listed equity investments. 2022 was not a good year for stock markets in general. Russia’s invasion of Ukraine, rising inflation and the cost-of-living crisis, the aggressive tightening of monetary policy across the world, China’s fight against COVID-19 outbreaks and their ZeroCOVID policy and property market woes and the ever-looming threat of a global recession, all worked in tandem to weigh down on markets and dampen investor sentiment. As a long term investor, we will consider putting money into the markets if our pre-determined investment criteria has been met. That being said, we do not engage in short term trading of stocks and as such, some of our investments could be currently trading below our entry costs. Financial markets could become even more volatile in 2023 as demonstrated by the recent Banking Crisis in March. I urge you to be patient as we execute our investment strategy.

I would also like to take this opportunity to welcome the new additions to our Board of Directors. We have Ms. Tan Beng Ling joining the Board in September 2022 as an Independent Director, bringing with her a wealth of experience in the area of investments in addition to contributing to the gender diversity of the Board. We also have Dr. Albert Wong Siew Hui joining the Board in February 2023 as an Executive Director. Dr. Albert is no stranger to us, serving as our Chief Technology Officer instrumental in the success of the JobStreet.com platform. We are also sad to bid goodbye to Ms. Cindy Eunbyol Ko, who has expressed her intention not to seek for re-election at the forthcoming 19th Annual General Meeting. On behalf of the Board, I would like to convey our appreciation and thanks to Ms. Cindy for her contributions serving on the Board and various Board Committees in the last four years, and also wish her all the best in her future endeavours.

GOING FORWARD

2023 may be a rocky year for investors. The worst of the COVID-19 pandemic may seem behind us now, but its full impact on the global economy may still play out in the years to come. Prices of goods and services have spiked due to the pandemic and inflation has been on the rise around the world. Aggressive interest rate hikes are beginning to bite and slow the rate of inflation but it remains to be seen if such a concerted effort of raising rates will result in economies going in reverse and fall into recession. China’s recent lifting of its Zero-COVID policy will bode well for the global economy but it is also highly dependent on its ability to contain any further COVID-19 outbreaks among its relatively under vaccinated population. There is also the worrying possibility of the emergence of new variants of interest that are highly transmissible and able to evade vaccines. Russia’s invasion of Ukraine is still ongoing and that will continue to keep prices of certain commodities high and undermine the intended effects of interest rate hikes. Economic growth of several European nations including Russia will also continue to be impacted by the ongoing conflict. Despite the gloomy outlook, work continues here at JcbNext, to find undervalued gems: resilient companies with good business fundamentals that will allow them to ride out this storm, and hopefully we will all be able to enjoy the fruits of this effort in the years to come.

SUSTAINABILITY

The Group continues to endorse principles of sustainability in its business operations and corporate activities. We are pleased to present to you our Sustainability Statement in the Annual Report where you can find our thoughts on the matter and also some of the initiatives that are already in place.

APPRECIATION

We would like to record our appreciation to all our employees, valued partners, business advisers and shareholders for your continued support during the past year.

Overall performance

For FY2022, our company recorded a revenue of RM9.5 million, an increase of 50.0% from the RM6.4 million in FY2021, according to accounting standards. Net profit attributable to shareholders for the financial year rose to RM23.6 million, 40.3% higher than the RM16.8 million figure in FY2021. Among developments captured in the RM23.6 million profit included: i) RM1.0 million foreign exchange gain, and ii) RM5.0 million accounting gains on disposal of investments.

However, as shared previously, revenue and profitability figures might not truly explain the economic substance of our company, due to the nature of our business. The following are a number of key data points that the management focuses on, that I hope would give you a more complete picture of our performance:

1. As at 31 December 2022, the book value (BV) of our company stood at about RM348.8 million, the biggest component of which are RM262.8 million in marketable securities including stakes in our listed associate companies, RM69.0 million in cash and money market funds and RM18.4 million in investment properties, with no material debt. This book value figure increased by only approximately 1.1% compared to 2021.
2. If we had calculated the value of our assets using the market prices of our associates (104 and Innity), rather than what is shown on our balance sheet, the figure, which we would loosely call the Net Asset Value (NAV), would be RM446.4 million in 2022, an increase of about 4.9% compared to 2021.
3. We made better progress with income generation, as our assets generated dividends, interest and rental incomes of about RM21.3 million in 2022 before taxes, a 42.4% increase from RM14.9 million in 2021. This is thanks mainly to an increase in dividends received from our associate company 104 Corp, the HKEX-listed Lion Rock and our new equity portfolio.
4. Our share of the economic profits from our associate companies 104 Corp and Innity has continued to increase to RM14.7 million, from RM13.3 million in FY2021 and RM8.4 million in FY2020. However, the timing of 104 Corp’s dividend payment means it would only be reflected in our cash flow in the following financial year. In 2022, we received a dividend of RM12.1 million from 104 Corp, before taxes.
5. Meanwhile, staff costs and other operating expenses at our investment holding operations were RM3.7 million in 2022, an increase of about 4.9% from 2021. This excludes forex gains or losses. The RM3.7 million figure is about 0.9% of our 2021 year-end NAV of RM425.5 million.
6. Deducting taxes and making some other minor adjustments, the free cash flow generated by our business is estimated to have increased by about 62.2% from RM9.0 million in 2021 to RM14.6 million in 2022, of which about 50% we would propose to pay out as dividends.

Larger business investments

As shared in the previous two annual letters, our aim is to help our shareholders preserve their purchasing power, grow their wealth gradually and provide a regular income stream through a distribution of dividends. We hope to build up a collection of good businesses at JcbNext for us to achieve that, either holding a majority/controlling stake, or more likely a smaller piece of the business. The focus is on improving the amount of dividend per share we could pay out over time, while managing the downside risks of our portfolio by working towards a diversified, conservative and sustainable portfolio.

104 Corp

Our largest investment is 104 Corp in Taiwan, which continued to perform tremendously in 2022 with profits after tax increasing by 20.6% year-on-year, after growing 43.2% in 2021. As shared previously, the many years of hard work by the management team refining their products and taking care of their stakeholders has left them with many loyal customers. Further, we like how the company has a corporate culture that focuses on long-term goals and is socially conscious.

As shared previously, the nature of 104 Corp’s business has allowed the company to grow without requiring much capital reinvestment, and thus most of its profits can be distributed as dividends to shareholders. The company has again announced that they intend to pay out 100% of their 2022 profits as dividends later this year and our share of that should work out to about RM12.3 million after taxes, based on our end2022 shareholding. Our cost of investment of those shares is about RM71.2 million and a dividend figure of RM12.3 million would mean a yield of 17.2% on our cost. We first invested in 104 Corp in 2008 as a part of a strategic plan to expand JobStreet’s online footprint with a significant stake in the #1 player in Taiwan. 104 Corp’s particularly strong performance in the past two years has shown that we need both good luck for finding such an amazing business and management team - but also the patience to hold on to them for the long term.

That said, I would caution against expecting the exceptionally high growth rates of 104 Corp in the last two years to continue for any sustained period of time going forward. The competitive nature of the capitalist system usually does not allow for such staggering growth figures to persist for too long, as much as we love the business and management team. This would also mean that we should not expect the dividends that we receive from 104 Corp to continue to increase at the same rate.

Over the last year, we have reluctantly continued selling down a small portion of our holdings in 104. The decision is driven almost entirely by our hope to diversify our portfolio slightly as the carrying value of our 104 shareholding is still about 32.2% of our book value as at the end of 2022. The sales were done through open market transactions and we continue to believe that the buyers should be very happy and proud new owners of such a tremendous business.

Other larger business investments

Lion Rock in Hong Kong saw profitability improved 101.2% in 2022 from the previous year. Its foray into the publishing industry through an investment into the London-listed Quarto has paid off. In 2017, when Lion Rock first announced a stake in Quarto, the London-headquartered book publisher just made a loss of USD5.2 million and was sitting on a net debt of USD75.8 million. Last month, Quarto announced a profit of USD16.6 million for 2022 and the net debt level has been reduced to USD 0.6 million. I do not need to wax lyrical about the success of the Lion Rock team helping Quarto’s turnaround - the results have spoken for themselves and we are grateful to have such capable owners/ managers at Lion Rock taking care of the business.

Hastings in Australia has also continued to make progress in the financing and operations of its Yangibana rare earth mine. A significant development last year was the company’s strategic acquisition of a stake in the Toronto-listed company Neo Performance Material, described as the first step in its Hastings 2.0 strategy to create a fully integrated mine-to-magnet supply chain business. As Hastings is a pre-production mine, it carries a higher risk-reward characteristic than most of the other members of our portfolio.

Our ACE market-listed associate Innity reported a slight loss in 2022, compared to a RM3.1 million profit in the previous year.

As with previous years, my colleague has prepared a much more detailed (and better!) description of the corporate developments for some of our investments in the MD&A segment of this annual report for your reading.

Equity portfolio

In the last year, we continued to build up small stakes in public-listed businesses in the Asia Pacific region. We invested another RM33.60 million into this equity portfolio, bringing our cost of investment in this portfolio to RM88.1 million as at the end of 2022. In the first quarter of 2023, we invested a further RM0.3 million, bringing the total portfolio to RM88.4 million at cost.

Our equity portfolio consists of 26 companies and 2 ETFs as at the end of Q1 2023. It is quite heavily skewed towards businesses that have traditionally paid out a good amount in dividends, with banking and insurance companies in China making up about 36.3% of the portfolio. As at the end of Q1 2023, about 65.4% of this equity portfolio is invested in Chinese companies, and the rest in countries including Malaysia, Hong Kong, Australia, Singapore. We believe that these companies can offer a solid base from which we could build up a long-term portfolio.

A big part of our new investments last year were in three categories: Chinese ETFs, Chinese tech companies, and Chinese insurance companies. We see these investments as a way for us to increase our exposure to the Chinese economy, as we view the long-term prospects of the country favorably and believe that geopolitical tensions have given us an opportunity to own some of these businesses at good prices.

Note also, we have not sold any investments within this new equity portfolio since we started building it up in 2020. By design, our portfolio turnover will be significantly lower than a more traditional fund management firm. As described in my letter to you last year: we view such smaller equity investments as part-ownership of good businesses and it’s our intention to hold such investments for the long term. We do not view them as a series of flashing stock tickers, arrows and numbers that we should trade on at every opportunity.

In 2022, this equity portfolio generated RM4.4 million in dividend inflow to us before taxes, from RM1.2 million in 2021, and we hope that this number will grow as we continue building up the portfolio and the underlying businesses continue their recovery/ growth. On a cost of RM88.1 million, the portfolio generated a dividend yield of 5.1% in 2022, though it should be noted that this included a special dividend of almost RM700,000 from a “deep value” situation unlocking. While most of these businesses should still experience decent growth, I believe we have invested in them at prices low enough to offer good dividend yields even if the growth does not materialize - a good margin of safety.

As described in last year’s letter, the cash inflow generated by our investments, including companies in this equity portfolio, would be partially distributed as dividends back to our shareholders, and partially reinvested into more businesses. Having a steady flow of dividend inflow would give us more confidence in investing a portion of it into businesses with a higher risk/reward characteristic, or in “deep value” situations where the value of the investment might take a very long time to be unlocked (if at all).

Cash

As at the end of 2022, we held around RM69.0 million in cash and cash equivalents, which is about 19.8% of our net book value, and is down from RM88.5 million a year ago. The percentage figure would be about 15.4% if we calculated it based on our Net Asset Value of RM446.4 million.

To deploy this cash, the team will continue to work on identifying businesses with favorable economic characteristics - and then patiently wait for the market to give us an opportunity to invest in them at attractive prices. We imagine that there could be months or even years when there will not be much buying/ selling actions at our company, but a burst of activities could happen within a few days if the market gives us that opportunity. Charlie Munger likened investing to a man standing by a river trying to spear a fish - the fish might only come by once a week, or once a month, or only once every 10 years, but when it swims by, we have to be there to throw the spear fast before it swims away!

We will continue to build up our database of good businesses and work on becoming more “nimble” in deploying our cash.

Interest rates

The investment environment of the last decade has been characterized by a period of low interest rates. When rates are low, most alternatives to cash appear highly attractive. In many developed economies, fixed income assets that yielded less than 1% per annum or in the most extreme of cases producing negative yields (i.e. we invest today to get back less money in the future) were deemed as unenviable but necessary investments for many fund managers. Even “junk bond” yields, in some instances, halved from their historical averages.

In the past few years, our company lost out on many investment opportunities, both in public and private companies, as we were not willing to pay as high a price as many other market participants do - we were unsure whether rates would remain at such low levels for the long term. Some investors rode the rising tide and did exceptionally well in 2020-2021. However, since the end of 2021, a tightening of monetary conditions in many countries via rate hikes and the withdrawal of liquidity, has cause some market corrections - and we are monitoring further how things could still unravel.

If we had invested in equities, bonds or other assets happy with targeting or locking in a much lower yield/ return, we could have made good “paper gains” during the last 2-3 years, as a persistently low interest rate environment re-anchored investors’ expectations and pushed up valuations. However, it’s likely that those paper gains would have evaporated by now if we had held on to the investments.

There are very successful investors who can time such “macro” movements very well, entering the party right when the music starts and exiting on the very last beat of the final dance. However, I believe this is not a skill set that we could develop easily, and nor do we have any competitive edge at doing so. We intend to continue focusing on finding “hidden gems” in the market, preferably those regarded as unloved stones by the others, regardless of the anticipated direction of the general market.

Back at the office

Our team fully returned to the office in September 2022 and I am grateful that the transition back has been smooth. We continue to adopt some of the practices and tools that we introduced during the pandemic days, which have been helpful to improve our productivity. However, there is no replacement for the faceto-face interactions and spontaneous discussions that returning to the office offers. The team has been a joy to work with.

The beginning

Lastly, allow me again to convey a special thanks to our long-term shareholders. My pledge from last year still holds - we cannot promise instant results, but we would continue to treat you as “partners”, keep our interests aligned, and continue to build up a portfolio of good businesses for all of us.

CEO
Lionel Liong Wei Li
28th April 2023

OVERVIEW

JcbNext Berhad (“JcbNext”) is an investment holding company. It owned and operated the JobStreet.com online job portal business from 2004 to 2014. In 2014, the job portal business was sold to SEEK Ltd for close to RM2 billion with the net proceeds paid as dividends to shareholders. Today, the Company has stakes in associates, 104 Corporation, the largest job site in Taiwan and Innity Corporation Berhad, a leading provider of interactive online marketing platforms and technologies in Malaysia. It also has a majority stake in a small consultancy business in Japan and operates the Autoworld automotive content website. JcbNext also has quoted investments in Malaysia, Hong Kong/ China, Australia, Singapore and Europe and owns a 8-storey office building in Kuala Lumpur and a 2-storey shoplot office in Johor.

THE STATE OF THE GLOBAL ECONOMY IN 2022

Let’s start with a recap of the state of the global economy in 2022 before we dive into the performance of the Group in detail. After expanding 5.5% in 2021 as a result of low-base effect, the world economy only grew by 3.4% in 2022. The year began with the battle against COVID-19 still ongoing, after the highly transmissible Omicron variant made its debut late in 2021. Many countries were facing rising inflation which began in mid-2021. To add to the already delicate situation, Russia invaded Ukraine on 24 February 2022, sending shockwaves across the globe and dealing a massive blow to any hopes of a sustained economic growth. The war in Ukraine unleased a new crisis, disrupting food and energy markets and exacerbating food insecurity and malnutrition, triggering a global cost-of-living crisis. At the same time, the climate crisis has taken a heavy toll on many countries, with heat waves, wildfires, floods and hurricanes inflicting massive humanitarian and economic damage.

Russia is the world's largest exporter of grains, natural gas, and fertilisers, and among the world's largest suppliers of crude oil and metals. The invasion threatened the energy supply from Russia to Europe, with natural gas prices in Europe soaring to a record high of 345 euros per megawatt hours in March and Brent oil prices rising above USD130 a barrel for the first time since 2008. This caused European countries to seek to diversify their energy supply routes. At the time of the invasion, Ukraine was the fourth-largest exporter of corn and wheat, and the world's largest exporter of sunflower oil, with Russia and Ukraine together responsible for 29% of the world's wheat exports and 75% of world sunflower oil exports. On 25 February, the benchmark Chicago Board of Trade March wheat futures contracts reached their highest price since 2012, with the prices of corn and soybean also spiking. The invasion of Ukraine has also triggered unprecedented economic sanctions that have targeted large parts of the Russian economy, Russian oligarchs and members of the Russian government. Such sanctions include bans on Russian imports which include oil and gas, bans on high-tech exports to Russia, removing Russia from the international financial messaging system Swift, freezing the assets of Russian banks held overseas and sanctions on more than 1,000 Russian individuals and businesses. Russia has counter reacted by imposing export bans on a string of products. To the surprise of many, the invasion by Russia was met by stiff resistance from the Ukrainians and sadly till today, the invasion is still ongoing with tens of thousands of lives lost in the last 14 months.

Three years after COVID-19 burst onto the scene, the world appears to have turned the corner on the first global pandemic in a century. In September, the head of the World Health Organization declared that the end of the pandemic is in sight and this was evident by the fact that many countries had begun to abandon the lockdowns, travel restrictions, and related measures that they had imposed when COVID-19 swept across the world in early 2020. They were able to do so because of the success of vaccines and therapeutic treatments in lowering COVID-19 fatality and because many of their citizens had already been infected and developed natural immunity. The one exception to this trend was China which saw multiple large COVID-19 outbreaks in Beijing and other densely populated localities. Renewed lockdowns accompanied the outbreaks until the relaxation of COVID-19 restrictions in November and December, which paved the way for a full reopening in Q1 2023. By the end of 2022, the global cumulative cases of infections had exceeded 740 million with 6.7 million deaths.

The battle against inflation was high on the agenda of many central banks in 2022 especially among advanced economies. A worldwide increase in inflation began in mid-2021, with many countries seeing their highest inflation rates in decades. It has been attributed to various causes, including pandemicrelated economic dislocation; the fiscal and monetary stimuli provided in 2020 and 2021 by governments and central banks around the world in response to the pandemic were also instrumental. Unexpected recovery in demand through 2021 ultimately led to historic and broad supply shortages (including chip shortages and energy shortages) amid increasing consumer demand. The Russian invasion of Ukraine's effect on global oil prices, natural gas, fertiliser, and food prices further exacerbated the situation. Higher gasoline prices were a major contributor to inflation as oil producers saw record profits. Global inflation rose to 8.8% in 2022 from 4.7% a year earlier. The US started the year with inflation at 7.04%, peaking in July at 9.06% before subsiding and ending the year at 6.45% and these are elevated levels not seen since the early 80s. In the UK, inflation rose to 11.1% in October, a 41-year high. Malaysia’s headline inflation increased to 3.3% in 2022 compared with 2.5% in 2021. Central banks responded by aggressively raising interest rates. The US Federal Reserve (“Fed”) raised interest rates in every successive committee meeting in 2022 by a total of 4.25%. Similarly, the Bank of England raised interest rates by a total of 3.25% during the year. Locally, Bank Negara had increased the Overnight Policy Rate (“OPR”) by a total of 100 basis points to 2.75%. When interest rates are raised, it reduces demand for goods and services, and hopefully that slows the rate of inflation at the same time. However, companies may respond to the lower demand by cutting output but in so doing, companies may hire less or even lay off their workers and potentially lead to the much-feared recession. Fortunately, the world did not fall into a global slump in 2022 but recession is still on the cards, one that has most likely been postponed to 2023, especially among major advanced economies. The US economy created strong jobs growth throughout 2022 and well into 2023. Its unemployment rate hovered between 3.5-4% throughout 2022, its lowest in the last 50 years. Yearly wage growth remained stubbornly high at 6.9% in December 2022 despite the Fed’s rate hikes.

Let’s now look briefly at how the China economy had performed in 2022. China’s economy expanded by just 3% in 2022 (2021: 8.4%), marking one of the worst performances in nearly half a century. Growth was impacted heavily by months of widespread COVID-19 lockdowns and a historic downturn in the not one market. On the demand side, investment was the key driver of growth in 2022. Nominal fixed asset investment grew by 5.1% marked by solid growth in manufacturing and infrastructure investment while real estate investment contracted. Household consumption plunged from a 12.6% expansion in 2021 to 0.2% contraction in 2022. Retail sales contracted by 2.8% in 2022. On the supply side, the secondary sector, particular construction driven by high infrastructure investment, became the main contributor to growth. Services were hit hard by the pandemic, decelerating from 8.5% in 2021 to just 2.3% in 2022. Service growth was dragged down by declines in real estate services, accommodation, catering and transportation, reflecting COVID-19 restrictions. The labour market faced several headwinds in 2022. Frequent but unpredictable lockdowns and resulting economic downturns prompted firms to delay hiring. Tighter regulation of technology, education and property enterprises also weighed in on the labour market. China’s inflation remained moderate, coming in at 2% in 2022, well below the official target of around 3%, thus allowing ample room for further policy loosening to support the economy.

A discussion on the state of the global economy would be incomplete without a brief look at Malaysia’s economy. In the face of global challenges, Malaysia’s economy continued to post a strong recovery, growing by 8.7% in 2022 (2021: 3.1%). Our economic recovery in 2022 was largely driven by stronger domestic demand as economic activity normalised. However, the pace of recovery varies across different economic sectors. While economic activity in export-oriented industries thrived, some sectors such as that of the leisure-related services remained below pre-pandemic levels. Headline inflation averaged higher in 2022 at 3.3% (2021: 2.5%). The surge in global commodity prices and prolonged supply-related disruptions were key factors that resulted in cost-push inflationary pressures. The continued US dollar strength against the Ringgit also led to higher import prices, which added to the cost pressures. Strengthened domestic demand following the economic reopening also contributed to the increasing inflationary pressures. However, upward pressures on prices were partly contained by domestic price controls, subsidies and prevailing spare capacity in the economy. Political instability continued in 2022 with the general elections and change of government in November.

As for stock markets worldwide, the year began with optimism that a post pandemic economic recovery was gathering momentum and supply chain bottlenecks were beginning to ease. Markets then began to slide as inflation continued to rise and Russia invaded Ukraine. The Fed started raising interest rates in early March but investors shrugged it off as the increase was less than expected. Markets started to plunged in the second quarter as inflation continued to rise around the world and reached 8.5% in the US with the Fed raising interest rates again and warning that rate hikes might become more aggressive. The decline continued into the remainder of the year with more negative developments: the Fed warned that rate hikes were likely to continue for some time; Russia cut off gas supplies to Europe; economic data in China worsened; the crisis in China’s property market; corporate results began to show the effects of inflation and the strong USD on profit margins and political instability in the UK. By the end of 2022, the MSCI All-Country World Index had lost about a fifth of its value in what Bloomberg calls the “$18tn rout”, its worst performance since 2008. Tech stocks were particularly hit. Nasdaq closed at 10,466 points, a decline of 33.1%. The high growth nature of businesses in the Nasdaq Composite left them particularly susceptible to rising interest rates, exacerbating the index’s underperformance compared to others. The S&P 500 closed the year at 3,840 points, a decline of 19.4% while the Dow Jones Industrial Average fared slightly better, coming down 8.8% to close at 33,147 points. It was no different in Europe either with the Stoxx 600 index closing the year with a 12.8% loss. China's stock market wrapped up one of the bumpiest year in 2022 with the benchmark Shanghai Composite Index finishing with a loss of 15.1% from 2021. Similarly, Hong Kong’s Hang Seng Index fell 15.5% yoy in 2022. On the local bourse, banking stocks as well as certain commodity and oil and gas-related counters saw a good run on the back of rising interest rates and commodity prices environment. Besides the negative macro developments around the world, the performance of the FBM KLCI was also affected by domestic political uncertainty. The FBM KLCI ended the year at 1,495.49 points, 4.6% lower than in 2021.

2022 IN REVIEW

During the year, the Group generated revenue from services, rental of office space, dividends, interest and other investment income. The Group’s revenue mix for 2022 and 2021 are as depicted below:-

As the Group is principally in investment holding, the biggest contributor to group revenue is dividends from equity investments at 75% of revenue or RM7.16 million in 2022. This is followed by rental income at 13% and together with dividend income, contribute 88% of group revenue. Services, interest income and investment distribution income combined to contribute the remaining 12% of group revenue. The increase in the contribution of dividend income from 54% to 75% of group revenue in 2022 is in line with the Group’s deployment of its cash to acquire equity investments in the last 2 years.

Total revenue had increased by 50.0% in 2022 primarily from an increase in dividend income from equity investments from RM3.46 million in 2021 to RM7.16 million in 2022. However, the increase in dividend income was partially offset by a decrease in interest income and distributions from money market funds (“MMF”) from RM1.35 million in 2021 to RM0.72 million in 2022. The lower returns on our cash and MMF was due to the Group’s continued deployment of its funds to acquire equity investments during the year as noted in the decrease in its cash and investments in MMF from RM88.55 million at the end of 2021 to RM69.00 million at the end of 2022. In addition, the MMF has reduced its income distributions (the undistributed interest income increases the net asset values of the funds).

Dividend income from equity investments had increased by 106.9% year-on-year (“yoy”) to RM7.16 million in 2022 from RM3.46 million in the preceding year. This was in line with the increase in the size of the Group’s Equity Portfolio which grew from a total investment cost of RM92.03 million at the end of 2021 to RM132.11 million at the end of 2022. Investments in this Equity Portfolio, with the exception of Lion Rock, were gradually acquired in recent years since 2020. Dividends received from Lion Rock had increased to RM2.72 million in 2022 from RM2.25 million in the previous year. During 2022, the Group continued to receive dividends amounting to RM12.15 million from it associate, 104 Corporation, although such dividends are not accounted for as revenue.

Rental income from investment properties had increased slightly from RM1.22 million in 2021 to RM1.25 million in 2022. The total area leased to the tenant is approximately 23,700 square feet which is about 87% of net lettable area in Wisma JcbNext. The Group retains approximately 13% of Wisma JcbNext for its own use. As reported last year, the tenant for Wisma JcbNext has formally notified the Company of its intention to move out by 28 February 2023, with the option of extending the tenancy by another 6 months if needed. The tenant had subsequently exercised this option and extended the tenancy to 31 August 2023. The Group’s other investment property, a 2-storey shoplot office in Johor, remained untenanted throughout 2022.

In terms of services, the Group derives revenue predominantly through its subsidiary in Japan which provides consulting services on a small scale. The Group did not invest to expand the Autoworld automotive content website in 2022 but nevertheless, the Group continued to update the website. Total revenue from the provision of services in 2022 had increased marginally to RM0.39 million compared with RM0.32 million in 2021.

The Group’s operating expenses in 2022 amounted to RM5.23 million, an increase of 8.1% compared with the previous year’s operating expenses of RM4.84 million. Other operating expenses had increased by 15.8% to RM2.29 million compared with RM1.98 million in 2021. In general, the increase in operating expenses was attributable to staff salary increments, higher expenses related to staff returning to the office, a slight increase in audit related expenses, higher custodian expenses (classified under professional fees) in line with the increase in the size of the Group’s Equity Portfolio and a slight increase in directors’ fees in line with the addition of a new director.

Further breakdown of the Group’s other operating expenses is as follows:

Group	2022 RM	2021 RM
Net foreign exchange losses	81,402	-
Professional fees	866,435	807,589
Directors’ fees	343,738	285,000
Office expenses	210,572	160,280
Security costs	157,995	148,977
Utilities	288,147	228,361
Staff benefits	92,651	95,715
Quit rent and assessments	63,525	38,798
Travelling	6,046	6,078
Telecommunication	21,331	23,078
Insurance	42,921	40,678
Miscellaneous	118,527	147,984
	2,293,290	1,982,538

The Group continued to rely a great deal on our associates, primarily 104 Corporation, to contribute to the Group’s earnings in 2022. To recap, 104 Corporation is principally involved in the online job portal business and also provides executive search and HR consultancy services in Taiwan. 104 Corporation is listed on the Taiwan Stock Exchange since 2006. The Group had begun investing into 104 Corporation in 2007 as part of a strategic plan back then to expand JobStreet’s online recruitment footprint with a significant stake in the No.1 player in Taiwan. We had then continued to increase our investment in 104 Corporation until the stake was big enough to achieve associate status in 2010. Taiwan’s GDP slowed to 2.5% growth in 2022 as weaker global demand weighed on exports and investment, though consumption rebounded. The external sector weakened substantially, and net exports cut 0.7 percentage points from growth. Export growth braked from 17.3% in 2021 to 2.4% as imports grew by 4.5% on elevated prices for imported oil and higher imports of machinery and electronics. As a result, the current account surplus narrowed from the equivalent of 14.8% of GDP in 2021 to 13.3%. Investment was strong in the first half of the year but tapered off in second half as firms postponed capacity expansion, tamping down investment growth from 17.3% in 2021 to 4.1% in 2022. Investment was nevertheless the second largest driver, contributing 1.1 percentage points to growth. Consumption bolstered growth, as COVID-19 restrictions were lifted and the government incentivized travel and spending through a stimulus package to boost the tourism industry. Private consumption rebounded by 3.6% and was the main driver of growth, contributing 1.6 percentage points, while government consumption grew by 3.4% and contributed 0.4 points. On the supply side, agriculture contracted by 1.9%, shaving growth by 0.03 points; industry, driven by manufacturing, added 0.8 points; and services contributed 1.4 points as relaxed COVID-19 restrictions reinvigorated the sector.

Taiwan’s inflation averaged 2.9% in 2022, its highest in over a decade as commodity prices surged. Inflation came largely from higher food prices as the Russian invasion of Ukraine drove prices for agricultural and industrial raw materials higher, while government measures to stabilise prices, including price controls on energy products such as liquefied petroleum gas, mitigated the impact of higher global oil prices. Residential rent was also a major contributor to inflation. The central bank tightened monetary policy, but fiscal policy remained supportive of growth. The central bank hiked its policy rate four times in 2022 for a total increase of 62.5 basis points to 1.75%. On the fiscal side, the government continued to provide COVID-19 policy support with relief and stimulus loans offered to smaller enterprises and upskilling programs and subsidies to workers affected by the pandemic. Government revenue equalled 11.9% of GDP in 2022, and expenditure 11.8%, broadly unchanged from the previous year.

Under the aforementioned circumstances, 104 Corporation’s revenue in 2022 had increased 17.7% yoy to NT$2.18 billion compared with NT$1.85 billion in 2021 with the growth attributed to its Job Bank and HR Academy businesses. With the increase in revenue and lower rate of increase in operating expenses, its profit before taxation increased by 28.7% yoy to NT$523.74 million compared with NT$407.02 million in 2021 while the net profit attributable to shareholders increased 20.2% yoy to NT$445.26 million compared with NT$370.44 million in the preceding year. Our share of profit from 104 Corporation in 2022 had increased to RM14.67 million compared with RM12.66 million in the preceding year. The balance sheet of 104 Corporation remains solid with cash holdings of NT$2.85 billion at the end of 2022. In line with the increase to its profits, 104 Corporation has recently announced a dividend of NT$13.41 per ordinary share representing 100% of their net profit attributable to shareholders for the 2022 financial year, which will be paid out later this year. In 2022, the Group had disposed a small portion of its holdings of 104 Corporation in the open market and in the process, the Group recorded gains on disposal of the said shares amounting to RM5.03 million. We sold 104 Corporation shares as the investment in the company represented a concentration risk on the Group’s balance sheet. It is not a case where we want to ‘take profit’ by selling when the share price is high, or make a ‘trading profit’ by selling some shares now and buying back later. Going forward, the pace and quantum of selling 104 Corporation shares will depend on many factors including the liquidity of the shares and/or interest from third parties. Further, the need to reduce concentration risk will decrease as the rest of our portfolio grows. Our investments, including 104 Corporation, continue to be long term in nature, with the objective of deriving dividend income and distributing those dividends onwards to our shareholders. As at 31 December 2022, the Group has an equity interest of 21.74% in 104 Corporation, down slightly from 22.66% a year ago.

Our other associate, Innity Corporation Berhad (“Innity”), is principally involved in the provision of technology-based online advertising solutions, to their customers in the Asia Pacific region, using in-house developed technology platforms. Innity’s role in the online advertising process is to serve as a one-stop centre for advertisers and advertising agencies in offering the 3 major functions of the online advertising process, namely Creative, Media and Research. In essence, the group assumes the role of the advertising agency, creative agency, media agency and researcher. Innity is a listed company since 2008 and currently its shares are traded on the ACE Market of Bursa Malaysia Securities Berhad (“Bursa Securities”). The group has an established presence in Malaysia, Hong Kong/ China, Indonesia, Philippines, Singapore, Taiwan, Thailand, South Korea, Myanmar, Cambodia and Vietnam.

By the second quarter of 2022, most of Innity’s business units have re-opened in tandem with the reopening of international borders and welcoming international travellers as life returns to normalcy. In line with the reopening of businesses, the growth momentum in consumer spending was mainly outdoors/offline. As a result, advertisers shifted advertising spending from digital to offline. Digital advertising spending started to slow sharply since Q3 2022 and continued to slow down in Q4 as compared to pandemic highs in Q2 2021. Consequently, Innity’s group revenue declined by a marginal 1% or RM0.76 million to RM119.22 million in 2022 compared with RM119.97 million in 2021. In tandem with the decrease in revenue, the group posted a loss after tax of RM0.63 million compared to a profit after tax of RM3.06 million in 2021. Other operating expenses had also increased by approximately 9% or RM4.39 million to RM51.17 million in 2022. Higher staff costs, selling and marketing expenses and administrative expenses were incurred in 2022. Following the removal and relaxation of international border restrictions, economic activities were normalised which led to an increase in sales and marketing expenses in 2022. Higher administrative costs were mainly due to an increase in foreign currency losses. The increase in staff costs was mainly due to staff retention initiatives. Our share of profit from Innity in 2022 had decreased to a loss of approximately RM17,000 compared with a gain of RM0.65 million a year ago. As at 31 December 2022, the Group has an equity interest of 20.98% in Innity.

Overall, the Group’s net profit attributable to shareholders for 2022 surged 40.3% yoy to RM23.57 million from RM16.80 million in 2021. Firstly, as explained earlier, this was due to higher revenue which had increased by 50.0% yoy. Secondly, share of profits from our associates increased by 10.1% to RM14.65 million from RM13.31 million in 2021 and this was mainly attributed to 104 Corporation. Lastly, the Group sold more shares of 104 Corporation in 2022 compared to a year ago, resulting in an increase of 216.7% in gains recognised from these disposals to RM5.03 million in 2022 compared with RM1.59 million in 2021. Upon closer inspection of the results, if we exclude the gains on disposal of 104 Corporation shares, the contribution of associates to our bottom line has reduced from 87.5% in 2021 to 79.0% in 2022. This was in line with the increase in the size of our Equity Portfolio which had resulted in a 106.9% increase in dividend income. We hope that as we continue to grow our Equity Portfolio and receive more dividends from our equity investments, the Group’s dependence on our associates, namely 104 Corporation, will gradually decrease to an acceptable level. Earnings per share amounted to approximately 17.85 sen per share. The Company will continue to pay dividends based on its ‘free cash flow’. To this end, the Board has recommended the payment of a final dividend of 6.0 sen per ordinary share to be paid after the forthcoming AGM.

The Group’s net assets attributable to shareholders grew by 1.1% yoy to RM348.80 million as at 31 December 2022 compared with RM344.88 million at the end of the previous year. On a per share basis, this translates to RM2.64 per share with the Company’s shares quoted at a price of RM1.28 as at 31 December 2022.

OVERVIEW OF INVESTMENTS AND CASH RESERVES

The Group’s investments and cash reserves comprise of:

Group	2022 RM	2021 RM
Investments in associates
- 104 Corporation	112,460,289	120,895,458
- Innity	13,245,277	13,033,037
	125,705,566	133,928,495
Financial assets at fair value through other comprehensive income
- Lion Rock	28,182,195	24,322,492
- Hastings Technology Metal	15,210,193	17,533,864
- Banking and insurance	30,157,104	22,576,841
- Other quoted investments	55,043,947	31,006,099
- Unquoted investments	8,533,350	10,011,009
	137,126,789	105,450,305
Financial assets at fair value through profit or loss
- Money market unit trust funds	22,384,799	-
Cash reserves
- USD	6,350,544	852,290
- HKD	4,356,680	4,535,469
- SGD	9,098,191	20,642,263
- RM	26,463,819	61,735,529
- Others	341,791	780,243
	46,611,025	88,545,794
	331,828,178	327,924,594

The performance of the Group’s associates has already been detailed in the previous section of this report. The carrying value of the investments in associates on the Group’s balance sheet decreased by 6.1% in 2022 to RM125.71 million. Against the Taiwan dollar, the Ringgit had strengthened from TWD1:RM0.1506 as at end 2021 to TWD1:RM0.1428 as at end 2022 and this contributed to a decrease of RM6.26 million in the carrying value of 104 Corporation on our balance sheet. Disposals of 104 Corporation shares during the year had also contributed to a decrease of RM4.86 million in the carry value of 104 Corporation. In addition, while the share of profit from 104 Corporation for 2022 amounted to RM14.67 million, the dividend received from 104 Corporation during 2022 based on its 2021 net profit amounted to RM12.15 million. Although it does not benefit the Group’s bottom line, the dividend from 104 Corporation provides liquidity for the Group to fund its annual working capital requirement without having to tap into the Group’s reserves set aside for future investments. This is apparent from the Group’s statements of cash flows for 2022 which shows that the dividends it received from 104 Corporation, Lion Rock and other investments in quoted securities totalling RM19.31 million being more than sufficient to cover the RM3.86 million working capital utilised in 2022.

The largest investment under the FVOCI category is Lion Rock with a carrying value of RM28.18 million. Lion Rock is principally involved in the provision of printing services to international book publishers, trade, professional and educational conglomerates and print media companies. This is a business that the Group had invested in from 2011 to 2013 at a total cost of RM2.98 million. Subsequently, in 2014, Cinderella Media Group Ltd, the parent company of Lion Rock at that time of which we had a stake in then, rewarded its shareholders by declaring a dividend-in-specie of its stake in Lion Rock and spinning it off as a separate listed company on the Hong Kong Stock Exchange. As a result of that, the Group’s stake in Lion Rock had increased by an additional 36.5 million shares in 2014. At the end of 2022, the Group held an equity interest of approximately 7.0% in Lion Rock. For the financial year ended 31 December 2022, the dividend yield on Lion Rock was 10.9% (2021: 9.5%). During the year, the Group had received RM2.72 million in cash dividends from Lion Rock, up 20.7% from the RM2.25 million dividends received in 2021. On 31 March 2023, Lion Rock announced a final dividend of HK$0.07 per share and a special dividend of HK$0.03 per share to be paid on 19 June 2023 after the conclusion of its upcoming AGM. The fair value of the Group’s investment in Lion Rock had increased by 15.9% in 2022 in line with the appreciation of its share price from HKD0.84 at the end of 2021 to HKD0.92 at the end of 2022.

Based on the disclosures in Lion Rock’s Annual Report 2022, Lion Rock said that the COVID-19 pandemic and the war in Ukraine have shifted the competitive landscape of the global printing industry. Western print manufacturers are faced with the mounting costs of labour and energy, which have reduced their competitive advantage. Moreover, the decommissioning of paper mills in the US and Europe has created a supply bottleneck for uncoated woodfree paper. This paired with the introduction of stringent environmental policies has further limited the capacities of Western printers. Lion Rock added that freight was also an immense hurdle to overcome during the COVID pandemic. Nevertheless, since mid-2022, notwithstanding the blank sailings and other initiatives taken by the shipping alliances to support freight costs, the January 2023 shipping cost witnessed a drastic reduction of over 80% against record prices in the summer of 2022. As shipping demand decreased and port operations returned to a state of normalcy, companies are becoming increasingly inclined towards Far East printing as a viable option again. Lion Rock also forsees the gradual loss of the Chinese printer's competitive advantage in the long term. The cost of labour in China will continue to rise as the population becomes more educated and moves away from labour-intensive employment opportunities. It also opined that due to the decreasing population size, the labour pool will decrease, and China’s population dividend will be eroded. As China's economy grows, land and material costs will increase as well, further limiting the sustainability of China’s advantage. Lion Rock views South-East Asia emerging as an appealing, cost-effective alternative to traditional manufacturing centres. Abundant, cheap labour and investment-friendly government policies have enticed many multinationals to set up manufacturing bases in the area, driven in part by the US-China trade war and the West's manoeuvre to decouple from China. Despite facing a challenging book market and volatile supply chain, Lion Rock reported a stellar set of results in 2022. The group’s revenue for the year increased by 43.7% to HK$2,496.09 million from HK$1,737.62 million in the previous year. The increase was attributed to the inclusion of the results of The Quarto Group (“Quarto”) since April 2022, contributing approximately HK$875.9 million of revenue to the new book publishing segment. Profit attributable to shareholders amounted to approximately HK$219.91 million, up 66.0% from the previous year. Other than the increase in revenue, the group had also recognised a fair value gain on disposal of associate of HK$31.3 million as a result of derecognising Quarto as an associate.

The next investment that we would like to update on is the Group’s investment in Hastings Technology Metals Limited (“Hastings”), an Australian Securities Exchange listed exploration and development company. To recap, the Group had, on 7 August 2019, subscribed for 20,700,000 new shares in Hastings for a total consideration of AUD3,519,000 (equivalent to RM10.14 million based on the exchange rate as at 7 August 2019 of AUD1:RM2.882). The subscription came with one free option for every two shares subscribed and each option is exercisable into one new share at an exercise price of AUD0.25 each. Prior to the expiry of the options, the Group had on 12 April 2022, exercised 8,153,811 options with the balance having been disposed in the open market earlier. Sometime in June 2022, Hastings had consolidated its shares on a 1 for 20 basis. As at 31 December 2022, the Group has an equity interest of 1.14% in Hastings. Despite an additional investment of RM6.42 million during the year pursuant to the exercise of the share options, the carrying /fair value of the Group’s investment in Hastings had decreased by 6.75% during the year, mainly due to the fall in its share price from AUD5.20 (on a post consolidated basis) at the end of 2021 to AUD3.52 at the end of 2022 and the weakening of the Australian dollar against the Ringgit by 1.3% in 2022.

Hastings is currently developing the Yangibana Rare Earths Project (“Yangibana Project”) in an area covering approximately 650 square kilometres located some 250 kilometres from Carnavon in Western Australia. Mining leases granted are for 50 square kilometres over 21 years. The Yangibana Project involves development, construction, mining and processing operations to produce Mixed Rare Earth Carbonate (“MREC”) with high concentrations of Neodymium (Nd) and Praseodymium (Pr). These elements are essential raw materials used in the production of permanent magnets, critical in many hightech products including electric vehicles, renewable energy wind turbines, robots, medical applications and others. Hastings aim to become the next significant producer of Neodymium and Praseodymium (“NdPr”) outside of China and expects to supply 6-8% of global NdPr demand. Based on Hastings’ reports, the project’s total capital expenditure estimate is approximately AUD582 million (AUD658 million inclusive of contingencies) after accounting for inflationary pressures, including skills shortages, COVID-19 impacts on global supply chains and higher material costs.

Based on reports from Hastings, an early works program costing AUD20 million to deliver key initial enabling infrastructure and access roads commenced in Q3 2021 and was 63% completed at the end of 2022. The main plant construction is planned to commence in 2023 beginning with the Yangibana processing plant and ending with the completion of the Onslow hydrometallurgical plant in Q3 2024. Production is slated to begin thereafter with sales to follow in 2025 over a period of approximately 17 years and a production capacity of 15,000 tonnes per annum of MREC. In October 2022, Hastings had also entered into a non-binding Memorandum of Understanding with Solvay La Rochelle for the supply of 2,500 tonnes per annum (“tpa”) of MREC for a period of 5 years. This is in addition to the offtake contracts signed with Thyssenkrupp Materials Trading GmbH in April 2021 (5,000-9,000tpa) and Schaeffler Technologies AG in June 2020 (5,000tpa).

Hastings continued to progress in securing funding for the Yangibana Project in 2022. As reported in last year’s Annual Report, the company had in February 2022 announced the approval from Northern Australia Infrastructure Facility (“NAIF”) of a AUD140 million loan facility with a 12.5 year tenor. Subsequently in January 2023, this facility has been increased to AUD220 million. On the equity side, Hastings had in March 2022 placed 160 million shares to L1 Capital Pty Ltd, raising a total of AUD40 million. The conversion of share options in April had also raised AUD29.5 million and in September, the company completed a twotranche placement to institutional and sophisticated investors to raise AUD110 million. Hastings had also completed a strategic acquisition during the year. On 14 October 2022, Hastings announced that it has acquired a 19.9% equity stake in Neo Performance Materials, Inc. (TSX: NEO) (“Neo”) for an aggregate purchase price of C$134.61 million. The acquisition was funded by a AUD150 million investment in Hastings by Wyloo Metals Pty Ltd through the issuance of secured, redeemable, exchangeable notes. Neo is a global rare earth processing and advanced permanent magnets producer listed on the Toronto Stock Exchange. Based on its filing, the acquisition will provide Hastings with a strategic stake in Neo and exposure to its magnetic materials business, as well as a platform to explore potential partnership arrangements utilising Hastings’ Yangibana feedstock in Neo’s downstream rare earth operations.

Atomico IV is a private equity fund managed by Atomico. Founded in 2006 by Niklas Zennstrom, a serial entrepreneur who co-founded Skype and Kazaa, Atomico is a venture capital investment firm headquartered in London that manages funds which invest in the artificial intelligence and machine learning, climate technology, communication, financial technology, gaming, health-tech, SaaS, industry, mobility, consumer products and consumer services sectors. Atomico IV is Atomico’s fourth fund that was formed in 2015 and closed in 2017 with a size of USD765 million. The fund, which has a term of 10 years, invests in European startups from Series A on that have global potential. The Group participated in Atomico IV in 2016 with a relatively small commitment of USD500,000. The fair value of the Group’s investment in Atomico IV at the end of 2022 amounted to RM4.13 million, down 29.5% yoy from RM5.87 million a year ago, in line with the challenges faced by the tech sector in 2022 which has been a year of reset for the sector. A series of compounding macroeconomic setbacks, soaring inflation rates and interest rate hikes, the energy crisis and the war in Ukraine, all of which had impacted the broader tech ecosystem. According to Atomico’s report, the total value of the European ecosystem fell from peak of $3.1 trillion in 2021 to $2.7 trillion in 2022, led by steep falls in public markets. Capital invested declined 17% yoy to $86 billion. Despite these declines, it was still the second largest year ever for investment in the European tech ecosystem. European companies are now on par with the US in terms of early stage funding capturing 1/3 of global early stage capital invested. In addition to public market declines, 2022 also saw an impact on valuations, which are returning to more normalised historical levels. Across all stages, the average valuations for European companies are still priced at a discount relative to their US peers. The market volatility and uncertainty has also impacted exits, with the IPO window effectively closed. Europe only counted two $B IPOs in 2022 vs one in the US. M&A activity has continued, albeit significantly below 2021 levels. Even against this challenging market backdrop, Europe still saw $41 billion of total exit value generated in 2022.

The Group had in 2021 invested USD1 million into Platinum Analytics Cayman Limited (“Platinum Analytics”) in a larger found of financing that had also included Mark and Mr Teo Koon Hong as co-investors. Platinum Analytics is a financial technology or Fintech startup based in Singapore focusing on the Singapore and China markets. The company presents itself as a ‘One Stop Platform’ providing a pricing engine, AI trading engine and an electronic communication network (ECN) for the foreign exchange market, focusing on offshore CNY. While the foreign exchange trading business might be highly competitive, we believe the sub-segment offshore RMB market that Platinum Analytics is aiming at appears to be less developed and there seems to be a window of opportunity for the company to establish itself in this area. We recognise that this is a highly risky investment but our portfolio strategy allows for a small portion of our assets to be invested in startups for the potential upside. Mr Teo sits on the board of Platinum Analytics subsequent to his investment into the company. Platinum Analytics continued to develop and execute its business plan in 2022 in a tough and challenging year.

During the year, the Group had invested an additional RM33.60 million (2021: 49.63 million) into its investment portfolio. For ease of reference, this portfolio will hereinafter be referred to as the Equity Portfolio and it excludes Lion Rock, Hastings, the associates and the unquoted investments. Most of the companies in the Equity Portfolio are listed in Malaysia and Hong Kong/ China with a small portion in Singapore, Australia and Europe. As at 31 December 2022, the top 5 holdings made up 39% of the Equity Portfolio while another 23 stocks made up the remaining 61%. These investments as well as other targets emanated from research conducted internally in line with the Group’s investment objectives and are reviewed and approved by the Investment Committee and Board of Directors respectively. Should the prices of these stocks move within our target buy prices, we may increase our investments in these stocks further as well as to acquire other target stocks on our buy-list. The Equity Portfolio generated approximately RM7.16 million in dividends for the Group in 2022 (2021: RM1.21 million). As at 31 December 2022, the fair value of the Equity Portfolio amounted to RM128.59 million. To prevent any risk of front-running, the identities of the component stocks will be kept confidential save for any laws or regulations that require the Group to provide full disclosure.

	Cost of Investment RM	Carrying Value RM	Fair Value RM
104 Corporationˆ	71,164,515	112,460,289	211,216,184
Innityˆ	8,487,984	13,245,277	12,138,767
Lion Rock	17,799,453	28,182,195	28,182,195
Hastings	16,558,807	15,210,193	15,210,193
Equity Portfolio	88,092,200	85,201,051	85,201,051
Unquoted investments	6,049,977	8,533,350	8,533,350
	208,152,936	262,832,355	360,481,740

ˆ Accounted for using the equity method pursuant to MFRS 128, Investments in Associates and Joint Venturess

Looking at the table above, the fair value of the Group’s investments including its listed associates as at 31 December 2022 are significantly above total cost owing to the large unrealised gains on 104 Corporation, Lion Rock and unquoted investments. The fair value of the rest of the Equity Portfolio was below cost at the end of 2022 mainly due to some of the issues plaguing Chinese equities such as the regulatory storm on its technology industry, crackdown on the property market, overseas listings of Chinese firms, strict COVID-19 restrictions and so on, which had continued to negatively impact appetite for Chinese equities in 2022. Overall, the unrealised gains, with the exception of 104 Corporation and Innity, have been recognised in Other Comprehensive Income (“OCI”) at this stage. Pursuant to the MFRS 9 - Financial Instruments, the Group has elected to classify its equity investments as fair value through other comprehensive income (“FVOCI”) where fair value changes on the Group’s equity investments will continue to be presented in OCI but any cumulative gain or loss in OCI will be directly transferred to retained earnings upon the sale of the equity investments. The unrealised gains on 104 Corporation and Innity, as associates, have not been recognised at all.

The Group’s treasury management objectives are to ensure there is available liquidity when needed and to preserve our long-term purchasing power to acquire investments. In that respect, the Group has decided that the main currencies that it will maintain are MYR, USD, SGD and HKD. While the holding of such currencies may result in foreign exchange gains or losses and thus volatility to our P&L, the Group does not intend to actively manage or trade currency positions nor engage in any speculative activities. The Group’s MYR holdings are placed in interest bearing bank deposits and money market unit trust funds. Similar to what was happening around the world, Bank Negara had in 2022 increased the OPR by a total of 100 basis points to 2.75% to reduce inflationary pressures. While the Group manages its treasury function conservatively to safeguard the Group’s interests, the focus of the Board and management is still on identifying new strategic investments and/or developing a broad portfolio of investments which can contribute to the future growth of the Group. To be able to capitalise on any opportunities as and when they arise without sacrificing unduly on the Group’s returns on its reserves, the Group will need to maintain an appropriate mix of long and short-term investments and cash.

FUTURE PLANS AND PROSPECTS

Prior to the recent financial sector crisis, the world economy had shown signs of stabilising in early 2023 after the adverse shocks of last year. Activity in many economies turned out better than expected in the second half of 2022, typically reflecting stronger than anticipated domestic conditions. Labour markets in advanced economies, most notably the US, have stayed very strong with unemployment rates historically low. Yet, the cumulative effects of the past three years of adverse shocks - most notably, the COVID-19 pandemic and Russia’s invasion of Ukraine - continued to manifest in unforeseen ways. Post pandemic pent-up demand, lingering supply chain disruptions and commodity price spikes set the stage for inflation to rise, leading central banks to tighten monetary policy aggressively. The rapid rise in interest rates have caught many off-guard and contributed to stresses in the financial system and triggered sizable losses on long-term fixed-income assets. The stability of any financial system hinges on its ability to absorb losses without recourse to taxpayers’ money. First sign of trouble appeared in March in what is now known as the Banking Crisis of 2023. Over the course of five days in March 2023, three small to mid-size US banks failed, triggering a sharp decline in global bank stock prices and swift response by regulators to prevent potential global contagion. Silvergate Bank and Signature Bank, both with significant exposure to cryptocurrency, failed in the midst of turbulence in that market. Silicon Valley Bank failed when a bank run was triggered after it sold its Treasury bond portfolio at a large loss, causing depositor concerns about the bank's liquidity. The bonds had lost significant value as market interest rates rose after the bank had shifted its portfolio to longer-maturity bonds. And in mid-March, Swiss bank UBS Group AG agreed to buy rival Credit Suisse Group AG (“Credit Suisse”) for CHF3 billion and assume up to CHF5 billion in losses in a shotgun merger intended to shore up the global banking system and prevent the latter from collapsing. Prior to its collapse in March, Credit Suisse had announced plans to borrow up to $54 billion to shore up liquidity, but its largest shareholder, Saudi National Bank, said that it will not give any money, triggering a crisis of confidence and a precipitous fall in Credit Suisse’s stock price. Other financial institutions with excess leverage, credit risk or interest rate exposure, too much dependence on short-term funding, or located in jurisdictions with limited fiscal space could become the next target.

The International Monetary Fund (“IMF”) had stated in its World Economic Outlook April 2023 that, after an estimated growth of 3.4% in 2022, global growth is projected to decrease to 2.8% in 2023. The slowdown is concentrated in advanced economies, especially the euro area and the UK, where growth is expected to fall to 0.8% and -0.3% respectively in 2023 from 3.5% and 4% in 2022. Aggressive rate hikes in the US in the past year continuing into 2023 should start to bear fruit in containing inflation while slowing down its economy slightly to 1.6% from 2.1% in 2022. China is rebounding strongly following the reopening of its economy and the IMF is forecasting its growth to increase to 5.2% in 2023 from 3.0% in 2022, contributing to the overall growth in emerging and developing Asia of 5.3% from 4.4% in 2022. Global inflation is expected to decrease, although more slowly than anticipated, from 8.7% in 2022 to 7.0% in 2023.

The IMF listed several risk factors for an uncertain 2023. There is a significant risk that the recent banking system turbulence will result in a sharper and more persistent tightening of global financial conditions which would further deteriorate business and consumer confidence. Additional downside risks include sharper contractionary effects than expected from the simultaneous central bank rate hikes amid historically high private and public debt levels. The combination of higher borrowing costs and lower growth could cause systemic debt distress in emerging market and developing economies. In additional, inflation may prove more stubborn than expected, prompting further monetary tightening than currently anticipated. Other adverse risks include a stuttering in China’s post-COVID-19 recovery, escalation of the war in Ukraine and geoeconomic fragmentation. With debt levels, inflation and financial market volatility elevated, central banks especially in low-income countries could also have limited space to offset new negative shocks. Although the outlook is bleak, there is hope that the global economy could prove more resilient than expected, just as it did in 2022.

If the first three months of 2023 is anything to go by, this could be a rocky year for equity investments. In this environment of uncertainty, we will continue with our strategy, albeit cautiously, of developing a broad portfolio of long-term equity investments that would generate dividend income at targeted yields which in return can be paid onwards to our shareholders. We will also devote time to monitor our existing equity investments for any telltale signs of trouble. We had only begun building our Equity Portfolio in earnest in 2020. In that year, we had invested RM6.39 million which was followed by another RM49.63 million in 2021 and another RM33.60 million in 2022. During these turbulent times, while we can expect some paper losses on of our investments, we could also on the other hand be able to seize the opportunity to invest in quality businesses that are undervalued.