Hong Leong Asia-Pacific Dividend Fund

Transcription

1 Reaching out to you Hong Leong Asia-Pacific Dividend Fund Interim Report 2017/ April 2018 Unaudited

2 Hong Leong Asia-Pacific Dividend Fund Contents Page Manager s Review and Report 1-10 Statement by the Manager 11 Trustee s Report 12 Condensed Statement of Comprehensive Income 13 Condensed Statement of Financial Position 14 Condensed Statement of Changes In Equity 15 Condensed Statement of Cash Flows 16 Notes To The Condensed Financial Statements Performance Data Corporate Information 52 Corporate Directory 53 HONG LEONG ASIA-PACIFIC DIVIDEND FUND 1

3 Manager s Review and Report I. FUND INFORMATION Fund Name Hong Leong Asia-Pacific Dividend Fund Fund Category Equity Fund Type Growth & Income Investment Objective The Fund aims to provide investors with steady recurring income* that is potentially higher than the average fixed deposit rates. At the same time, the Fund also attempts to attain Medium-To-Long Term** capital gains from investing in high quality dividend yielding equities***. Benchmark MSCI AC Asia-Pacific ex Japan Index Distribution Policy The Fund intends to provide regular income* and potentially consistent Long-Term**** capital appreciation. Regular income returns will be declared annually on a best effort basis, depending on interest rates, market conditions and performance of the Fund. As such, the Fund will strive to declare distributions annually, if any, in the form of either cash or additional Units to the Unitholders. Breakdown of Unitholdings By Size Size of Holdings No. of Accounts No. of Units Held 5,000 and below 29 85, ,001 to 10, , ,001 to 50, ,741, ,001 to 500, ,186, ,001 and above 16 65,489, Notes: * Income may be distributed in the form of cash and/or Units. ** Medium-To-Long Term refers to a period of 3 to 5 years. *** High quality dividend yielding equities refer to equity securities that have dividend yields at and/or above market average. **** Long-Term refers to a period of above 5 years. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 1

4 II. FUND PERFORMANCE Chart 1: Performance of the Fund versus the benchmark covering the last five-year financial period Percentage Growth Apr Apr Apr Apr Apr Apr-2018 From 30/04/2013 To 30/04/2018 Hong Leong Asia-Pacific Dividend Fund (HLAPDF) MSCI AC Asia Pacific ex Japan Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF 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 ASIA-PACIFIC DIVIDEND FUND

5 Performance Review This Interim Report covers the six-month financial period from 1 November 2017 to 30 April The Fund slid 1.88% in the past six months while its benchmark the MSCI AC Asia Pacific ex Japan Index declined 4.30% (in Malaysian Ringgit terms). During the financial period under review, the Fund had distributed income distribution of 0.50 sen per unit to its Unitholders on 17 January Prior to the income distribution, the cum-distribution net asset value (NAV) per unit of the Fund was RM while the ex-distribution NAV per unit after the distribution was RM Unitholders should note that income distribution has the effect of reducing the NAV per unit of the Fund after distribution. For the five-year financial period ended 30 April 2018, the Fund posted a return of 19.43% compared to the benchmark s return of 51.56% while distributing a total gross income of 2.00 sen per unit. Table 1: Performance of the Fund for the following periods as at 30 April 2018 (Source: Lipper For Investment Management) 31/01/18 30/04/18 3 Months HLAPDF (%) Benchmark (%) /10/17 30/04/17 30/04/16 30/04/15 30/04/13 30/04/08 28/02/06 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 Since 6 Months Year Years Years Years Years Launch HONG LEONG ASIA-PACIFIC DIVIDEND FUND 3

6 Table 2: Return of the Fund based on NAV Per Unit-to-NAV Per Unit basis for the period 31 October 2017 to 30 April 2018 (Source: Lipper For Investment Management) NAV Per Unit Benchmark vs Benchmark (%) 30-Apr-18 RM Oct-17 RM Return (%) -1.88# # Return is calculated after adjusting for income distribution of 0.50 sen per unit on 17/01/2018. Table 3: Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 30-Apr-18 (RM) 31-Oct-17 (RM) Change (%) Unitholders Capital Retained Earnings Net Asset Value 27,790,812 4,721,020 32,511,832 19,945,514 5,533,655 25,479, Units in Circulation 71,664,898 54,528, 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 Highest NAV Per Unit (RM) Lowest NAV Per Unit (RM) Capital Growth (%) Income Distribution (%) Total Return (%) Financial Period 31/10/17 30/04/ Financial Year 31/10/16 31/10/ Financial Year 31/10/15 31/10/ Financial Year 31/10/14 31/10/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. 4 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

7 Table 5: Average Total Return of the Fund Average Total Return (%) 30/04/17 30/04/18 1 Year /04/15 30/04/18 3 Years /04/13 30/04/18 5 Years 3.89 Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. Table 6: Annual Total Return of the Fund Financial Year 31/10/16 31/10/17 31/10/15 31/10/16 31/10/14 31/10/15 31/10/13 31/10/14 31/10/12 31/10/13 Annual Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation - November 2017 to April 2018 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Equities Warrants HONG LEONG ASIA-PACIFIC DIVIDEND FUND 5

8 Chart 3: Sector Allocation as at 30 April 2018 Properties 3.87% Technology 2.06% Real Estate 3.47% Construction 5.72% Warrants 0.03% Consumer Products 11.84% Deposits & Cash Equivalents 15.71% Trading/Services 13.55% Financials 25.96% Industrial Products 17.79% Chart 4: Geographical Allocation as at 30 April 2018 Thailand 2.14% Deposits & Cash Equivalents 15.71% Malaysia 49.54% Hong Kong 32.61% 6 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

9 Strategies employed during the period under review During the financial period under review, the Fund took some profit for selected Hong Kong/China stocks. The Fund increased its exposure in ASEAN region, in particular Malaysia. ASEAN has been a laggard and valuations look relatively attractive. The Fund still maintains a sizeable exposure to stocks that will benefit from rising domestic demand in the Asia region. On a country basis, the Fund is predominantly invested in selected stocks in Malaysia, Hong Kong and Thailand. The Fund remains invested in stocks with high quality earnings visibility, positive business outlook and helmed by reliable and capable management. As of 30 April 2018, the Fund s top-three holdings are Public Bank BerhadMalaysia (5.12%), Malayan Banking BerhadMalaysia (4.97%) and PETRONAS Chemicals Group BerhadMalaysia (4.94%). Please be informed that the Goods and Services Tax (GST) on all fees and charges incurred by our products and services will be zero-rated effective 1 June 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 ASIA-PACIFIC DIVIDEND FUND 7

10 IV. MARKET REVIEW During the period under review, the MSCI AC Asia Pacific ex Japan Index declined 4.3% (in Malaysian Ringgit terms). The best performing markets were Hong Kong and Singapore while the laggards were China and Philippines. In the local market, the FTSE Bursa Malaysia KLCI rose 7.0%. Small caps underperformed as the FTSE Bursa Malaysia Small Cap Index declined 16.4%. The fourth quarter of 2017 saw markets finish the year on a high note. 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 non-opec deal to limit production and prolonged drawdown in the US crude inventories. After a very smooth year for equity markets in 2017, volatility reared its ugly head in the first quarter of The sell-off was initially sparked by investors worries about faster than inflation and fasterthan-expected rise in interest rates. Just as markets appeared to have stabilised, another wave of sell-off was triggered by fears of a trade war between US and China. 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 Malaysian 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. The Malaysia market got off to what appeared to be a two-speed trend as the large-cap stocks continued to trend higher while small-cap stocks experienced intense selling pressure during the first quarter of Financials led the main index higher on the back of Bank Negara s rate hike in January Foreign inflows into big-cap stocks carried the index higher as foreign investors confidence rose on the back of higher oil prices and strengthening Malaysian Ringgit. 8 HONG LEONG ASIA-PACIFIC DIVIDEND 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 multi-year 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 continue to be well invested in equities with preference for stocks that will benefit from the rising external demand outlook and corporates with healthy earnings growth. We are actively looking for companies that have good cash flow, earnings visibility and pricing power. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 9

12 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. 10 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

13 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 13 to 49 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 30 April 2018 and of its financial performance, changes in equity and cash flows for the financial period ended 30 April 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 19 June 2018 HONG LEONG ASIA-PACIFIC DIVIDEND FUND 11

14 STATEMENT TRUSTEE S REPORT BY THE MANAGER TO THE UNITHOLDERS OF HONG LEONG ASIA-PACIFIC DIVIDEND FUND We have I, Hoo acted See Kheng, as the Trustee as the Director for Hong of Leong Hong Asia-Pacific Leong Asset Dividend Management Fund ( the Bhd, Fund ) do for hereby the financial state that, period in ended the opinion 30 April of the Manager, To the best the of our knowledge, accompanying for unaudited the financial condensed period under financial review, statements Hong Leong set out Asset on Management pages 12 to Bhd 43 ( the are drawn Manager ) up in has accordance operated with and the managed provision the of Fund the Deeds and give a true and fair view of the financial position of the in accordance with the following: - Fund as at 28 February 2017 and of its financial performance, changes in equity and cash flows for the financial period ended 28 February (a) limitations imposed on the investment powers of the Manager under 2017 in accordance with the Malaysian Financial Reporting Standards the Deed(s), the Securities Commission s Guidelines on Unit Trust Funds, ( MFRS ) 134 Interim Financial Reporting and International Financial the Capital Markets and Services Act 2007 and other applicable laws; Reporting Standards ( IFRS ) 34 Interim Financial Reporting. (b) valuation and pricing for the Fund is carried out in accordance with For and on behalf of the Manager, the Deed(s) of the Fund and applicable regulatory requirements; and Hong Leong Asset Management Bhd (Company No.: M) (c) creation and cancellation of units for the Fund are carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements. We are of the view that the distribution made during the financial period HOO SEE KHENG ended Chief 30 Executive April 2018 Officer/Executive by the Manager is Director not inconsistent with the objectives of the Fund. Kuala Lumpur 17 April 2017 For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 19 June HONG LEONG ASIA-PACIFIC DIVIDEND FUND

15 CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL Note RM RM INVESTMENT (LOSS)/INCOME Interest income 4 18,869 24,158 Dividend income 162, ,854 Net (loss)/gain on financial assets at fair value through profit or loss ( FVTPL ) 10 (875,053) 2,506,646 Net gain on derivatives ,890 42,831 Net foreign currency exchange loss (206,536) (17,272) (29,326) 2,711,217 EXPENDITURE Management fee 5 (217,666) (164,631) Trustee s fee 6 (10,166) (7,683) Auditors remuneration (4,364) (4,364) Tax agent s fee (1,300) (3,783) Custodian fee (10,085) (10,846) Transaction costs (210,011) (175,111) Other expenses (33,170) (39,382) (486,762) (405,800) (LOSS)/PROFIT BEFORE TAXATION (516,088) 2,305,417 Taxation 7 (1,620) (985) (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL PERIOD (517,708) 2,304,432 (Loss)/profit after taxation is made up as follows: Realised amount (707,779) 759,381 Unrealised amount 190,071 1,545,051 (517,708) 2,304,432 Distribution for the financial period: Net distribution 8 294,927 - Net distribution per unit (sen) Gross distribution per unit (sen) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 13

16 CONDENSED STATEMENT OF FINANCIAL POSITION (Unaudited) AS AT 30 APRIL Note RM RM ASSETS Cash and cash equivalents 9 5,638,593 3,033,869 Financial assets at fair value through profit or loss ( FVTPL ) 10 27,403,571 20,978,911 Amount due from brokers/dealers 781, ,655 Amount due from the Manager-creation of units - 1,208,424 Dividends receivable 16,486 36,330 TOTAL ASSETS 33,839,739 26,055,189 LIABILITIES Amount due to brokers/dealers 1,182, ,928 Amount due to the Manager-cancellation of units 39,734 3,354 Amount due to the Manager-management fee 39,950 30,923 Amount due to the Trustee 1,865 2,360 Derivatives 11 47,431 35,061 Amount due to the Manager-expenses Distribution payable Other payables and accruals 15,890 23,394 TOTAL LIABILITIES 1,327, ,020 NET ASSET VALUE OF THE FUND 32,511,832 25,479,169 EQUITY Unitholders capital 27,790,812 19,945,514 Retained earnings 4,721,020 5,533,655 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 32,511,832 25,479,169 UNITS IN CIRCULATION (UNITS) 12 71,664,898 54,528,795 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 14 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

17 CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL 2018 Unitholders Retained capital earnings Total Note RM RM RM Balance as at 1 November ,945,514 5,533,655 25,479,169 Movement in net asset value: Creation of units from applications 10,687,705-10,687,705 Creation of units from distribution 115, ,329 Cancellation of units (2,957,736) - (2,957,736) Total comprehensive loss for the financial period - (517,708) (517,708) Distribution for the financial period 8 - (294,927) (294,927) Balance as at 30 April ,790,812 4,721,020 32,511,832 Balance as at 1 November ,046,536 1,381,656 18,428,192 Movement in net asset value: Creation of units from applications 10,391,701-10,391,701 Cancellation of units (2,947,976) - (2,947,976) Total comprehensive income for the financial period - 2,304,432 2,304,432 Balance as at 30 April ,490,261 3,686,088 28,176,349 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 15

18 CONDENSED STATEMENT OF CASH FLOWS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL 30,104,377 25,642,700 Purchase of financial assets at FVTPL (36,887,699) (32,114,500) Realised gain on derivatives 883,260 1,528 Realised foreign exchange differences arising from operating activities (90,547) (3,752) Interest received 18,869 24,158 Dividends received 175, ,594 Management fee paid (208,639) (155,723) Trustee s fee paid (10,661) (11,569) Payment for other fees and expenses (56,138) (65,295) Tax refund received Net cash used in operating activities (6,071,917) (6,512,959) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 11,896,129 10,391,701 Payments for cancellation of units (2,921,356) (2,742,063) Distribution paid (179,111) - Net cash generated from financing activities 8,795,662 7,649,638 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,723,745 1,136,679 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES (119,021) (13,499) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 3,033,869 2,620,069 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 5,638,593 3,743,249 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 16 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

19 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Hong Leong Asia-Pacific Dividend Fund ( the Fund ) was constituted pursuant to the execution of a Deed dated 27 January 2006 and Supplemental Deed dated 30 April 2010 between the Manager, Hong Leong Asset Management Bhd, HSBC (Malaysia) Trustee Berhad and the registered unitholders of the Fund. HSBC (Malaysia) Trustee Berhad has been replaced with Deutsche Trustees Malaysia Berhad ( the Trustee ) effective 1 November 2012 and Supplemental Master Deeds were entered into between the Manager, the Trustee and the registered unitholders of the Fund on 21 September 2012 and 25 March 2015 to effect the change ( the Deeds ). The Fund aims to provide investors with steady recurring income that is potentially higher than the average fixed deposit rates. At the same time, the Fund also attempts to attain Medium-To-Long Term capital gains from investing in high quality dividend yielding equities. The Fund will invest a minimum 70% of its NAV into equities and equity-related securities which include common stock and depository receipts of companies in the Asia-Pacific ex Japan region. The Fund may invest in ETFs and REITs. A maximum 30% of its NAV may be invested into fixed income instruments which include fixed income securities, money market instruments and deposits. The Fund s investments may include derivatives which include futures, options, forward contracts and warrants to gain exposure to equities in the Asia-Pacific ex Japan region and in fixed income instruments. The Fund commenced operations on 28 February 2006 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 19 June HONG LEONG ASIA-PACIFIC DIVIDEND FUND 17

20 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 October 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 warrant as financial assets at fair value through profit or loss at inception. Derivatives are financial assets/liabilitites at fair value through profit or loss unless they are designated hedges (Note 2(l)). Loans and receivables are non-derivative 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 Manager-creation of units and dividends receivable. 18 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

21 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 Manager-cancellation of units, amount due to the Manager-management fee, amount due to the Trustee, amount due to the Manager-expenses, distribution payable and other payables and accruals (excludes GST reverse charge payable) as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date 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 including the effects of currency translation 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. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 19

22 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. Local 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. Foreign quoted investments are valued at the last traded market prices quoted on the respective foreign stock exchanges at the close of the business day of the respective foreign stock exchanges. 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. 20 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

23 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 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 the statement of comprehensive income. 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 the 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. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 21

24 (c) Foreign currency 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. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. (d) Income recognition Dividend income is recognised on the ex-dividend 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. 22 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

25 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 ASIA-PACIFIC DIVIDEND FUND 23

26 (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. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. (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. 24 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

27 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 decision-maker. The chief operating decision-maker, 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) Derivatives A derivative is any contract that gives rise to a financial asset/ liability of the Fund and a financial liability/asset or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favorable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavorable. The Fund s derivatives comprise unquoted forward currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and is subsequently re-measured at their fair value. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 25

28 (m) 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. 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 Financial receivables/ assets/ other liabilities financial at FVTPL liabilities Total RM RM RM Financial assets Cash and cash equivalents (Note 9) - 5,638,593 5,638,593 Financial assets at FVTPL (Note 10) 27,403,571-27,403,571 Amount due from brokers/dealers - 781, ,089 Dividends receivable - 16,486 16,486 27,403,571 6,436,168 33,839, HONG LEONG ASIA-PACIFIC DIVIDEND FUND

29 Loans and Financial receivables/ assets/ other liabilities financial at FVTPL liabilities Total RM RM RM Financial liabilities Amount due to brokers/dealers - 1,182,265 1,182,265 Amount due to the Manager -cancellation of units - 39,734 39,734 Amount due to the Manager -management fee - 39,950 39,950 Amount due to the Trustee - 1,865 1,865 Derivatives (Note 11) 47,431-47,431 Amount due to the Manager -expenses Distribution payable Other payables and accruals* - 14,611 14,611 47,431 1,279,197 1,326,628 * Excludes GST reverse charge of RM1,279 during the period Financial assets Cash and cash equivalents (Note 9) - 3,033,869 3,033,869 Financial assets at FVTPL (Note 10) 20,978,911-20,978,911 Amount due from brokers/dealers - 797, ,655 Amount due from the Manager -creation of units - 1,208,424 1,208,424 Dividends receivable - 36,330 36,330 20,978,911 5,076,278 26,055,189 Financial liabilities Amount due to brokers/dealers - 480, ,928 Amount due to the Manager -cancellation of units - 3,354 3,354 Amount due to the Manager -management fee - 30,923 30,923 Amount due to the Trustee - 2,360 2,360 Derivatives (Note 11) 35,061-35,061 Other payables and accruals - 21,801 21,801 35, , ,427 * Excludes GST reverse charge of RM1,593 during the period. All liabilities are financial liabilities which are carried at amortised cost. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 27

30 (n) 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. 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 forward foreign exchange contracts is determined using forward exchange rates at the statement of financial position, with the resulting value discounted back to present value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for in accordance with the accounting policy set out in Note 2(b). 28 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

31 The fair value of financial assets traded in active markets (such as publicly traded derivatives and 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 bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask 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 over-the-counter 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 entity-specific inputs. For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation 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. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 29

32 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 on-going 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 a particular input to the fair value measurement in its entirely requires judgment, considering factors specific to the asset or liability. 30 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

33 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/liabilities (by class) measured at fair value: Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at FVTPL: - Quoted equity securities - local 16,096, ,096,148 - Quoted equity securities - foreign 11,297, ,297,503 - Quoted warrant - local 9, ,920 27,403, ,403,571 Financial liabilities: - Derivatives - (47,431) - (47,431) Financial assets at FVTPL: - Quoted equity securities - local 4,206, ,206,696 - Quoted equity securities - foreign 16,755, ,755,165 - Quoted warrant - local 17, ,050 20,978, ,978,911 Financial liabilities: - Derivatives - (35,061) - (35,061) 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 warrant. 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). HONG LEONG ASIA-PACIFIC DIVIDEND FUND 31

34 Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include derivatives. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. The Fund s policies on valuation of these financial liabilities are stated in Note 2(b). (ii) The carrying values of financial assets (other than financial assets at FVTPL) and financial liabilities (other than derivatives) are a reasonable approximation of their fair values due to their short term nature. 4. INTEREST INCOME RM RM Interest income from: - Deposits with licensed financial institutions 18,869 24, MANAGEMENT FEE In accordance with Division 13.1 of the Deed, the Manager is entitled to a management fee of up to 2.00% per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 November 2017 to 30 April 2018, the management fee is recognised at a rate of 1.50% ( to : 1.50%) per annum. There will be no further liability to the Manager in respect of management fee other than the amount recognised above. 32 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

35 6. TRUSTEE S FEE In accordance with Division 13.2 of the Deed, the Trustee is entitled to a fee not exceeding 0.20% subject to a minimum of RM18,000 per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 November 2017 to 30 April 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. 7. TAXATION RM RM Tax charge for the financial period: Current taxation - foreign 1, The numerical reconciliation between (loss)/profit before taxation multiplied by the Malaysian statutory income tax rate and tax expense of the Fund is as follows: RM RM (Loss)/profit before taxation (516,088) 2,305,417 Taxation at Malaysian statutory rate of 24% (2017: 24%) (123,861) 553,300 Tax effects of: Investment income subject to withholding tax 1, Investment loss not deductible for tax purposes/ (investment income not subject to tax) 7,038 (650,692) Expenses not deductible for tax purposes 58,365 49,854 Restriction on tax deductible expenses for unit trust fund 58,458 47,538 Taxation 1, HONG LEONG ASIA-PACIFIC DIVIDEND FUND 33

36 8. DISTRIBUTION RM RM Prior financial years realised income 294,927 - Net distribution amount 294,927 - Date of Declaration Distribution on 17 January Gross/net distribution per unit (sen) Net distribution above is sourced from prior financial years realised income. Gross distribution is 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 1,024,098 1,642,208 Cash at banks 4,614,495 1,391,661 5,638,593 3,033,869 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 2 days ( : 1 day). 34 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

37 10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS ( FVTPL ) RM RM Financial assets at FVTPL: Quoted equity securities - local 16,096,148 4,206,696 Quoted equity securities - foreign 11,297,503 16,755,165 Quoted warrant - local 9,920 17,050 27,403,571 20,978, RM RM Net (loss)/gain on financial assets at FVTPL: Realised (loss)/gain on disposals (1,192,685) 1,181,081 Changes in unrealised fair values 317,632 1,325,565 (875,053) 2,506,646 Financial assets at FVTPL as at 30 April 2018 are as detailed below: QUOTED EQUITY SECURITIES - LOCAL Percentage Aggregate Fair of net asset Quantity cost value value units RM RM % Main Market Construction Gamuda Berhad 230,000 1,179,927 1,182, WCT Holdings Berhad 550, , , ,000 1,844,932 1,858, Consumer Products Fraser & Neave Holdings Bhd 40,000 1,192,254 1,438, Finance Bursa Malaysia Berhad 172,500 1,296,637 1,245, Malayan Banking Berhad 150,000 1,563,645 1,617, Public Bank Berhad 70,000 1,526,602 1,666, RHB Capital Berhad# 140, ,500 4,386,884 4,528, HONG LEONG ASIA-PACIFIC DIVIDEND FUND 35