Hong Leong Penny Stock Fund

Transcription

1 Reaching out to you Hong Leong Penny Stock Fund Interim Report 2017/ February 2018 Unaudited

2 Hong Leong Penny Stock Fund Contents Page Manager s Review and Report 19 Statement by the Manager 10 Trustee s Report 11 Condensed Statement of Comprehensive Income 12 Condensed Statement of Financial Position 13 Condensed Statement of Changes In Equity 14 Condensed Statement of Cash Flows 15 Notes To The Condensed Financial Statements 1641 Performance Data 4243 Corporate Information 44 Corporate Directory 45 HONG LEONG PENNY STOCK FUND 1

3 Manager s Review and Report I. FUND INFORMATION Fund Name Hong Leong Penny Stock Fund Fund Category Equity Fund Type Growth Investment Objective To achieve large percentage gains by investing in wellmanaged and financially stable companies which stocks are selling at prices close to or at deep discounts to their net tangible asset values. Benchmark FTSE Bursa Malaysia Emas Index Distribution Policy The Fund intends to provide Unitholders with LongTerm* capital growth. As such, cash distribution will be incidental to the overall capital growth objective and a substantial portion of the income returns from investments will be reinvested. The Fund may also declare distributions in the form of additional Units to its Unitholders. Breakdown of Unitholdings By Size Size of Holdings No. of Accounts No. of Units Held 5,000 and below 1,680 5,416, ,001 to 10, ,618, ,001 to 50,000 2,681 72,595, ,001 to 500,000 3, ,869, ,001 and above 386 3,158,030, Note: * LongTerm refers to a period of above 5 years. HONG LEONG PENNY STOCK FUND 1

4 II. FUND PERFORMANCE Chart 1 : Performance of the Fund versus the benchmark covering the last fiveyear financial period Percentage Growth /2/ /2/ /2/ /2/ /2/ /2/2018 From 28/02/2013 To 28/02/2018 Hong Leong Penny Stock Fund (HLPSF) FTSE Bursa Malaysia Emas Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLPSF reinvested. Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 2 HONG LEONG PENNY STOCK FUND

5 Performance Review This Interim Report covers the sixmonth financial period from 1 September 2017 to 28 February The Fund posted a return of 8.17% in the past six months while its benchmark the FTSE Bursa Malaysia Emas Index registered a return of 4.82%. For the fiveyear financial period ended 28 February 2018, the Fund garnered a return of 84.67% compared to the benchmark s return of 18.67% while distributing a total gross income of 6.35 sen per unit. Table 1: Performance of the Fund for the following periods as at 28 February 2018 (Source: Lipper For Investment Management) HLPSF (%) Benchmark (%) 26/04/99 30/11/17 31/08/17 28/02/17 29/02/16 28/02/15 28/02/13 29/02/08 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 28/02/18 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 10 Years Since Launch HONG LEONG PENNY STOCK FUND 3

6 Table 2: Return of the Fund based on NAV Per UnittoNAV Per Unit basis for the period 31 August 2017 to 28 February 2018 (Source: Lipper For Investment Management) 28Feb18 31Aug17 Return (%) NAV Per Unit RM RM Benchmark 13, , Vs Benchmark (%) 3.35 Table 3 : Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 28Feb18 (RM) 31Aug17 (RM) Change (%) Unitholders Capital Retained Earnings Net Asset Value 368,946, ,163, ,109, ,056,107 68,940, ,996, Units in Circulation 3,832,529,215 3,256,674, HONG LEONG PENNY STOCK FUND

7 Table 4: The Highest and Lowest NAV Per Unit, Total Return of the Fund and the breakdown into Capital Growth and Income Distribution for the financial period/ years Financial Period Financial Year Financial Year Financial Year Highest NAV Per Unit (RM) Lowest NAV Per Unit (RM) Capital Growth (%) Income Distribution (%) Total Return (%) 31/08/17 28/02/ /08/16 31/08/ /08/15 31/08/ /08/14 31/08/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLPSF reinvested. Table 5: Average Total Return of the Fund Average Total Return (%) 28/02/17 28/02/18 1 Year /02/15 28/02/18 3 Years /02/13 28/02/18 5 Years Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLPSF reinvested. Table 6: Annual Total Return of the Fund Financial Year 31/08/16 31/08/17 31/08/15 31/08/16 31/08/14 31/08/15 31/08/13 31/08/14 31/08/12 31/08/13 Annual Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLPSF reinvested. HONG LEONG PENNY STOCK FUND 5

8 III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation September 2017 to February 2018 Sep17 Oct17 Nov17 Dec17 Jan18 Feb18 Equities Warrants Collective Investment Schemes Chart 3: Sector Allocation as at 28 February 2018 Technology 6.72% Warrants 0.47% Hotels 0.20% Deposits & Cash Equivalents 8.98% Trading/Services 37.55% Consumer Products 8.39% Industrial Products 12.20% Financials 25.49% 6 HONG LEONG PENNY STOCK FUND

9 Strategies employed during the period under review During the period under review, the Fund accumulated some largecap stocks that were trading at attractive valuations and would benefit from expected foreign inflows. The Fund maintained its exposure in exportoriented stocks that may benefit from improving external demand outlook. The Fund also increased its exposure to selected consumer and construction stocks that may benefit from preelection pumppriming activities. We maintain our positive view on Malaysia equities outlook as earnings expectations appear to be improving and the market is a laggard compared to its regional and global peers. As of 28 February 2018, the Fund s topthree holdings are Public Bank Berhad (8.57%), Tenaga Nasional Berhad (7.15%) and Top Glove Corporation Berhad (6.99%). For the financial period under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager s report. HONG LEONG PENNY STOCK FUND 7

10 IV. MARKET REVIEW During the period under review, the MSCI AC Asia Pacific ex Japan Index rose 8.5%. The best performing markets were Thailand and Indonesia while the laggards were China and Taiwan. In the local market, the FTSE Bursa Malaysia KLCI rose 4.7%. Small caps underperformed as the FTSE Bursa Malaysia Small Cap Index declined 0.2%. In the third quarter of 2017, China led the rally in regional equities as market sentiment was buoyed by strong economic data and announcement by the People s Bank of China (PBoC) with regards to targeted reserve requirement ratio (RRR) cut for banks. Market sentiment was also lifted by President Trump s tax proposal which included cuts in corporate and small business income taxes. Geopolitical tensions in North Korea caused some drag to market performance. In response to North Korea s repeated weapon tests, China ordered North Korean companies in China to shut down while US expanded sanction over North Korea, including excluding it from international banking system. The strong upward momentum in markets extended to the fourth quarter of Market sentiment was predominantly supported by strong Euro economic growth data and approval of the US tax reform bill by the House of Representatives. Commodities also posted solid performance as due to strong global economic data, extension of the current Organization of the Petroleum Exporting Countries (OPEC) and nonopec deal to limit production and prolonged drawdown in the US crude inventories. The Malaysia market was trading sideways in a tight range for most of the second half of 2017 due to lack of catalysts. The Budget 2018 failed to lift market sentiments despite the rise in crude oil prices and Ringgit. The lacklustre results season also capped upside to the market. The FTSE BM KLCI did rise to a new high in December on the back of window dressing activities. The return of foreign investors and rising commodity prices also helped boost market sentiment at the end of the year. 8 HONG LEONG PENNY STOCK FUND

11 V. FUTURE PROSPECTS AND PROPOSED STRATEGIES The global macro outlook appears very encouraging. Economic data in the US shows that the economy is on solid footing and is expected to continue to grow at a healthy pace in We expect corporate earnings in the US to continue to grow on the back of strong economic growth and implementation of the new US tax law reforms. The pace of economic growth in Europe is also accelerating. Unemployment rate continues to fall to new multiyear lows while the Purchasing Managers Index (PMI) readings imply robust manufacturing activity in the region. For the local market, we expect the main index to trade sideways. We expect the strong economic numbers, improving global demand growth and rising commodity prices to attract more foreign investor inflows into the local market. However, we expect the uncertainties over the coming general election, rising cost pressures for businesses and tepid corporate earnings growth to contribute to more volatility in the local market. We would take the opportunity to accumulate stocks that we like in the event of a market correction. We are positive on wellmanaged companies that will benefit from possible government pump priming such as those in the construction and consumer sectors. We continue to be invested in selected largecap stocks that are trading at attractive valuations and selected export stocks that will benefit from improving external demand outlook. VI. SOFT COMMISSIONS The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders. HONG LEONG PENNY STOCK FUND 9

12 STATEMENT BY THE MANAGER I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the accompanying unaudited condensed financial statements set out on pages 12 to 41 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 28 February 2018 and of its financial performance, changes in equity and cash flows for the financial period ended 28 February 2018 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) 134 Interim Financial Reporting and International Financial Reporting Standards ( IFRS ) 34 Interim Financial Reporting. For and on behalf of the Manager, Hong Leong Asset Management Bhd (Company No.: M) HOO SEE KHENG Chief Executive Officer/Executive Director Kuala Lumpur 16 April HONG LEONG PENNY STOCK FUND

13 TRUSTEE S REPORT TO THE UNITHOLDERS OF HONG LEONG PENNY STOCK FUND We have acted as the Trustee for Hong Leong Penny Stock Fund ( the Fund ) for the financial period ended 28 February To the best of our knowledge, for the financial period under review, Hong Leong Asset Management Bhd ( the Manager ) has operated and managed the Fund in accordance with the following: (a) limitations imposed on the investment powers of the Manager under the Deed(s), the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) valuation and pricing for the Fund has been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements; and (c) creation and cancellation of units for the Fund have been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 16 April 2018 HONG LEONG PENNY STOCK FUND 11

14 CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY Note RM RM INVESTMENT INCOME Interest income 4 477, ,851 Dividend income 5,176,804 1,454,259 Net gain on financial assets at fair value through profit or loss ( FVTPL ) 10 34,429,707 5,701,045 Management fee rebate 5 13,496 40,097,362 7,657,155 EXPENDITURE Management fee 5 (3,124,701) (1,392,126) Trustee s fee 6 (145,819) (64,966) Auditors remuneration (3,868) (3,868) Tax agent s fee (1,285) (2,850) Transaction costs (2,236,583) (735,588) Other expenses (362,197) (173,240) (5,874,453) (2,372,638) PROFIT BEFORE TAXATION 34,222,909 5,284,517 Taxation 7 PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 34,222,909 5,284,517 Profit after taxation is made up as follows: Realised amount 20,532,539 3,351,263 Unrealised amount 13,690,370 1,933,254 34,222,909 5,284,517 Distributions for the financial period: Net distributions 8 27,840,197 Net distributions per unit (sen) Gross distributions per unit (sen) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 12 HONG LEONG PENNY STOCK FUND

15 CONDENSED STATEMENT OF FINANCIAL POSITION (Unaudited) AS AT 28 FEBRUARY Note RM RM ASSETS Cash and cash equivalents 9 44,386,870 33,052,440 Financial assets at fair value through profit or loss ( FVTPL ) ,712, ,012,013 Amount due from brokers/dealers 2,120,140 11,275,615 Amount due from the Managercreation of units 3,498,123 4,718,605 Amount due from the Managermanagement fee rebate 2,752 Dividends receivable 400, ,133 TOTAL ASSETS 480,120, ,471,806 LIABILITIES Amount due to brokers/dealers 7,347,407 3,764,138 Amount due to the Managermanagement fee 524, ,571 Amount due to the Trustee 24,478 21,213 Amount due to the Managerexpenses 9,817 Distribution payable 71, ,142 Other payables and accruals 42,718 42,645 TOTAL LIABILITIES 8,010,375 4,475,526 NET ASSET VALUE OF THE FUND 472,109, ,996,280 EQUITY Unitholders capital 368,946, ,056,107 Retained earnings 103,163,082 68,940,173 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 472,109, ,996,280 UNITS IN CIRCULATION (UNITS) 11 3,832,529,215 3,256,674,375 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG PENNY STOCK FUND 13

16 CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY 2018 Unitholders Retained capital earnings Total Note RM RM RM Balance as at 1 September ,056,107 68,940, ,996,280 Movement in net asset value: Creation of units from applications 104,452, ,452,759 Cancellation of units (37,561,995) (37,561,995) Total comprehensive income for the financial period 34,222,909 34,222,909 Balance as at 28 February ,946, ,163, ,109,953 Balance as at 1 September ,805,117 90,849, ,654,600 Movement in net asset value: Creation of units from applications 55,211,203 55,211,203 Creation of units from distribution 26,918,296 26,918,296 Cancellation of units (7,821,920) (7,821,920) Total comprehensive income for the financial period 5,284,517 5,284,517 Distributions for the financial period 8 (27,840,197) (27,840,197) Balance as at 28 February ,112,696 68,293, ,406,499 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 14 HONG LEONG PENNY STOCK FUND

17 CONDENSED STATEMENT OF CASH FLOWS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL 389,813,071 94,725,193 Purchase of financial assets at FVTPL (448,046,843) (133,624,482) Interest received 477, ,851 Dividends received 4,655,147 1,747,309 Management fee rebate received 10,744 Management fee paid (3,054,747) (1,362,863) Trustee s fee paid (142,554) (63,600) Payment for other fees and expenses (377,094) (180,181) Net cash used in operating activities (56,664,921) (38,256,773) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 105,673,241 52,840,116 Payments for cancellation of units (37,561,995) (7,821,920) Distributions paid (111,895) (498,041) Net cash generated from financing activities 67,999,351 44,520,155 NET INCREASE IN CASH AND CASH EQUIVALENTS 11,334,430 6,263,382 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 33,052,440 32,659,432 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 44,386,870 38,922,814 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG PENNY STOCK FUND 15

18 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 SEPTEMBER 2017 TO 28 FEBRUARY THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Hong Leong Penny Stock Fund ( the Fund ) was constituted pursuant to the execution of a Deed dated 12 March 1999 and Supplemental Deeds dated 18 December 2000, 2 June 2009 and 30 April 2010 between the Manager, Hong Leong Asset Management Bhd, AmTrustee Berhad and the registered unitholders of the Fund. AmTrustee Berhad has been replaced with Deutsche Trustees Malaysia Berhad ( the Trustee ) effective 1 September 2012 and Supplemental Master Deeds were entered into between the Manager, the Trustee and the registered unitholders of the Fund on 27 July 2012 and 25 March 2015 to effect the change ( the Deeds ). The Fund aims to achieve large percentage gains by investing in wellmanaged and financially stable companies which stocks are selling at prices close to or at deep discounts to their net tangible asset values. The Fund will invest with a value investment strategy across equity securities of all market capitalisation levels of companies operating in Malaysia. Generally, companies that have valuations at a discount to the market and/or its sector peers are selected. The Fund may also invest in stocks with market capitalisation of up to RM1 billion that are not wellcovered by equity research houses and stockbrokers. The Fund commenced operations on 26 April 1999 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements were authorised for issue by the Manager on 16 April HONG LEONG PENNY STOCK FUND

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The condensed financial statements are unaudited and have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) 134 Interim Financial Reporting and International Financial Reporting Standards ( IFRS ) 34 Interim Financial Reporting. The condensed financial statements should be read in conjuction with the audited financial statements of the Fund for the financial year ended 31 August 2017 which have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). (b) Financial assets and financial liabilities Classification Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis. The Fund designates its investments in quoted equity securities and quoted warrants as financial assets at fair value through profit or loss at inception. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from brokers/dealers, amount due from the Managercreation of units, amount due from the Managermanagement fee rebate and dividends receivable. HONG LEONG PENNY STOCK FUND 17

20 Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to brokers/ dealers, amount due to the Managermanagement fee, amount due to the Trustee, amount due to the Managerexpenses, distribution payable and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the tradedate the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the period which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of dividend income when the Fund s right to receive payments is established. 18 HONG LEONG PENNY STOCK FUND

21 Quoted investments are valued at the last done market prices quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the quoted investments, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits, which is a close estimate of their fair value due to the short term nature of the deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not HONG LEONG PENNY STOCK FUND 19

22 been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. (d) Income recognition Dividend income is recognised on the exdividend date when the Fund s right to receive payment is established. Interest income from deposits with licensed financial institutions is recognised on the effective interest method on an accrual basis. 20 HONG LEONG PENNY STOCK FUND

23 Realised gain or loss on disposal of quoted investments is accounted for as the difference between the net disposal proceeds and the carrying amount of quoted investments, determined on a weighted average cost basis. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Amount due from/to brokers/dealers Amount due from/to brokers/dealers represents receivables/ payables for investments sold/purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from brokers/dealers. A provision for impairment of amount due from a broker/dealer is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker/dealer. Significant financial difficulties of the broker/dealer, probability that the broker/dealer will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers/dealers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. HONG LEONG PENNY STOCK FUND 21

24 (g) Taxation Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial period. (h) Distributions A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial period in which it is approved by the Board of Directors of the Manager. (i) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors and brokers/ dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (j) Unitholders capital The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the unitholder to a proportionate share of the Fund s net asset value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units; and the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund. 22 HONG LEONG PENNY STOCK FUND

25 The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. (k) Segmental information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decisionmaker. The chief operating decisionmaker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. (l) Fair value of financial instruments Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. The Fund s financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on the respective classification. HONG LEONG PENNY STOCK FUND 23

26 The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date: Loans and receivables/ Financial other assets financial at FVTPL liabilities Total RM RM RM Financial assets Cash and cash equivalents (Note 9) 44,386,870 44,386,870 Financial assets at FVTPL (Note 10) 429,712, ,712,010 Amount due from brokers/dealers 2,120,140 2,120,140 Amount due from the Manager creation of units 3,498,123 3,498,123 Amount due from the Manager management fee rebate 2,752 2,752 Dividends receivable 400, , ,712,010 50,408, ,120,328 Financial liabilities Amount due to brokers/dealers 7,347,407 7,347,407 Amount due to the Manager management fee 524, ,525 Amount due to the Trustee 24,478 24,478 Distribution payable 71,247 71,247 Other payables and accruals 42,718 42,718 8,010,375 8,010, HONG LEONG PENNY STOCK FUND

27 Loans and receivables/ Financial other assets financial at FVTPL liabilities Total RM RM RM Financial assets Cash and cash equivalents (Note 9) 33,052,440 33,052,440 Financial assets at FVTPL (Note 10) 326,012, ,012,013 Amount due from brokers/dealers 11,275,615 11,275,615 Amount due from the Manager creation of units 4,718,605 4,718,605 Dividends receivable 413, , ,012,013 49,459, ,471,806 Financial liabilities Amount due to brokers/dealers 3,764,138 3,764,138 Amount due to the Manager management fee 454, ,571 Amount due to the Trustee 21,213 21,213 Amount due to the Managerexpenses 9,817 9,817 Distribution payable 183, ,142 Other payables and accruals 42,645 42,645 4,475,526 4,475,526 All liabilities are financial liabilities which are carried at amortised cost. (m) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. HONG LEONG PENNY STOCK FUND 25

28 In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission Malaysia s Guidelines on Unit Trust Funds. However, the Manager is of the opinion that there are no accounting policies which require significant judgment to be exercised. 3. FAIR VALUE ESTIMATION The fair value of financial assets traded in active markets (such as trading securities) are based on quoted market prices at the close of trading on the reporting date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bidask spread. In circumstances where the last traded price is not within the bidask spread, the Manager will determine the point within the bidask spread that is most representative of the fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly availabe from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occuring market transactions on an arm s length basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each period end date. Valuation techniques used for nonstandardised financial instruments such as options, currency swaps and other overthecounter derivatives, include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entityspecific inputs. For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation 26 HONG LEONG PENNY STOCK FUND

29 methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which market were or have been inactive during the financial period. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counter party risk. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1); Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirely is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirely. For this purpose, the significance of an input is assessed against the fair value measurement in its entirely. If a fair value measurement uses observable inputs that requires significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of HONG LEONG PENNY STOCK FUND 27

30 a particular input to the fair value measurement in its entirely requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The following table analyses within the fair value hierarchy of the Fund s financial assets (by class) measured at fair value: Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at FVTPL: Quoted equity securities 427,476, ,476,110 Quoted warrants 2,235,900 2,235, ,712, ,712, Financial assets at FVTPL: Quoted equity securities 326,012, ,012,013 Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities and listed warrants. The Fund does not adjust the quoted prices for these instruments. The Fund s policies on valuation of these financial assets are stated in Note 2(b). (ii) The carrying values of financial assets (other than financial assets at FVTPL) and financial liabilities are a reasonable approximation of their fair values due to their short term nature. 28 HONG LEONG PENNY STOCK FUND

31 4. INTEREST INCOME RM RM Interest income from: Deposits with licensed financial institutions 477, , MANAGEMENT FEE In accordance with Division 13.1 of the Deed, the Manager is entitled to a management fee of up to 1.50% per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 September 2017 to 28 February 2018, the management fee is recognised at a rate of 1.50% ( to : 1.50%) per annum. Management fee rebate relates to the rebate received from the Manager for investing in Hong Leong Money Market Fund. The rebate was 0.20% per annum and revised to 0.23% per annum effective 1 February The rebate was calculated on the net asset value of Hong Leong Money Market Fund on a daily basis. There will be no further liability to the Manager in respect of management fee other than the amount recognised above. 6. TRUSTEE S FEE In accordance with Division 13.2 of the Deed, the Trustee is entitled to a fee not exceeding 0.08% per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 September 2017 to 28 February 2018, the trustee s fee is recognised at a rate of 0.07% ( to : 0.07%) per annum. There will be no further liability to the Trustee in respect of trustee s fee other than the amount recognised above. HONG LEONG PENNY STOCK FUND 29

32 7. TAXATION RM RM Tax charge for the financial period: Current taxation The numerical reconciliation between profit before taxation multiplied by the Malaysian statutory income tax rate and tax expense of the Fund is as follows: RM RM Profit before taxation 34,222,909 5,284,517 Taxation at Malaysian statutory rate of 24% (2017: 24%) 8,213,498 1,268,284 Tax effects of: Investment income not subject to tax (9,620,128) (1,837,717) Expenses not deductible for tax purposes 605, ,015 Restriction on tax deductible expenses for unit trust fund 801, ,418 Taxation 8. DISTRIBUTIONS RM RM Prior financial years realised income 27,840,197 Net distributions amount 27,840,197 Net distributions per unit (sen) Gross distributions per unit (sen) Date of Declaration Distribution on 20 September Net distribution per unit (sen) Gross distribution per unit (sen) Distribution on 18 January Net distribution per unit (sen) Gross distribution per unit (sen) HONG LEONG PENNY STOCK FUND

33 Net distributions above are sourced from prior financial years realised income. Gross distributions are derived using total income less total expenses. Gross distribution per unit is derived from net realised income less expenses divided by units in circulation, while net distribution per unit is derived from net realised income less expenses and taxation divided by units in circulation. 9. CASH AND CASH EQUIVALENTS RM RM Deposits with licensed financial institutions 44,294,913 32,848,461 Cash at banks 91, ,979 44,386,870 33,052,440 The weighted average effective interest rates per annum are as follows: % % Deposits with licensed financial institutions Deposits with licensed financial institutions have an average maturity of 1 day ( : 5 days). 10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS ( FVTPL ) RM RM Financial assets at FVTPL: Quoted equity securities 427,476, ,012,013 Quoted warrants 2,235, ,712, ,012, RM RM Net gain on financial assets at FVTPL: Realised gain on disposals 20,739,337 3,767,791 Changes in unrealised fair values 13,690,370 1,933,254 34,429,707 5,701,045 HONG LEONG PENNY STOCK FUND 31

34 Financial assets at FVTPL as at 28 February 2018 are as detailed below: QUOTED EQUITY SECURITIES Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % Main Market Consumer Products Formosa Prosonic Industries Berhad 5,453,700 6,823,627 9,925, Fraser & Neave Holdings Bhd 915,000 25,965,146 27,999, IQ Group Holdings Berhad 1,111,300 4,131,653 1,700, ,480,000 36,920,426 39,625, Finance Bursa Malaysia Berhad 2,164,500 21,796,874 24,458, Hong Leong Financial Group Berhad 1,249,600 23,254,483 23,867, Malayan Banking Berhad 3,016,000 29,793,517 31,547, Public Bank Berhad 1,760,000 35,951,173 40,480, RHB Capital Berhad* 1,400,000 9,590, ,796, ,353, Hotels ShangriLa Hotels (Malaysia) Berhad 188,600 1,364, , Industrial Products SKP Resources Bhd 12,950,000 21,036,145 24,605, Top Glove Corporation Bhd 3,400,000 22,725,949 33,014, ,350,000 43,762,094 57,619, Technology Globetronics Technology Bhd 3,900,000 25,552,610 24,180, Willowglen MSC Berhad 6,400,000 8,845,385 7,552, ,300,000 34,397,995 31,732, Trading/Services Dialog Group Berhad 5,300,000 10,333,520 14,045, Genting Malaysia Berhad 4,700,000 24,432,390 24,769, IHH Healthcare Berhad 3,500,000 21,445,140 20,685, Luxchem Corporation Berhad 10,100,000 7,229,491 7,575, Malaysia Airports Holdings Berhad 2,750,000 25,101,525 23,925, MY E.G. Services Berhad 11,000,000 23,170,300 29,590, Taliworks Corporation Berhad 3,146,900 4,969,727 2,863, Tenaga Nasional Berhad 2,150,500 31,751,030 33,762, UMW Oil & Gas Corporation Berhad 62,521,400 18,848,646 20,006, ,168, ,281, ,222, HONG LEONG PENNY STOCK FUND

35 Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % TOTAL QUOTED EQUITY SECURITIES 149,077, ,522, ,476, QUOTED WARRANTS Main Market Properties Sunway Berhad Warrants 2017/ ,000 30, Trading/Services UMW Oil & Gas Corporation Berhad Warrants 2017/ ,700,000 2,205, TOTAL QUOTED WARRANTS 14,760,000 2,235, TOTAL INVESTMENTS 163,837, ,522, ,712, UNREALISED GAIN ON FINANCIAL ASSETS AT FVTPL 35,189,552 TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL 429,712,010 HONG LEONG PENNY STOCK FUND 33

36 Financial assets at FVTPL as at 31 August 2017 are as detailed below: QUOTED EQUITY SECURITIES Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % Main Market Construction Ahmad Zaki Resources Berhad 726, , , Gabungan AQRS Berhad 3,700,000 5,287,470 6,290, Gamuda Berhad 2,970,000 15,295,272 15,859, WCT Holdings Berhad 2,997,775 5,810,097 5,246, ,393,775 27,104,319 28,216, Consumer Products Carlsberg Brewery Malaysia Berhad 372,000 5,422,238 5,513, Formosa Prosonic Industries Berhad 4,003,700 4,946,797 4,964, IQ Group Holdings Berhad 311,300 1,256,594 1,266, Padini Holdings Berhad 2,300,000 4,857,240 9,545, ,987,000 16,482,869 21,289, Finance AFFIN Holdings Berhad 1,690,000 4,786,618 4,309, AMMB Holdings Berhad 2,040,000 9,376,757 8,731, BIMB Holdings Berhad 1,720,000 7,602,868 7,568, Bursa Malaysia Berhad 1,464,500 14,155,254 14,879, Public Bank Berhad 1,110,000 22,426,533 22,866, RHB Bank Berhad* 1,826,000 8,101,132 9,221, RHB Capital Berhad* 1,400,000 11,250,500 66,449,162 67,575, Hotels ShangriLa Hotels (Malaysia) Berhad 355,000 2,567,683 1,877, Industrial Products HeveaBoard Berhad 4,150,000 6,539,010 6,930, Hibiscus Petroleum Berhad 14,500,000 6,378,700 6,090, LCTH Corporation Berhad 6,327,000 4,251,452 3,005, Mieco Chipboard Berhad 1,500,000 1,423,050 1,515, Press Metal Aluminium Holdings Berhad (formerly known as Press Metal Berhad) 2,800,000 7,756,200 10,052, Serba Dinamik Holdings Berhad 2,000,000 4,245,600 4,200, SKP Resources Bhd 6,600,000 8,954,240 9,768, ,877,000 39,548,252 41,560, HONG LEONG PENNY STOCK FUND

37 Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % QUOTED EQUITY SECURITIES Infrastructure Project Company Digi.Com Berhad 735,000 3,470,156 3,557, TIME dotcom Berhad 1,145,300 7,189,035 11,338, ,880,300 10,659,191 14,895, Properties Malaysian Resources Corporation Berhad 6,300,000 9,332,520 7,560, Malton Berhad 2,200,000 3,004,265 2,244, S P Setia Berhad 1,625,151 5,582,908 5,460, Sunway Berhad 2,200,000 7,345,630 9,548, UOA Development Bhd 2,540,000 6,570,974 6,604, ,865,151 31,836,297 31,416, Technology Notion VTec Berhad 5,200,000 6,352,297 5,408, Unisem (M) Berhad 3,650,000 9,042,576 14,965, Willowglen MSC Berhad 6,400,000 8,845,385 9,088, ,250,000 24,240,258 29,461, Trading/Services Dayang Enterprise Holdings Bhd 2,068,000 2,101,088 1,902, Dialog Group Berhad 5,300,000 10,333,520 10,865, Frontken Corporation Berhad 4,000,000 1,322,000 1,400, Genting Berhad 617,800 5,112,775 5,998, HaiO Enterprise Berhad 1,870,000 4,919,152 8,171, Lotte Chemical Titan Holding Berhad 3,267,500 17,802,270 16,631, Luxchem Corporation Berhad 3,400,000 7,301,070 7,344, Taliworks Corporation Berhad 3,146,900 4,969,727 4,468, Telekom Malaysia Berhad 2,516,800 15,788,932 16,183, Tenaga Nasional Berhad 850,500 12,176,226 12,145, ,037,500 81,826,760 85,110, ACE Market Technology JHM Consolidation Berhad 1,440,000 3,798,040 4,608, HONG LEONG PENNY STOCK FUND 35

38 Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % TOTAL QUOTED EQUITY SECURITIES 127,336, ,512, ,012, TOTAL INVESTMENTS 127,336, ,512, ,012, UNREALISED GAIN ON FINANCIAL ASSETS AT FVTPL 21,499,182 TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL 326,012,013 * On 2 June 2016, distribution of the entire shareholdings of RHB Capital Berhad ( RHB Capital ) in RHB Bank Berhad ( RHB Bank ) by way of distributioninspecie via a reduction of the entire share premium account of RHB Capital and the par value of all existing ordinary shares of RM1.00 each in RHB Capital from RM1.00 to RM0.05. The distribution and repayment will entail the shareholders on the basis of 1.3 RHB Bank shares for every (1) RHB Capital shares held as at the entitlement date. In addition, shareholders will continue to hold shares of RM0.05 each in RHB Capital, in the proportion of shareholdings as at the entitlement date until the completion of the winding up. 11. UNITS IN CIRCULATION to to No. of units No. of units At the beginning of the financial period/year 3,256,674,375 1,278,365,161 Add: Creation of units during the financial period/year Arising from applications 878,475,100 1,629,697,370 Arising from distributions 475,668,098 Less: Cancellation of units during the financial period/year (302,620,260) (127,056,254) At the end of the financial period/year 3,832,529,215 3,256,674, HONG LEONG PENNY STOCK FUND