KENANGA MALAYSIAN INC FUND INTERIM REPORT

Transcription

1 KENANGA MALAYSIAN INC FUND INTERIM REPORT For the Financial Period from 1 February 2017 to 31 July 2017

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3 KENANGA MALAYSIAN INC FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-5 Fund Performance 6-8 Trustee s Report 9 Statement by the Manager 10 Financial Statement 11-36

4 CORPORATE DIRECTORY Manager: Kenanga Investors Berhad (Company No P) Registered Office Business Office Level 17, Kenanga Tower Level 14, Kenanga Tower 237, Jalan Tun Razak 237, Jalan Tun Razak Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia Tel: Tel: Fax: Tel: Website: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafi len Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis Investment Committee Dato Bruce Kho Yaw Huat (Chairman) Syed Zafi len Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Imran Devindran bin Abdullah (Independent Member) Ismitz Matthew De Alwis Company Secretary: Norliza Abd Samad (MAICSA ) Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia Trustee: CIMB Commerce Trustee Berhad (Company No A) Registered Office Business Office Level 13, Menara CIMB Level 21, Menara CIMB Jalan Stesen Sentral 2 Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur Sentral Kuala Lumpur Kuala Lumpur Tel: Tel: Fax: Fax: Website: Auditor: Ernst & Young (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Membership: Federation Of Investment Managers Malaysia (FIMM) , 6 th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga Malaysian Inc Fund Interim Report

5 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Level 13, Kenanga Tower 237, Jalan Tun Razak Kuala Lumpur, Malaysia Tel : Fax : Melaka No. 25-1, Jalan Kota Laksamana 2/17 Taman Kota Laksamana, Seksyen Melaka Tel : / Fax : Klang No. 12, Jalan Batai Laut 3 Taman Intan, Klang Selangor Darul Ehsan Tel : / Fax : Penang 5.04, 5th Floor, Menara Boustead Penang No. 39, Jalan Sultan Ahmad Shah Penang Tel : Fax : Miri 2nd Floor, Lot 1264 Centre Point Commercial Centre Jalan Melayu Miri, Sarawak Tel : Fax : Seremban 2nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel : Fax : Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel : / 4798 Fax : Kuching 1st Floor, No 71 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel : Fax : Kuantan No. B8, Ground Floor Jalan Tun Ismail Kuantan Pahang Tel : Fax : Ipoh Suite 1, 2nd Floor, No. 63, Persiaran Greenhill Ipoh, Perak, Malaysia Tel : / 7570 / 7575 Fax : Kota Kinabalu A-03-11, 3rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel : / Fax : Petaling Jaya 44B, Jalan SS21/35, Damansara Utama Petaling Jaya, Selangor Tel : Fax : Kenanga Malaysian Inc Fund Interim Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Malaysian Inc Fund (KMIF or the Fund) 1.2 Fund Category / Type Equity / Growth 1.3 Investment Objective The Fund aims to provide consistent annual returns and medium to long-term capital appreciation by investing in Malaysian securities with global reach. 1.4 Investment Strategy The Fund seeks to maximise total returns by providing investors with capital appreciation and income (if any), while reducing risk through diversifi ed investments mainly in equities and short-term money market instruments. 1.5 Duration The Fund was launched on 9 November 2007 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.6 Performance Benchmark FTSE-Bursa Malaysia 100 Index 1.7 Distribution Policy The Fund intends to pay income by way of distribution or by the creation of additional units after the end of each Accrual Period or any specifi ed period, where possible. 1.8 Breakdown of unit holdings of KMIF as at 31 July 2017 Size of holdings No. of members No. of units held 5,000 and below 3,502 3,248,500 5,001-10, ,444,545 10,001-50,000 1,030 23,801,738 50, , ,561, ,001 and above 30 96,114,353 Total 5, ,170,833 1 Kenanga Malaysian Inc Fund Interim Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund has appreciated by 12.61% in Net Asset Value terms for the period under review, thus achieving the Fund s stated objective of medium to long term capital appreciation. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (9/11/ /07/2017) Kenanga Malaysian Inc Fund vs FTSE-Bursa Malaysia 100 Index Source: Novagni Analytics and Advisory Sdn Bhd 2.3 Investment strategies and policies employed during the financial period under review For the fi nancial period under review, the Fund continued with its strategy of investing in companies with sustainable business models and competent management. These are also companies that trade at a discount to their intrinsic/fair value. Themes favoured for the period under review included construction and infrastructure stocks, exporters, GLC reform/restructuring plays and commodities. 2.4 The Fund s asset allocation as at 31 July 2017 and comparison with the previous financial period Asset 31 July July 17 Listed investment securities 85.2% 79.1% Short term deposits and cash 14.8% 20.9% Reason for the differences in asset allocation As at 31 July 2017, the asset allocation of the Fund stood at around 85.2% in equities and the balance of around 14.8% in liquidity. The investment level increased as the fund manager took a more positive view of the market and deployed liquidity. Kenanga Malaysian Inc Fund Interim Report 2

8 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Malaysian Inc Fund 12.61% FTSE-Bursa Malaysia 100 Index (FMB-100) 6.60% Source: Lipper For the period under review, the Fund appreciated 12.61%, outperforming the 6.60% increase in the FBM100. The outperformance was mainly due to better stock selection. 2.6 Review of the market Market Review Asian equity markets started January 2017 with a positive rally, thanks to the spilled over optimism from the US markets as Dow Jones hit all-time high of above 20,000 points. While China markets were choppy, there were no major negative shockers from the markets (recap sudden RMB depreciation and circuit breaker which happened in Jan 2016). China also tightened its policies on foreign exchange and transfer of money out of the country to stem capital outfl ow. Oil price remained stable at around US$55/barrel as of end January 2017 following the proposed OPEC production cuts in December Fuelled by positive performance from the regional markets and better macro-economy outlook, foreigners returned with RM419m of net buying, pushing the FBMS Index up 12,014 points as of end Jan The FBMS Index continued its surge in February and March courtesy to persistent foreign buying after being absent in the domestic market for more than 3 years. March 2017 also recorded the largest foreign inflow of RM4.4bil (Mac 16: RM6.1bil foreign net infl ow) after three consecutive years ( ) of foreigners net selling totalling about RM30bil. Malaysia recorded 4Q2016 GDP growth of 4.5% yoy, above estimate of 4.4%, bringing 2016 growth to 4.2%. This was the lowest growth in the past 3 years (2015: +5%; 2014: +6%) but is poised to pick up in 2017 with the recovery of oil price and CPO price. Apart from the improving macro-economy outlook, FDI into Malaysia was also gaining momentum. In Feb 2017, two major FDI milestones were announced: a) the launch of Digital Free Trade Zone with Alibaba setting up a regional distribution hub in KLIA Aeropolis; and b) US$7b investment by Saudi Aramco in RAPID refi nery and petrochemical project. There was no surprised monetary actions from the central banks in 1Q2017, both ECB and BOJ stay pat but Fed hiked 25bps as widely expected. The Bank Negara s annual report released by end March provided GDP growth forecast of 4.3%-4.8% and CPI projection of 3%-4%, which were well within market expectations. The market charted another positive month in April but took a breather in May which is always a seasonally slow month. There were also rising geopolitical tension and surprised political happenings in April and May. The US launched a military strike on a Syrian government airbase in response to a chemical weapons attack killing civilians and later dropped the largest conventional bomb on an ISIS area in eastern Afghanistan. North Korea also unveiled its new missile technology where US President Donald Trump was hoping on China to rein in North Korea s military aggression. In EU, UK Prime Minister Theresa May called for snap UK general election to strengthen her political grips 3 Kenanga Malaysian Inc Fund Interim Report

9 2.6 Review of the market (Contd.) Market Review (Contd.) before Brexit negotiation. Meanwhile, Emmanuel Macron defeated Marine Le Pen in the French presidential election which removed the risk of France leaving EU. The most surprising political unfolding however was the fi ring of FBI director James Comey by Trump on the bureau s investigation into Trump s campaign team collusion with Russia in last year s election. In a widely expected move, OPEC and non-members agreed to extend production cuts by another nine months to March On the local front, Bank Negara announced liberalisation of MGS market where investors and issuers can short sell from May onwards. The market and corporates was however shocked by a surprised announcement from TRX City voiding the sales of 60%-stake in Bandar Malaysia to IWH-CREC consortium done in Mid-small caps started a price correction as investors took profi t following a strong rally since beginning of the year. Malaysia also reported 1Q2017 GDP of 5.6% yoy which was above the 4.8% forecast, which is the strongest growth rate since 1Q2015. In the March 2017 corporate result reporting, results were generally within expectations. 48% companies results were in line, 15% was above while 37% were below expectations. Result of big caps including banks, plantation and telcos were generally in line with expectations. Sectors with weaker earnings were automobile, gaming and logistics. May and June 2017 were relatively fl attish month for FBMS Index after with marginal negative return in (-0.12% month-on-month in both months). As expected by the market, the Fed raised rate by another 25bps leaving guidance unchanged of another hike in The Fed also plans to start trimming its $4.5tri balance sheet later in Another geopolitical event was the alleged Qatar support of IS terrorism which resulted in Saudi, Bahrain, UAE and Egypt cutting diplomatic ties with Qatar. In UK, Prime Minister Theresa May lost her parliament majority in the early election but managed to form a government with the support of other smaller party. Foreigners were net buyer of the equity markets for seven consecutive months from January to July in 2017 totaling RM11.2billion. Year-to-date up to end July 2017, the KLCI Index, FBM100 Index and FBM Small Cap Index rose 7.21%, 8.99% and 17.39% respectively. For the same period, CPO fell 13.9% to RM2675/ton while Brent crude oil dropped 7.3% to US$52.65/barrel. The Ringgit strengthened against US dollar for 4.57% for fi rst seventh months of 2017 to end at RM as of end July Market Outlook We have a positive outlook on the domestic equity market in 2017 after 3 years of underperformance from 2014 to The re-rating catalysts include: a) Stronger 2017 GDP growth to be underpinned by better oil and CPO price, sustained infrastructure spending and rising China FDI; b) Corporate earnings growth in 2017/18 expected at 7.6%/5.9% respectively after 3 years of earnings contraction; c) GLC (Government Linked Companies) reforms for PNB related and other companies for better value creation. d) Low foreign ownership after 3 years of foreign selling amounted to about RM30bil. e) Expectation of general election in 2017/18. Historically markets rallied a few months before general election. Kenanga Malaysian Inc Fund Interim Report 4

10 2.6 Review of the market (Contd.) Strategy With concerns regarding North Korea mounting, the risk of a short-term pullback has increased given the strong YTD performance. Notwithstanding, we also see threats from the US Federal Reserve s monetary tightening, protectionist measures from the United States and other geopolitical tensions. Hence, we continue to advocate minor tilt towards defensive stocks with stable earnings, laggards, as well as quality high yielders. Locally, earnings for the June quarter were subdued and slightly below expectations. While expectations of earnings improving YoY remain intact, the strength of the rebound looks to be less robust, with earnings growth for 2017 expected between 6 to 7%. Strong domestic liquidity and an impending general election would continue to be supportive of the market, while the weak ringgit is helping to maintain foreign institutional interest. Additionally, the upcoming Budget 2018 might bring in some goodies since it is a preelection budget which could benefi t a few sectors primarily construction sector, consumer (On higher BRIM) and tourism. We continue to favour companies driven by selective themes such as benefi ciaries of rising foreign direct investment, GLC reform/restructuring plays, infrastructure, construction, technology and tourism. 2.7 Income Distribution For the fi nancial period under review, the Fund did not declare any income distribution. 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the fi nancial period under review. 2.9 Significant changes in the state of affair of the Fund during the financial period There were no signifi cant changes in the state of affair of the Fund during the fi nancial period and up until the date of the manager s report, not otherwise disclosed in the fi nancial statements Circumstances that materially affect any interests of the unitholders During the fi nancial period under review, there were no circumstances that materially affected any interests of the unitholders Rebates & Soft commissions Any rebates received are channelled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, fi nancial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the fi nancial period under review, the Manager has received soft commissions from stockbrokers. 5 Kenanga Malaysian Inc Fund Interim Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Malaysian Inc Fund ( the Fund ) for the financial period as at 31 July 2017 against the last three financial years as at 31 January are as follow: a. Distribution among industry sectors and category of investments: As at FY FY FY % % % Trading/Services Constructions Finance Industrial products Consumer products Properties Technology Plantations Hotel Special Purpose Acquisition Company Infrastructure Real Estate Investment Trusts Warrants * Short term deposits and cash * Unlisted warrants that has been approved for listing by the relevant authority. Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invested in local listed investment securities and cash instruments only. Kenanga Malaysian Inc Fund Interim Report 6

12 3.2 Performance details of the Fund for the financial period ended 31 July 2017 against the last three financial years ended 31 January are as follows: Period from FY FY FY Net asset value ( NAV ) (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income growth (%) Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective fi nancial period/years, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. Above NAV and NAV per unit are not shown as ex-distribution as there were no distribution declared by the Fund in the fi nancial period under review. 1 MER is lower against previous fi nancial years mainly due to the increase in average fund size during the fi nancial period under review. 2 PTR is lower against last fi nancial year mainly due shorter period under comparison. * Based on bid price fair valuation method on all investments held by the Fund as at 31 July 2017, the NAV and NAV per unit would be RM million and RM respectively. (As disclosed under Note 12 of the fi nancial statements) 7 Kenanga Malaysian Inc Fund Interim Report

13 3.3 Average total return of the Fund 1 year 3 years 5 years 31 July July July July July July 17 Kenanga Malaysian Inc Fund 17.09% 7.90% 10.41% FTSE-Bursa Malaysia 100 Index 7.97% -0.92% 2.39% Source: Lipper 3.4 Annual total return of the Fund Period under review 1 Year 1 Year 1 Year Period 1 Year 31 Jan Jan Jan Jan Dec Dec July Jan Jan Jan Jan Dec 12 Kenanga Malaysian Inc Fund 12.61% 10.66% 7.46% 8.26% 14.13% 3.60% FTSE-Bursa Malaysia 100 Index 6.60% 1.43% -5.83% -1.62% 8.11% 9.60% Source: Lipper; Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Malaysian Inc Fund Interim Report 8

14 4 TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA MALAYSIAN INC FUND We, CIMB Commerce Trustee Berhad ( the Trustee ), being the Trustee for Kenanga Malaysian Inc Fund ( the Fund ), are of the opinion that Kenanga Investors Berhad ( the Manager ), acting in the capacity as Manager of the Fund, has fulfi lled its duties in the following manner for the financial period from 1 February 2017 to 31 July a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation and pricing for the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB Commerce Trustee Berhad Lee Kooi Yoke Chief Operating Offi cer Kuala Lumpur 27 September Kenanga Malaysian Inc Fund Interim Report

15 5. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 July 2017 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial period from 1 February 2017 to 31 July 2017 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the fi nancial position of Kenanga Malaysian Inc Fund as at 31 July 2017 and of its fi nancial performance and cash fl ows for the fi nancial period from 1 February 2017 to 31 July 2017 and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Offi cer Kuala Lumpur, Malaysia 27 September 2017 Kenanga Malaysian Inc Fund Interim Report 10

16 6. FINANCIAL STATEMENT 6.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 FEBRUARY 2017 TO 31 JULY 2017 (unaudited) INVESTMENT INCOME to to Note RM RM Dividend income 1,162, ,440 Interest income 217,174 73,196 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 4 9,425,853 1,218,269 10,805,450 1,616,905 EXPENSES Manager s fee 5 835, ,533 Trustee s fee 6 23,219 6,070 Auditors remuneration 3,777 3,462 Tax agent s fee 1,984 1,978 Administration expenses 86,257 26,370 Brokerage and other transaction costs 1,267, ,535 2,219, ,948 NET INCOME BEFORE TAX 8,586,337 1,165,957 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 8,586,337 1,165,957 Net income after tax is made up as follows: Realised gain 3,952, ,845 Unrealised gain 4 4,633, ,112 8,586,337 1,165,957 The accompanying notes form an integral part of the financial statements. 11 Kenanga Malaysian Inc Fund Interim Report

17 6.2 STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2017 (unaudited) Note RM RM ASSETS INVESTMENTS Financial assets at FVTPL 4 106,361,343 26,243,642 Short term deposits 8 18,048,000 6,819, ,409,343 33,063,280 OTHER ASSETS Amount due from Manager 7,693,188 8,175 Other receivables 9 1,431, ,165 Cash at bank 496, ,847 9,620, ,187 TOTAL ASSETS 134,030,321 33,324,467 LIABILITIES Amount due to Trustee 5,089 2,299 Other payables 10 3,597, ,199 TOTAL LIABILITIES 3,602, ,498 EQUITY Unitholders contribution 127,355,799 40,726,765 Retained earning/(accumulated loss) 3,072,263 (8,088,796) NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS ,428,062 32,637,969 TOTAL LIABILITIES AND EQUITY 134,030,321 33,324,467 NUMBER OF UNITS IN CIRCULATION 11(a) 167,170,833 49,558,647 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Interim Report 12

18 6.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD FROM 1 FEBRUARY 2017 TO 31 JULY 2017 (unaudited) Retained earnings Unitholders (Accumulated Total Note contribution loss) NAV RM RM RM to At beginning of the fi nancial period 68,828,595 (5,514,074) 63,314,521 Total comprehensive income - 8,586,337 8,586,337 Creation of units 11(a) 71,483,768-71,483,768 Cancellation of units 11(a) (14,002,947) - (14,002,947) Distribution equalisation 11(a) 1,046,383-1,046,383 At end of the fi nancial period 127,355,799 3,072, ,428, to At beginning of the fi nancial period 28,714,867 (9,254,753) 19,460,114 Total comprehensive income - 1,165,957 1,165,957 Creation of units 11(a) 12,621,441-12,621,441 Cancellation of units 11(a) (738,815) - (738,815) Distribution equalisation 11(a) 129, ,272 At end of the fi nancial period 40,726,765 (8,088,796) 32,637,969 The accompanying notes form an integral part of the financial statements. 13 Kenanga Malaysian Inc Fund Interim Report

19 6.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 FEBRUARY 2017 TO 31 JULY 2017 (unaudited) CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES to to RM RM Proceeds from sale of fi nancial assets at FVTPL 44,695,376 20,088,068 Dividends received 1,149, ,962 Interest from deposits received 221,575 72,141 Auditors remuneration paid - (7,000) Trustee s fee paid (20,774) (4,498) Payment for other fees and expenses (62,971) (20,198) Manager s fee paid (745,025) (200,676) Purchase of fi nancial assets at FVTPL (90,741,671) (30,472,520) Cash used in operating and investing activities (45,504,068) (10,266,721) Income tax refunded - 42,269 Net cash used in operating and investing activities (45,504,068) (10,224,452) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 65,067,210 12,710,882 Cash paid on units cancelled (14,181,665) (748,241) Net cash generated from financing activities 50,885,545 11,962,641 NET INCREASE IN CASH AND CASH EQUIVALENTS 5,381,477 1,738,189 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 13,163,154 5,194,296 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 18,544,631 6,932,485 Cash and cash equivalents comprise: Cash at bank 496, ,847 Short term deposits 18,048,000 6,819,638 18,544,631 6,932,485 The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Interim Report 14

20 6.5 NOTES TO THE FINANCIAL STATEMENTS FOR FOR THE FINANCIAL PERIOD FROM 1 FEBRUARY 2017 TO 31 JULY 2017 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Malaysian Inc Fund ( the Fund ) was constituted pursuant to the executed Master Deed dated 29 August 2007 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Investors Berhad, and HSBC (Malaysia) Trustee Berhad ( the Trustee prior to 3 December 2013). The Fund has changed its trustee to CIMB Commerce Trustee Berhad ( the Trustee with effect from 3 December 2013). The aforesaid change was effected on 3 December 2013 via a Fourth Master Supplemental Deed dated 1 October The Fund commenced operations on 9 November 2007 and will continue to be in operation until terminated in accordance with Part 12 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad. Prior to 1 November 2016, Kenanga Investment Bank Berhad was a whollyowned subsidiary of K & N Kenanga Holdings Berhad that was listed on the Main Market of Bursa Malaysia Securities Berhad. Pursuant to an internal reorganisation exercise completed on 1 November 2016, Kenanga Investment Bank Berhad has become the holding company of K & N Kenanga Holdings Berhad. On 2 November 2016, Kenanga Investment Bank Berhad has assumed the listing status of K & N Kenanga Holdings Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide consistent annual returns and medium to long term capital appreciation by investing in Malaysian securities with global reach. 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk and liquidity risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unitholders, consistent with the long term objectives of the Fund. a. Market Risk Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk and price risk. 15 Kenanga Malaysian Inc Fund Interim Report

21 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) Market risk arises when the value of the investments fl uctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the investments prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavourable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the performance of Fund s investments. Rate offered by the financial institutions will fluctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in deposits. The Fund is not exposed to signifi cant interest rate risk as its deposits are short term in nature and have fi xed interest rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s fi nancial assets and fi nancial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Weighted Non- average exposure to effective Up to interest rate interest 1 year movement Total rate* RM RM RM % Assets Financial assets at FVTPL - 106,361, ,361,343 Short term deposits 18,048,000-18,048, Other assets - 9,620,978 9,620,978 18,048, ,982, ,030,321 Liabilities Other liabilities - 3,558,810 3,558,810 Total interest rate sensitivity gap 18,048, ,423, ,471,511 Kenanga Malaysian Inc Fund Interim Report 16

22 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Weighted Non- average exposure to effective Up to interest rate interest 1 year movement Total rate* RM RM RM % Assets Financial assets at FVTPL - 26,243,642 26,243,642 Short term deposits 6,819,638-6,819, Other assets - 261, ,187 6,819,638 26,504,829 33,324,467 Liabilities Other liabilities - 660, ,259 Total interest rate sensitivity gap 6,819,638 25,844,570 32,664,208 * Computed based on assets with exposure to interest rate movement only. ii. Price risk Price risk is the risk of unfavorable changes in the fair values of listed equity securities, listed collective investment scheme and unlisted warrants. The Fund invests in listed equity securities, listed collective investment scheme and unlisted warrants which are exposed to price fl uctuations. This may then affect the NAV per unit of the Fund. Price risk sensitivity The Manager s best estimate of the effect on the profi t for the fi nancial period due to a reasonably possible change in investments in listed equity securities, listed collective investment scheme and unlisted warrants with all other variables held constant is indicated in the table below: 17 Kenanga Malaysian Inc Fund Interim Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity (Contd.) Effects on profit for Changes in price the financial period Increase/(Decrease) Increase/(Decrease) Basis points RM Financial assets at FVTPL 5/(5) 53,181/(53,181) Financial assets at FVTPL 5/(5) 13,122/(13,122) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date. Fair Value Percentage of NAV RM RM % % Financial assets at FVTPL 106,361,343 26,243, The Fund s concentration of price risk from the Fund s listed equity securities, listed collective investment scheme and unlisted warrants analysed by sector is as follows: Fair Value Percentage of NAV RM RM % % Trading/Services 26,501,907 7,425, Constructions 18,151,805 2,898, Finance 14,796,771 4,217, Industrial products 13,406,316 1,770, Consumer products 11,822,488 4,369, Properties 9,837,662 1,381, Technology 6,952,975 1,161, Plantations 901,128 1,278, Hotel 720, Special Purpose Acquisition Company 460, , Real Estate Investments Trust 2,808,600 1,325, Warrants ,361,343 26,243, Kenanga Malaysian Inc Fund Interim Report 18

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no fi nancial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests in deposits with fi nancial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed fi nancial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating P c. Liquidity Risk Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unitholders by the Manager are cancellable at the unitholders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The liquid assets comprise cash, short term deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days. 19 Kenanga Malaysian Inc Fund Interim Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) The following table analyses the maturity profi le of the Fund s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Up to 1 year Note RM RM Assets Financial assets at FVTPL 106,361,343 26,243,642 Short term deposits 18,048,000 6,819,638 Other assets 9,620, ,187 i. 134,030,321 33,324,467 Liabilities Other liabilities ii. 3,558, ,259 Equity iii. 130,428,062 32,637,969 Liquidity gap 43,449 26,239 i. Financial assets Analysis of fi nancial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in listed equity securities, listed collective investment scheme and unlisted warrants have been included in the up to 1 year category on the assumption that these are highly liquid investments which can be realised should all of the Fund s unitholders equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. ii. Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. iii. Equity As the unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. Kenanga Malaysian Inc Fund Interim Report 20

26 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous fi nancial period except for the adoption of the new and amended MFRS which became effective for the Fund on 1 February The adoption of the new and amended MFRS did not have any signifi cant impact on the fi nancial position or performance of the Fund. The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards, Amendments and Interpretation Issued But Not Yet Effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretation that have been issued by MASB will be effective for the Fund in future periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2017 Amendments to MFRS 107: Disclosure Initiative 1 January 2017 Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 Amendments to MFRS 2: Classifi cation and Measurement of Shared-based Payment Transactions 1 January 2018 Amendments to MFRS 4: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts 1 January 2018 Amendments to MFRS 140: Transfers of Investment Property 1 January 2018 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 MFRS 15: Clarifi cations to MFRS 15 1 January 2018 IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2018 MFRS 16: Leases 1 January 2019 Amendments to MFRS 10 and MFRS 128: Sale or Contribution To be announced of Assets between an Investor and its Associate or Joint Venture by MASB 21 Kenanga Malaysian Inc Fund Interim Report

27 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, Amendments and Interpretation Issued But Not Yet Effective (Contd.) The Fund will adopt the above pronouncements when they become effective in the respective fi nancial periods. These pronouncements are not expected to have any signifi cant impact to the fi nancial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classifi cation and measurement of fi nancial assets and fi nancial liabilities as defi ned in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. c. Financial Assets Financial assets are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instruments. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classifi cation of its fi nancial assets at initial recognition. i. Financial assets at FVTPL Financial assets are classifi ed as fi nancial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include listed equity securities, listed collective investment scheme and unlisted warrants acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, fi nancial assets at FVTPL are measured at fair value. Changes in the fair value of those fi nancial instruments are recorded in profi t or loss. Interest earned and dividend revenue elements of such instruments are recorded separately in interest income and dividend income, respectively. ii. Receivables Financial assets with fi xed or determinable payments that are not quoted in an active market are classifi ed as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profi t or loss when the receivable is derecognised or impaired, and through the amortisation process. A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Kenanga Malaysian Inc Fund Interim Report 22

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a fi nancial asset is impaired. To determine whether there is objective evidence that an impairment loss on fi nancial assets has been incurred, the Fund considers factors such as the probability of insolvency or signifi cant fi nancial diffi culties of the debtor and default or signifi cant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash fl ows discounted at the fi nancial asset s original effective interest rate. The impairment loss is recognised in profi t or loss. The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. 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, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profi t or loss. e. Income Income is recognised to the extent that it is probable that the economic benefi ts will fl ow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Interest income is recognised using the effective interest method. Dividend income is recognised on declared basis, when the right to receive the dividend is established. The realised gain or loss on sale of investments is measured as the difference between the net disposal proceeds and the carrying amount of the investment. f. Cash and Cash Equivalents For the purposes of the statement of cash fl ows, cash and cash equivalents include cash at bank and short term deposits with licensed fi nancial institutions with insignifi cant risk of changes in value. 23 Kenanga Malaysian Inc Fund Interim Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) g. Income Tax Income tax on the profi t or loss for the fi nancial period comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the fi nancial period. As no temporary differences have been identifi ed, no deferred tax has been recognised. h. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying investments at their fair values at reporting date. This reserve is not distributable. i. Financial Liabilities Financial liabilities are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability. Financial liabilities are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instrument. The Fund s fi nancial liabilities are classifi ed as other fi nancial liabilities. The Fund s fi nancial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A fi nancial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profi t or loss when the liabilities are derecognised, and through the amortisation process. j. Unitholders Contribution NAV Attributable to Unitholders The unitholders contribution to the Fund is classifi ed as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. k. Functional and Presentation Currency The fi nancial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The fi nancial statements are presented in Ringgit Malaysia ( RM ), which is also the Fund s functional currency. l. Distribution Distributions are at the discretion of the Manager. A distribution to the Fund s unitholders is accounted for as a deduction from retained earnings. Kenanga Malaysian Inc Fund Interim Report 24

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) m. Significant Accounting Judgments and Estimates The preparation of fi nancial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund s accounting policies. ii. Key sources of estimation uncertainty There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial period. 4. FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Listed equity securities 103,552,743 24,917,903 Listed collective investment schemes 2,808,600 1,325,739 Unlisted warrants ,361,343 26,243,642 Net gain on financial assets at FVTPL comprised: Realised gain on disposals 4,792, ,157 Unrealised changes in fair values 4,633, ,112 9,425,853 1,218,269 Details of financial assets at FVTPL as at 31 July 2017: Listed equity securities Aggregate Percentage Quantity Cost Fair value of NAV RM RM % Trading/Services AWC Berhad 1,076,000 1,207,380 1,215, Bison Consolidated Berhad 678,000 1,056,939 1,735, Century Logistics Holdings Berhad 793, , , Dialog Group Berhad 500, , , Genting Berhad 252,400 2,363,240 2,453, George Kent (M) Berhad 511,575 1,248,638 2,194, Oldtown Berhad 256, , , Kenanga Malaysian Inc Fund Interim Report

31 4. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of financial assets at FVTPL as at 31 July 2017 (Contd.): Listed equity securities (Contd.) Aggregate Percentage Quantity Cost Fair value of NAV RM RM % Trading/Services (Contd.) PESTECH International Berhad 471, , , Pos Malaysia Berhad 182, , , Scicom (MSC) Berhad 570,000 1,168,108 1,231, Serba Dinamik Holdings Berhad 815,000 1,658,809 1,621, Sime Darby Berhad 381,275 3,301,088 3,603, Tenaga Nasional Berhad 181,300 2,506,050 2,559, TIME dotcom Berhad 347,200 3,094,815 3,350, Yinson Holdings Berhad 628,800 1,835,503 2,225, ,627,469 26,501, Constructions Advancecon Holdings Berhad 1,120, ,120 1,120, Ahmad Zaki Resources Berhad 1,595,600 1,654,948 1,755, Ekovest Berhad 511, , , Gabungan AQRS Berhad 1,587,000 1,845,432 2,428, Kerjaya Prospek Group Berhad 697,400 1,860,305 2,587, Malaysian Resources Corporation Berhad 470, , , ML Global Berhad 1,786,300 1,758,737 2,179, Muhibbah Engineering (M) Berhad 600,900 1,495,875 1,664, Protasco Berhad 722, , , Sunway Construction Group Berhad 325, , , WCT Holdings Berhad 1,033,023 2,144,378 1,952, YTL Corporation Berhad 1,342,100 2,028,648 1,878, ,346,042 18,151, Finance AEON Credit Service (M) Berhad 189,150 1,840,223 2,542, BIMB Holdings Berhad 627,300 2,694,371 2,735, CIMB Group Holdings Berhad 60, , , Hong Leong Bank Berhad 75,000 1,139,115 1,177, Malayan Banking Berhad 398,438 3,681,728 3,801, Public Bank Berhad 110,500 2,250,067 2,240, RCE Capital Berhad 1,128,000 1,806,070 1,906, ,705,873 14,796, Kenanga Malaysian Inc Fund Interim Report 26