KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP)

Transcription

1 Kenanga Investors Berhad ( P) KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) INTERIM REPORT For the Financial Period 31 October 2013 to 31 March 2014

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3 KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) 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 11-37

4 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE BUSINESS OFFICE Kenanga Investors Berhad (KIB) Suite 12.02, 12 th Floor, Kenanga International, 8 th Floor, Kenanga International, Jalan Sultan Ismail, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia. Tel: Tel: Fax: Fax: InvestorServices@kenanga.com.my Website: BOARD OF DIRECTORS Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) YM Raja Dato Seri Abdul Aziz bin Raja Salim (Independent Director) Vivek Sharma (Independent Director) Peter John Rayner (Independent Director) Bruce Kho Yaw Huat Abdul Razak bin Ahmad INVESTMENT COMMITTEE Bruce Kho Yaw Huat (Chairman) Syed Zafilen Syed Alwee (Independent Member) Vivek Sharma (Independent Member) Peter John Rayner (Independent Member) Abdul Razak bin Ahmad COMPANY SECRETARY: NORLIZA ABD SAMAD (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: 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, PNB Damansara, 19 Lorong Dungun, Damansara Heights, Kuala Lumpur. Tel: Fax: Website: ii Kenanga Blue Chip Fund Interim Report

5 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12 th Floor Kenanga International Jalan Sultan Ismail Kuala Lumpur, Malaysia Tel: Fax: Melaka No 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 16 th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah Penang. Tel : Fax : Seremban 2 nd Floor, No. 1D-2 Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel : Fax : Kuching 1 st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3 rd Floor Block A Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh No. 5A, Persiaran Greentown 9 Greentown Business Centre Ipoh, Perak Darul Ridzuan Tel: / 7570 Fax: Agency Office Miri (Sarawak) c/o Lot 1084, 2 nd Floor Jalan Merpati Miri Sarawak, Malaysia Tel: Johor Bahru Lot 11.03, 11 th Floor Menara MSC Cyberport 5 Jalan Bukit Meldrum Johor Bahru, Johor Tel: / 4798 Fax: Kenanga Blue Chip Fund Interim Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Blue Chip Fund (KBCF or the Fund) 1.2 Fund Type / Category Equity / Income & Growth 1.3 Investment Objective The Fund aims to achieve long-term capital growth through investments in companies that have relatively larger market capitalization. 1.4 Investment Strategy The Fund will construct a diversifi ed investment portfolio that consists of fundamentally sound companies that have large market capitalization and are dividends paying. The Fund may invest up to 98% of its Net Asset Value (NAV) in such companies. These companies are generally referred to as blue chip companies. 1.5 Duration The Fund was launched on 23 April 2004 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unit holders for it to continue. 1.6 Performance Benchmark FTSE-Bursa Malaysia 100 Index (FBM 100) 1.7 Distribution Policy Income (if any) will be distributed annually on a best effort basis. 1.8 Breakdown of unit holdings of KBCF as at 31 March 2014 Size of holdings No. of unitholders No. of units held 5,000 and below 1,380 3,085,485 5,001-10, ,536,287 10,001-50, ,482,991 50, , ,142, ,001 and above 1 562,562 Total 2,617 29,809,748 1 Kenanga Blue Chip Fund Interim Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. For the period under review, the Fund has achieved its investment objective of aiming to achieve long-term capital growth, having invested in a diversifi ed pool of equity securities and short-term cash instruments. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (23/04/ /03/2014) Kenanga Blue Chip Fund vs FTSE Bursa Malaysia 100 Index Source: Lipper 2.3 Investment strategies and policies employed during the period under review The Fund s main strategy involved investing in a dynamic mix of value and growth large market capitalisation that are unrecognized and values, which is reasonably priced relative to earnings growth coupled with consistent dividends payment. 2.4 The Fund s asset allocation as at 31 March 2014 and comparison with the previous financial period. Asset 31 Mar Mar 2013 Quoted investment securities 93.4% 76.7% Short term deposits and cash 6.6% 23.3% Reason for the differences in asset allocation As at end 31 March 2014, the Fund s equity exposure was 93.4%. The equity exposure was higher compared with 31 March 2013 mainly due to better market prospects. Kenanga Blue Chip 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 Blue Chip Fund 4.28% FTSE-Bursa Malaysia 100 Index 3.58% Source: Lipper The Fund recorded a return of 4.28%, outperforming the benchmark FTSE Bursa Malaysia 100 Index return of 3.58%. The Fund s outperformance compared to the benchmark was attributed to its stock selection. 2.6 Review of the market Market Review For the period under review, stock market performance in the region can be broken up into two parts. Regional markets continued to do well from October till December 2013 after sparked by the US Congress decision to pass a bill to re-open the government and raise the debt ceiling. This helps the US government to avoid a debt default. The Nikkei and Sensex had a fantastic performance the period. Nikkei and Sensex were both up 12.7% and 9.2%, respectively. The KLCI index and the FBM 100 Index rose by 5.6% and 4.7%, respectively for the same period mentioned above. The local market sentiment was mainly dominated by the UMNO general election and the 2014 Budget. The leadership within UMNO remains largely unchanged which is good for policy continuity. The emphasis from the 2014 Budget is on further fiscal consolidation through a more prudent operating and development expenditure. The US Fed started to taper it quantitative easing (QE) in January and over the next three months reduced its asset purchases by US$30 billion per month to US$55 billion per month. Regional markets were initially rocked but staged a rebound after the US Federal Reserve Chairman in her first public comments remarked that she is committed to helping the economy towards full employment and an inflation target of 2%. Indonesia and Philippines were the biggest gainers with their indices rising 11.6% and 9.2% for 3 months period ended March Foreign investors were of the view that interest rates in US will continue to remain low in the foreseeable future. Japan and Hong Kong experienced the biggest drops for the 3 months period ended March 2014, down 9.0% and 4.9% respectively. The GDP growth of both countries came under scrutiny by economists after a series of slowdown indicated by various economic indicators. The KLCI Index and FBM 100 Index fell by 0.9% and 1.0% for 3 months period ended 31 March The small to mid-cap stocks continued to surge as sentiment remained buoyant. Otherwise, improvement in the broader market was helped by plantation and the electronic sectors. Exports growth continued to remain strong as indicated by the strong performance of the electronic-related stocks. On the negative side, inflation started to rise as it rose 3.5% year-on-year in February with the government subsidies rationalization measures spilling over to general goods. 3 Kenanga Blue Chip Fund Interim Report

9 2.6 Review of the market (Contd.) Market Outlook As anticipated, first quarter turned out to be volatile with markets responding to fears over QE tapering, concerns on China economic prospects, and geopolitical risks surrounding the developments in Ukaraine. We believe volatility will be extended into second quarter as global financial markets which benefited greatly from a powerful combination of lifting growth and vast liquidity, continue to adjust to a period of easing quantitative measures. In Malaysia, we saw a net foreign institutional outflow of RM5 billion in January and February this year. Seasonally, second quarter being a slower period, corresponds this time around, to the World Cup Season and the Ramadan fasting which fall in the month of June. Therefore, we expect intermittent weakness during the quarter, presenting an opportunity to position for stronger second half as export recovery in Asia gathers momentum. Externally, a firmer US economy, coupled with recovering EU and Japan, are expected to lift the outlook for Asia. However, China remains a wildcard with monetary easing likely in Q2/Q3 as activity data continue to show further weakness. Economists now expect GDP growth to slow down to below 7.5% in Q1 and possibly drop below 7% in Q2, warranting some expansionary fiscal/monetary policy (Reserve Requirement Ratio cuts etc) to shore up economic growth. For Malaysia, corporate earnings are expected to grow 8% this year, from a slight decline in Against the backdrop of a robust 2014 GDP growth forecast of %, the major earnings drivers are higher crude palm oil prices, increased exports and continuous capital expenditure in the oil & gas sector. Valuation wise, if we peg the market at 16.5 times forward PE, the KLCI has a potential to trade up to 1,990 points, which is more than a 5% upside from here. The key to outperformance lies with disciplined stock picking. Strategy In the immediate term, we are of the view that the risk-award scale is at best balanced, with a possible tilt towards further consolidation as market valuations have remained elevated at 16 times PE. Therefore, we have raised more cash with our investment levels now averaging 80-85% (down from more than 90%) for relative-return funds, and 75%- 85% for absolute-return funds. We will look to add on weakness, and aim to increase our investment level back to above 90% by end of Q2/ early Q3. In terms of our investment strategy and sector selections, we maintain our barbell strategy of holding a good balance of high yielding/defensive stocks and beta stocks to ride through the volatility. Our stock selection favours sectors that will benefit from being the main drivers of the economy such as the oil & gas (which will continue to form the core holdings due to robust capital expenditure programme underpinning earnings growth), construction (beneficiary of ETP programme), exporters/manufacturers (beneficiaries of weak Ringgit and recovering external demand like glove, tech, ICT etc) and plantation sector (rebound of CPO price from a decline in 2013), as well as property (pent up demand post digestion of cooling measures and compelling valuations). Kenanga Blue Chip Fund Interim Report 4

10 2.7 Income Distribution For the financial 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 financial period under review. 2.9 Significant changes in the state of affair of the Fund during the period There were no significant changes in the state of affair of the Fund during the period and up until the date of the manager s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the unitholders During the period under review, there were no circumstances that materially affected any interests of the unitholders Rebates & Soft commissions Any rebates received are channeled 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, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the period under review, the Manager has received soft commissions from stockbrokers. 5 Kenanga Blue Chip Fund Interim Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Blue Chip Fund (formerly known as ING Blue Chip) ( the Fund ) as at 31 March 2014 against last 3 financial years as at 30 September are as follows: a. Distribution among industry sectors and category of investments: As at FY FY FY % % % Trading/Services Finance Consumer products Infrastructure Plantation Properties Industrial products Construction Warrants REITs Collective investment schemes Short term deposits and cash Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invested in local investment securities and cash instruments only. Kenanga Blue Chip Fund Interim Report 6

12 3.2 Performance details of the Fund for the financial period ended 31 March 2014 against last 3 financial years ended 30 September are as follows: Period from FY FY FY to Net asset value ( NAV ) (RM Million) 21.20* Units in circulation (Million) NAV per unit (RM) * Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income distribution (%) 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 current period under review. 1 MER is lower against last fi nancial year as the computation is in respect of 6 months only. 2 PTR is lower against previous year as the computation is for 6 months only. * Based on bid price fair valuation method on all investments held by the Fund as at 31 March 2014, the NAV and NAV per unit would be RM21.11 million and RM respectively. (As disclosed under Note 11 of the fi nancial statements) 7 Kenanga Blue Chip Fund Interim Report

13 3.3 Average total return of the Fund 1 Year 3 Years 5 Years 31 Mar Mar Mar Mar Mar Mar 14 Kenanga Blue Chip Fund 14.18% 5.70% 17.59% FTSE-Bursa Malaysia 100 Index 10.66% 6.82% 24.44% Source: Lipper 3.4 Annual total return of the Fund Period under review 1 Year 1 Year 1 Year 1 Year 1 Year 30 Sep Sep Sep Sep Sep Sep Mar Sep Sep Sep Sep Sep 09 Kenanga Blue Chip Fund 4.28% 12.67% 13.40% -2.56% 19.40% 10.50% FTSE-Bursa Malaysia 100 Index 3.58% 9.86% 18.31% -3.57% 21.61% 19.86% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Blue Chip Fund Interim Report 8

14 4. TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA BLUE CHIP FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA BLUE CHIP FUND ( the Fund ) (formerly known as ING Blue Chip) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, has fulfi lled its duties in the following manner for the fi nancial period ended 31 March 2014: a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services (Amendment) Act 2012 and other applicable laws; b) Valuation/pricing of units of 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 ( A) LEE KOOI YOKE Chief Operating Offi cer Kuala Lumpur, Malaysia 26 May Kenanga Blue Chip Fund Interim Report

15 5. STATEMENT BY THE MANAGER We, Abdul Razak Bin Ahmad and Bruce Kho Yaw Huat, being the directors of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 March 2014 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 ended at 31 March 2014 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 Blue Chip Fund (formerly known as ING Blue Chip) as at 31 March 2014 and of its fi nancial performance and cash fl ows for the period then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Abdul Razak Bin Ahmad Bruce Kho Yaw Huat Kuala Lumpur, Malaysia 26 May 2014 Kenanga Blue Chip Fund Interim Report 10

16 6. FINANCIAL STATEMENT 6.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 1 OCTOBER 2013 TO 31 MARCH 2014 (unaudited) to to Note RM RM INVESTMENT INCOME Interest income 37,491 52,482 Dividend income 254, ,780 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 828, ,837 1,119,833 1,301,099 EXPENSES Manager s fee 4 170, ,563 Trustee s fee 5 8,983 13,833 Auditors remuneration 2,992 2,959 Tax agent s fee 1,745 1,627 Administration expenses 8,922 24, , ,764 NET INCOME BEFORE TAX 926, ,335 Income tax expense 6 (798) - NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 925, ,335 Net income after tax is made up as follows: Realised gain 584, ,363 Unrealised gain/(loss) 340,666 (26,028) 925, ,335 The accompanying notes form an integral part of the fi nancial statements. 11 Kenanga Blue Chip Fund Interim Report

17 6.2 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2014 (unaudited) Note RM RM INVESTMENT Financial assets at FVTPL 7 19,671,739 18,018,131 Short term deposits 8 1,385,576 4,539,394 21,057,315 22,557,525 OTHER ASSETS Other receivables 9 42,629 2,936,599 Tax recoverable 95, ,225 Cash at bank 10,332 10, ,906 3,047,496 TOTAL ASSETS 21,206,221 25,605,021 LIABILITIES Amount due to Manager 60, ,820 Amount due to Trustee 1,529 1,430 Other payables 35,791 1,993,129 TOTAL LIABILITIES 98,013 2,125,379 EQUITY Unitholder s contribution 14,074,928 23,372,878 Retained earnings 7,033, ,764 NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS 10 21,108,208 23,479,642 TOTAL EQUITY AND LIABILITIES 21,206,221 25,605,021 NUMBER OF UNITS IN CIRCULATION 10(a) 29,809,748 37,782,988 NET ASSET VALUE PER UNIT The accompanying notes form an integral part of the fi nancial statements. Kenanga Blue Chip Fund Interim Report 12

18 6.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD 1 OCTOBER 2013 TO 31 MARCH 2014 (unaudited) Unitholders Retained Total net Note contribution earnings asset value RM RM RM At beginning of the period 16,915,483 6,107,642 23,023,125 Total comprehensive income - 925, ,638 Creation of units 10(a) 6,496,285-6,496,285 Cancellation of units 10(a) (9,297,598) - (9,297,598) Distribution equalisation 10(a) (39,242) - (39,242) At end of the period 14,074,928 7,033,280 21,108, At beginning of the period 32,239,691 23,831,411 56,071,102 Total comprehensive income - 955, ,335 Creation of units 10(a) 1,449,579-1,449,579 Cancellation of units 10(a) (34,713,851) - (34,713,851) Distribution equalisation 10(a) 24,397,459 (24,679,982) (282,523) At end of the period 23,372, ,764 23,479,642 The accompanying notes form an integral part of the fi nancial statements. 13 Kenanga Blue Chip Fund Interim Report

19 6.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD 1 OCTOBER 2013 TO 31 MARCH 2014 (unaudited) CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES to to RM RM Proceeds from sale of fi nancial assets at FVTPL 2,584, ,634,178 Purchase of fi nancial assets at FVTPL (1,672,548) (96,845,791) Net dividends received 329, ,073 Interest received 37,631 53,315 Manager s fee paid (172,552) (341,978) Trustee s fee paid (8,933) (15,562) Auditors remuneration paid (6,960) (6,000) Rebate from management fee - 2,046 Payment for other fees and expenses (21,207) (23,889) Cash generated from operating and investing activities 1,068,940 24,052,392 Refund of tax 23,206 - Net cash generated from operating and investing activities 1,092,146 24,052,392 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 6,539,916 1,465,654 Cash paid on units cancelled (9,360,845) (35,788,913) Net cash used in fi nancing activities (2,820,929) (34,323,259) NET DECREASE IN CASH AND CASH EQUIVALENTS (1,728,783) (10,270,867) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,124,691 14,820,933 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 1,395,908 4,550,066 Cash and cash equivalents comprise: Cash at bank 10,332 10,672 Short term deposits 1,385,576 4,539,394 1,395,908 4,550,066 The accompanying notes form an integral part of the fi nancial statements. Kenanga Blue Chip Fund Interim Report 14

20 6.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD 1 OCTOBER 2013 TO 31 MARCH 2014 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Blue Chip Fund (formerly known as ING Blue Chip) (herein after referred to as The Fund ) was constituted pursuant to the executed Deed dated 16 April 2004 (collectively, together with the deeds supplemental thereto, referred to as the Deed ) between ING Funds Berhad (currently known as Kenanga Funds Berhad) and CIMB Commerce Trustee Berhad as the Trustee. The Fund commenced operations on 23 April 2004 and will continue to be in operation until terminated by the Trustee as provided under Clause 38 of the Deed. Pursuant to the executed Seventh Supplemental Deed dated 15 May 2013 between Kenanga Investors Berhad and CIMB Commerce Trustee Berhad, Kenanga Investors Berhad was appointed as the Manager of the Fund with effect from 8 June 2013 and the name of the Fund was changed from ING Blue Chip to Kenanga Blue Chip Fund. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, which in turn is a wholly-owned subsidiary of K & N Kenanga Holdings Berhad, listed on the main board of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Suite 12.02, 12 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The Fund seeks to provide unitholders long term capital growth throught investments in companies that have relatively larger market capitalization. Such companies are characteriesed by large-scale operations, strong fi nancial and business track records and are leaders in their respective fi elds that generally referred to as blue chip companies. The fi nancial statements were authorised for issue by the Chief Executive Offi cer of the Manager on 26 May FINANCIAL RISK AND 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. 15 Kenanga Blue Chip Fund Interim Report

21 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) 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. Market risk arises when the value of the fi nancial instruments fl uctuate 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 prices of fi nancial instruments caused by uncertainties in the economic, political and social environment will affect the fair value of the Fund. The Manager manages the risk of unfavorable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les. i. Interest rate risk 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 assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Kenanga Blue Chip Fund Interim Report 16

22 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Non-exposure Weighted to interest average Up to rate effective 1 year movement Total interest rate* RM RM RM % Assets Financial assets at FVTPL - 19,671,739 19,671,739 Short term deposits 1,385,576-1,385, Other assets - 52,961 52,961 1,385,576 19,724,700 21,110,276 Liabilities Other liabilities - 98,013 98,013-98,013 98,013 Total interest rate sensitivity gap 1,385,576 19,626,687 21,012, Assets Financial assets at FVTPL - 18,018,131 18,018,131 Short term deposits 4,539,394-4,539, Other assets - 2,947,271 2,947,271 4,539,394 20,965,402 25,504,796 Liabilities Other liabilities - 2,125,379 2,125,379-2,125,379 2,125,379 Total interest rate sensitivity gap 4,539,394 18,840,023 23,379,417 * Computed based on interest-bearing assets only. 17 Kenanga Blue Chip Fund Interim Report

23 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk Price risk is the risk of unfavorable changes in the fair values of quoted equity securities, quoted warrants and quoted collective investment schemes. The Fund invests in quoted equity securities, quoted warrants and quoted collective investment schemes which are exposed to price fl uctuations. This may then affect the unit price of the Fund. Price risk sensitivity Manager s best estimate of the effect on the profi t for the period due to a reasonably possible change in investments in quoted equity securities, quoted warrants and quoted collective investment schemes, with all other variables held constant is indicated in the table below: Changes in price Increase/(Decrease) Basis points Effect on profit for the period Increase/(Decrease) RM Financial assets at FVTPL 5/(5) 9,836/(9,836) Financial assets at FVTPL 5/(5) 9,009/(9,009) 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 set 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 19,671,739 18,018, Kenanga Blue Chip Fund Interim Report 18

24 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) The Fund s concentration of equity price risk analysed by the Fund s equity securities and collective investment scheme by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 7,705,564 7,727, Finance 5,125,730 3,510, Consumer products 1,637, , Infrastructure 1,535,283 1,641, Plantation 1,280,721 1,522, Properties 927, , Industrial products 808,842 1,029, Construction 386, , Warrants 60, , REITs 203, ,671,739 18,018, 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 At the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial assets 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 deposits only with reputable fi nancial institutions. The following table analyses the fi nancial institutions by rating category: 19 Kenanga Blue Chip Fund Interim Report

25 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iii. Credit quality of financial assets (Contd.) 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 unitholder s option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Fund s Trust 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. 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. Kenanga Blue Chip Fund Interim Report 20

26 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) Note Up to 1 year RM Assets Financial assets at FVTPL 19,671,739 Short term deposits 1,385,576 Other assets 52,961 (i) 21,110,276 Liabilities Other liabilities (ii) 98,013 Equity (iii) 21,108,208 Liquidity gap (95,945) Assets Financial assets at FVTPL 18,018,131 Short term deposits 4,539,394 Other assets 2,947,271 (i) 25,504,796 Liabilities Other liabilities (ii) 2,125,379 Equity (iii) 23,479,642 Liquidity gap (100,225) 21 Kenanga Blue Chip Fund Interim Report

27 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) 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 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 dated. When 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 unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. As a result, it appears that the Fund has a liquidity gap within up to 1 year. However, the Fund believes that it would be able to liquidate its investments should the need arises to satisfy all the redemption requirements of the Fund. 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 Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by International Accounting Standards Board ( IASB ). The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards and Interpretations Issued But Not Yet Effective As at the date of authorisation of these fi nancial statements, the following Standards and Amendments have been issued by MASB but are not yet effective and have not been adopted by the Fund. Kenanga Blue Chip Fund Interim Report 22

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standard and Interpretations Issued But Not Yet Effective (Contd.) Description Effective for financial period beginning on or after Amendments to MFRS 132: Offsetting Financial Assets and Financial Liabilities 1 January 2014 Amendments to MFRS 10, MFRS 12, and MFRS 127: Investment Entities 1 January 2014 Amendments to MFRS 136: Recoverable Amount Disclosure for Non-Financial Assets 1 January 2014 IC Interpretation 21 Levies 1 January 2014 Amendments to MFRSs contained in the documents entitled Annual Improvements cycle 1 July 2014 Amendments to MFRSs contained in the documents entitled Annual Improvements cycle 1 July 2014 MFRS 9: Financial Instruments (IFRS 9 Issued by IASB in November 2009) To be announced MFRS 9: Financial Instruments (IFRS 9 Issued by IASB in October 2010) To be announced MFRS 9: Financial Instruments: Hedge Accounting and amendments to MFRS 9, MFRS 7 and MFRS 139 To be announced 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 refl ects the fi rst phase of work on the replacement of MFRS 139 and applies to classifi cation and measurement of fi nancial assets and fi nancial liabilities as defi ned in MFRS 139. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to MFRS 9: Mandatory Effective Date of MFRS 9 and Transition Disclosures, issued in March 2012, moved the mandatory effective date to 1 January Subsequently, on 14 February 2014, it was announced that the new effective date will be decided when the project is closer to completion. The adoption of the fi rst phase of MFRS 9 will have an effect on the classifi cation and measurement of the Fund s fi nancial assets, but will not have an impact on classifi cation and measurements of the Fund s fi nancial liabilities. The Fund will quantify the effect in conjunction with the other phases, when the fi nal standard including all phases is issued. 23 Kenanga Blue Chip Fund Interim Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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 instrument. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at fair value through profi t or loss, directly attributable transaction costs. The Fund determines the classifi cation of its fi nancial assets at initial recognition which are receivables. 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 quoted equity securities, quoted warrants and quoted collective investment schemes 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 fi nancial asset is derecognised when the contractual right to receive cash fl ows from the asset has expired. On derecognition of a fi nancial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Kenanga Blue Chip Fund Interim Report 24

30 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 rate of return. 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 rate method. Dividend income is recognised on declared basis, when the right to receive the dividend is established. 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 fi nancial institutions. g. Income Tax Expense Income tax on the profi t or loss for the period comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the period. 25 Kenanga Blue Chip Fund Interim Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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 in nature. 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 Fund Manager. A distribution to the Fund s unitholders is accounted for as a deduction from retained earnings. Kenanga Blue Chip Fund Interim Report 26

32 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. MANAGER S FEE The Manager s fee is computed on a daily basis at a rate not less than 1.2% per annum and not exceeding 3.0% per annum of the NAV of the Fund as provided under Clause 13(2) of the Deed. The Manager is currently charging Manager s fee of 1.55% per annum of the NAV of the Fund. 5. TRUSTEE S FEE The Trustee s fee is computed on a daily basis at a rate not exceeding 0.20% per annum of the NAV of the Fund and subject to a minimum fee of RM18,000 per annum as provided under Clause 13(7) of the Deed. The Trustee s fee is currently computed at 0.07% per annum of the NAV of the Fund. 6. INCOME TAX EXPENSE to to RM RM Malaysian income tax: Current period tax 5,900 - Over provision for pior period (5,102) Kenanga Blue Chip Fund Interim Report

33 6. INCOME TAX EXPENSE (CONTD.) Income tax is calculated at the Malaysian statutory tax rate of 25% of the estimated assessable income for the fi nancial period. The statutory tax rate will be reduced to 24% effective year of assessment Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows: to to RM RM Net income before tax 926, ,335 Tax at Malaysian statutory tax rate of 25% (fi nancial period 1 October 2012 to 31 March 2013: 25%) 231, ,800 Tax effect of: Income not subject to tax (269,500) (331,800) Loss not subject to tax - 6,500 Expenses not deductible for tax purposes 3,000 6,400 Restriction on tax deductible expenses or unit trust fund 40,800 72,100 Permitted expenses not used and not available for future years - 8,000 Over provision of tax in prior years (5,102) - Tax expense for the period FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Quoted equity securities 19,408,107 17,672,765 Quoted warrants 60, ,366 Qouted collective investment schemes 203,312-19,671,739 18,018,131 Net gain on fi nancial assets at FVTPL comprised: Realised gain on disposals 487, ,865 Unrealised change in fair values 340,666 (26,028) 828, ,837 Kenanga Blue Chip Fund Interim Report 28

34 7. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of fi nancial assets at FVTPL as at 31 March 2014: Quoted equity securities Aggregate Fair Percentage Quantity cost Value of NAV RM RM % Trading/Services AEON CO. (M) BHD. 24, , , AirAsia Berhad 86, , , Axiata Group Berhad 122, , , Genting Berhad 83, , , Maxis Berhad 149, ,113 1,035, SapuraKencana Petroleum Berhad 167, , , Sime Darby Berhad 77, , , Telekom Malaysia Berhad 158, , , Tenaga Nasional Berhad 172,800 1,265,555 2,063, ,041,290 6,565,427 7,705, Finance Alliance Financial Group Berhad 30, , , AMMB Holdings Berhad 90, , , BIMB Holdings Berhad 162, , , CIMB Group Holdings Berhad 206,514 1,569,006 1,472, Malayan Banking Berhad 181,337 1,669,859 1,748, RHB Capital Berhad 50, , , ,641 5,006,597 5,125, Consumer products British American Tobacco (M) Berhad 3, , , Guinness Anchor Berhad 37, , , PPB Group Berhad 32, , , UMW Holdings Berhad 30, , , ,000 1,753,624 1,637, Infrastructure DiGi.Com Berhad 285,900 1,327,329 1,535, Plantation IOI Corporation Berhad 95, , , Kuala Lumpur Kepong Berhad 13, , , United Plantations Berhad 20, , , ,500 1,156,357 1,280, Properties IJM Land Berhad 161, , , S P Setia Berhad 114, , , Sunway Berhad 41, , , , , , Kenanga Blue Chip Fund Interim Report

35 7. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of fi nancial assets at FVTPL as at 31 March 2014 (Contd.): Quoted equity securities (Contd.) Aggregate Fair Percentage Quantity cost Value of NAV RM RM % Industrial products Hartalega Holdings Berhad 43, , , PETRONAS Gas Berhad 21, , , , , , Construction Gamuda Berhad 82, , , Total quoted equity securities 2,748,231 17,823,217 19,408, Quoted warrants Gamuda Berhad - WA 20,800 31,200 60, Total quoted warrants 20,800 31,200 60, Quoted collective investment schemes Pavilion Real Estate Investment Trust 74, ,040 97, Sunway Real Estate Investment Trust 78, , , Total quoted collective investment schemes 152, , , Total Financial asset at FVTPL 18,091,542 19,671, Excess of fair value over cost 1,580,197 Kenanga Blue Chip Fund Interim Report 30