KENANGA MALAYSIAN INC FUND

Transcription

1 Kenanga Investors Berhad ( P) KENANGA MALAYSIAN INC FUND Annual Report For The Financial Year Ended 31 January 2015

2 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 Independent Auditor s Report Statement by the Manager 12 Financial Statement 13-39

3 CORPORATE DIRECTORY Manager: Kenanga Investors Berhad (Company No P) Registered office Kenanga Investors Berhad (KIB) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Business Office Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Website: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Bruce Kho Yaw Huat Ismitz Matthew De Alwis Investment Committee Bruce Kho Yaw Huat (Chairman) Syed Zafilen Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Ismitz Matthew De Alwis Company Secretary: Norliza Abd Samad (MAICSA ) 9th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Trustee: CIMB Commerce Trustee Berhad (Company No A) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: 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) , 6th Floor, PNB Damansara, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga Malaysian Inc Fund Annual Report

4 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12th 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 16th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah Penang. Tel : Fax : Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport 5 Jalan Bukit Meldrum Johor Bahru, Johor Tel: /4798 Fax: Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3rd Floor Block A Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh Suite 1, 2nd Floor, 63 Persiaran Greenhill, Ipoh, Perak, Malaysia Tel: /7570 Fax: Seremban 2nd Floor, No. 1D-2 Jalan Tuanku Munawir Seremban, Negeri Sembilan. Tel : Fax : Kenanga Malaysian Inc Fund Annual Report iii

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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 diversified investments mainly in equities and shortterm 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 unit holders 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 specified period, where possible. 1.8 Breakdown of unit holdings of KMIF as at 31 January 2015 Size of holdings No. of unitholders No. of units held 5,000 and below ,246 5,001-10, ,483 10,001-50, ,074,003 50, , ,061, ,001 and above 5 10,172,517 Total ,859,386 Kenanga Malaysian Inc Fund Annual Report 1

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund has appreciated by 8.26% 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/ /1/2015) Kenanga Malaysian Inc Fund vs FTSE-Bursa Malaysia 100 Index % Growth, Cum, TR, ExD, MYR, Launch to 31/1/ /9/ /12/ /12/ /12/ /12/ /12/ /12/ /12/2013 Kenanga Malaysia Inc : FTSE Bursa Malaysia Top 100 CR : /12/2014 Source: Lipper 2.3 Investment strategies and policies employed during the period under review For the 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. Sectors that we favour include the export and manufacturing sector and construction companies with exposure to ETP projects. 2 Kenanga Malaysian Inc Fund Annual Report

8 2.4 The Fund s asset allocation as at 31 January 2015 and comparison with the previous financial period Asset 31 Jan Jan 2014 Quoted investment securities 86.6% 89.5% Short term deposits and cash 13.4% 10.5% Reason for the differences in asset allocation As at 31 January 2015, the asset allocation of the Fund stood at around 86.6% in equities and the balance of around 13.4% in liquidity. The investment level decreased slightly after the fund took some profit in January. 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 8.26% FTSE-Bursa Malaysia 100 Index (FMB-100) -1.62% Source: Lipper For the period under review, the Fund appreciated by 8.26%, outperforming the -1.62% decline in the FBM100. The outperformance was mainly due to better stock selection. 2.6 Review of the market Market Review For the 1H of the period under review (Feb 14 July 14), equity markets did well driven by rising optimism of US growth, coupled with further financial stimulus from the European Central Bank (ECB) and Japan to stimulate their respective economies. India was among the biggest gainers as it benchmark index rose about 26% during the first half of financial year 2014 after the Bharatiya Janata Party won with the biggest majority in the last 30 years to provide optimism of a good and stable government. Philippines and Indonesia also did well after S&P raised Philippine s credit rating to another notch above investment grade while the market viewed the election of Jokowi as the President for Indonesia favourably. On the local front, the FBM 100 Index rebounded in-line with the region, increasing by 3.9% from February to July. Meanwhile, Malaysia posted a strong 1H GDP growth of 6.3% y-o-y. In July, Bank Negara s raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25% and cited stable economic growth but elevated inflation as the reasons for the increase. Kenanga Malaysian Inc Fund Annual Report 3

9 2.6 Review of the market (Contd.) Market Review (Contd.) The market turned negative later in 2014, mainly impacted by the sharp drop in oil price. WTI and Brent both corrected about 49% from their highs of USD105.37/barrel and USD112.36/barrel, to close at USD53.27/barrel and USD57.33/barrel respectively at end of The correction had particular negative impact on markets which are net oil exporters, particularly Malaysia. As such, local market saw heavy selling in the oil and gas sector which eventually spread to the broader market as concerns arose regarding the impact on government finances and the current account. News-flow remained bearish, with Petroliam Nasional Bhd (Petronas) announcing that they will be reviewing their contribution to the government and also its expenditure allocation in view of the declining global crude oil prices. The government also took the opportunity to remove fuel subsidies for RON95 and diesel following the implementation of a managed float system similar to that used on RON97. Additionally, corporate earnings continued to disappoint expectations, dampening sentiment on the market. Y-o-Y earnings growth for the market was revised down to sub 1% levels for 2014 from high single digit previously, the third consecutive year of similar downgrades. The market rebounded in January 2015, driven by bargain hunting activities while oil price appeared to have stabilized, at least temporarily. The FBM100 gained 1.4% while Brent crude oil recovered to USD53/bbl towards month-end from a low of USD48.7/bbl during the month. The government lowered its 2015 GDP growth forecast to % and assumed a wider fiscal deficit of 3.2%. It also outlined several measures to promote growth. Meanwhile, Bank Negara has kept its overnight policy rate (OPR) unchanged at 3.25%. Market Outlook We remain constructive on equities as global monetary policy remains accommodative, with European Central Bank (ECB) recently announcing a larger than expected quantitative easing (QE) in January 2015, as well as rates cuts by major economies like India and Australia. Should oil prices recover, the outlook for oil exporting counties such as Malaysia will brighten as investors refocus on fundamentals such as improvement from fiscal reform and infrastructure development. Nevertheless, the local market has rebounded in the first 2 months of 2015 and profit taking activities might cap near term upside given concerns regarding the impact on private consumption post implementation of the GST. Externally, the key risk to monitor is still the timing of potential US rate hikes. Strategy We will position defensively going into the fiscal year of 2015/16 after the rebound in Jan-Feb 15 in light of the anticipated volatility, while selectively bargain hunting on any market weakness. We will adopt a barbell strategy of holding a good balance of defensive stocks and beta/cyclical exposure. Sector wise, we favour those with strong fundamentals such as the construction sector which will benefit from the continued rollout of infrastructure projects while the export sector will benefit from improved demand in the US together with MYR weakness. We also will opportunistically bargain hunt in beaten down sectors such as the mid-cap space and selected oil and gas names. 4 Kenanga Malaysian Inc Fund Annual Report

10 2.7 Income Distribution For the financial year 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 year 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 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, 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. Kenanga Malaysian Inc Fund Annual Report 5

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Malaysian Inc Fund ( the Fund ) for the last 3 financial years/period as at 31 January/31 December, respectively, are as follows: a. Distribution among industry sectors and category of investments: As at As at As at % % % Trading/Services Industrial products Finance Infrastructure Properties Technology Plantation Consumer products Construction REITs Warrants 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 invests in local quoted investment securities and cash instruments only. 6 Kenanga Malaysian Inc Fund Annual Report

12 3.2 Performance details of the Fund for the last 3 financial years/period ended 31 January/31 December, respectively, are as follows: FY Period from FY to to to Net asset value ( NAV ) (RM Million) 13.39* 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 financial years/period, 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. 1 MER is lower against last financial period due mainly to decrease in expenses during the financial year under review. 2 PTR is higher against last financial period mainly due to increase in trading activities during the financial year under review. * Based on bid price fair valuation method on all investments held by the Fund as at 31 January 2015, the NAV and NAV per unit would be RM13.36 million and RM respectively. (As disclosed under Note 12 of the financial statements) Kenanga Malaysian Inc Fund Annual Report 7

13 3.3 Average total return of the Fund 1 Year 31 Jan Jan Years 31 Jan Jan Years 31 Jan Jan 2015 Kenanga Malaysian Inc Fund 16.27% 6.14% 13.61% FTSE-Bursa Malaysia 100 Index 11.49% 6.51% 22.85% Source: Lipper 3.4 Annual total return of the Fund Kenanga Malaysian Inc Fund FTSE-Bursa Malaysia 100 Index Period under review 31 Jan Jan 15 Period 31 Dec Jan 14 1 Year 31 Dec Dec 12 1 Year 31 Dec Dec 11 1 Year 31 Dec Dec % 14.13% 3.60% 3.71% 10.66% 1.62% 8.11% 9.60% 1.94% 21.76% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. 8 Kenanga Malaysian Inc Fund Annual Report

14 4 TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA MALAYSIAN INC FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA MALAYSIAN INC FUND ( the Fund ) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, have fulfilled their duties in the following manner for the financial year ended 31 January 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 Act 2007 (as amended from time to time) and other applicable laws for the financial year ended 31 January 2015; 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 Officer Kuala Lumpur, Malaysia 23 March 2015 Kenanga Malaysian Inc Fund Annual Report 9

15 5. INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA MALAYSIAN INC FUND Report on the financial statements We have audited the financial statements of Kenanga Malaysian Inc Fund ( the Fund ), which comprise the statement of financial position as at 31 January 2015 and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 13 to 39 Manager s and Trustee s responsibility for the financial statements and fair presentation The Manager of the Fund is responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Trustee is responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these financial statements. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 10 Kenanga Malaysian Inc Fund Annual Report

16 5. INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA MALAYSIAN INC FUND (CONTD.) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 31 January 2015 and of its financial performance, changes in net asset value and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Other matters This report is made solely to the unitholders of the Fund, as a body, in accordance with the requirements of the Securities Commission Malaysia s Guidelines on Unit Trust Funds, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Chan Hooi Lam No. 2844/02/16(J) Chartered Accountant Kuala Lumpur, Malaysia 23 March 2015 Kenanga Malaysian Inc Fund Annual Report 11

17 6. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being the director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of financial position as at 31 January 2015 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year ended 31 January 2015 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 financial position of Kenanga Malaysian Inc Fund as at 31 January 2015 and of its financial performance and cash flows for the year then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Director Kuala Lumpur, Malaysia 23 March Kenanga Malaysian Inc Fund Annual Report

18 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2015 Note to RM to RM INVESTMENT INCOME Dividend income 399, ,575 Interest income 58,396 49,334 Net gain from investments: - Financial assets at fair value through profit or loss ( FVTPL ) 4 1,293,869 2,035,098 1,751,279 2,635,007 EXPENSES Manager s fee 5 262, ,161 Trustee s fee 6 7,283 17,786 Auditors remuneration - 16,500 Tax agent s fee 5,704 3,063 Administration expenses 20,709 8,870 Brokerage and other transaction costs 176, , , ,496 NET INCOME BEFORE TAX 1,278,645 2,102,511 Income tax 7 - (4,075) NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD 1,278,645 2,098,436 Net income after tax is made up as follows: Realised gain 1,262,830 2,042,220 Unrealised gain 15,815 56,216 1,278,645 2,098,436 The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Annual Report 13

19 7.2 STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2015 Note RM RM INVESTMENTS Financial assets at FVTPL 4 11,447,050 13,009,955 Short term deposits 8 1,760,000 1,500,000 13,207,050 14,509,955 OTHER ASSETS Other receivables 9 424, ,577 Tax recoverable 55,820 55,820 Cash at bank 5,441 32, , ,956 TOTAL ASSETS 13,692,889 14,924,911 LIABILITIES Amount due to Manager 101,957 22,191 Amount due to Trustee Other payables ,683 97,375 TOTAL LIABILITIES 330, ,182 EQUITY Unitholders contribution 23,346,386 26,067,053 Accumulated losses (9,983,679) (11,262,324) NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS 11 13,362,707 14,804,729 TOTAL EQUITY AND LIABILITIES 13,692,889 14,924,911 NUMBER OF UNITS IN CIRCULATION 11(a) 22,859,387 27,462,495 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. 14 Kenanga Malaysian Inc Fund Annual Report

20 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2015 Note Unitholders contribution Accumulated losses Total NAV RM RM RM to At beginning of the year 26,067,053 (11,262,324) 14,804,729 Total comprehensive income - 1,278,645 1,278,645 Creation of units 11(a) 2,953-2,953 Cancellation of units 11(a) (2,563,914) - (2,563,914) Distribution equalization 11(a) (159,706) - (159,706) At end of the year 23,346,386 (9,983,679) 13,362, to At beginning of the period 30,219,270 (13,360,760) 16,858,510 Total comprehensive income - 2,098,436 2,098,436 Creation of units 11(a) Cancellation of units 11(a) (4,537,698) - (4,537,698) Distribution equalisation 11(a) 384, ,798 At end of the period 26,067,053 (11,262,324) 14,804,729 The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Annual Report 15

21 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JANUARY to RM to RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial assets at FVTPL 21,304,668 22,210,953 Purchase of financial assets at FVTPL (18,605,189) (17,784,869) Dividends received 405, ,072 Interest from deposits received 58,363 49,284 Manager s fee paid (264,849) (307,557) Trustee s fee paid (7,357) (18,695) Auditors remuneration paid (7,000) (16,000) Tax agent s fee paid (3,400) (3,000) Payment for other fees and expenses (9,493) (8,933) Net cash generated from operating and investing activities 2,871,099 4,640,255 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 3, Cash paid on units cancelled (2,641,257) (4,162,465) Net cash used in financing activities (2,638,217) (4,161,741) NET INCREASE IN CASH AND CASH EQUIVALENTS 232, ,514 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD 1,532,559 1,054,045 CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD 1,765,441 1,532,559 Cash and cash equivalents comprise: Cash at bank 5,441 32,559 Short term deposits 1,760,000 1,500,000 1,765,441 1,532,559 The accompanying notes form an integral part of the financial statements. 16 Kenanga Malaysian Inc Fund Annual Report

22 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JANUARY 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 to Part 12 of the Deed. 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, 12th Floor, Kenanga International, Jalan Sultan Ismail, 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. The Fund changed its financial year end from 31 December to 31 January pursuant to the Fourth Master Supplemental Deed dated 1 October The financial statements were authorised for issue by the Chief Executive Officer of the Manager on 23 March 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 financial risks inherent in each type of financial 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 flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Kenanga Malaysian Inc Fund Annual Report 17

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a. Market Risk (Contd.) Market risk arises when the value of the investments fluctuates 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 valuation 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 profiles. i. Interest rate risk The risk refers to how the changes in the interest rate environment would affect the performance of the Fund s investments. Rates 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 significant interest rate risk as its deposits are short term in nature and have fixed 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. Weighted Nonexposure to Up to interest rate average effective interest 1 year movement Total rate* RM RM RM % 2015 Assets Financial assets at FVTPL - 11,447,050 11,447,050 Short term deposits 1,760,000-1,760, Other assets , ,019 1,760,156 11,876,913 13,637,069 Liabilities Other liabilities - 330, ,182 Total interest rate sensitivity gap 1,760,156 11,546,731 13,306, Kenanga Malaysian Inc Fund Annual Report

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Weighted Nonexposure to Up to interest rate average effective interest 1 year movement Total rate* RM RM RM % 2014 Assets Financial assets at FVTPL - 13,009,955 13,009,955 Short term deposits 1,500,000-1,500, Other assets , ,136 1,500,123 13,368,968 14,869,091 Liabilities Other liabilities - 120, ,182 Total interest rate sensitivity gap 1,500,123 13,248,786 14,748,909 * 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 quoted equity securities, quoted collective investment schemes and unquoted warrants. The Fund invests in quoted equity securities, quoted collective investment schemes and unquoted warrants which are exposed to price fluctuations. This may then affect the NAV per unit of the Fund. Price risk sensitivity The Manager s best estimate of the effect on the profit for the year due to a reasonably possible change in investments in quoted equity securities, quoted collective investment schemes and unquoted warrants with all other variables held constant is indicated in the table below: Kenanga Malaysian Inc Fund Annual Report 19

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity (Contd.) Changes in price Increase/(Decrease) Basis points Effects on profit for the year/period Increase/(Decrease) RM 2015 Financial assets at FVTPL 5/(5) 5,724/(5,724) 2014 Financial assets at FVTPL 5/(5) 6,505/(6,505) 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 financial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 11,447,050 13,009, The Fund s concentration of investment security price risk from the Fund s quoted equity securities, quoted collective investment schemes and unquoted warrants analysed by sector is as follows: 20 Kenanga Malaysian Inc Fund Annual Report

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) Fair value Percentage of NAV RM RM % % Trading/Services 3,815,437 4,511, Properties 1,572, , Industrial products 1,450, , Finance 1,034,999 1,959, Construction 916, , Technology 848, Infrastructure 717, , Consumer products 345,840 1,422, Plantation 268,818 1,589, REITs 468,052 1,566, Warrants 8, ,447,050 13,009, b. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial 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 financial asset recognised in the statement of financial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no financial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests in deposits only with reputable financial institutions. The following table analyses the financial institutions by rating category: Kenanga Malaysian Inc Fund Annual Report 21

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES 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 A c. Liquidity Risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial 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 Deed. The liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profile of the Fund s financial assets and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Note Up to 1 year RM RM Assets Financial assets at FVTPL 11,447,050 13,009,955 Short term deposits 1,760,000 1,500,000 Other assets 430, ,136 (i) 13,637,069 14,869,091 Liabilities Other liabilities (ii) 330, ,182 Equity (iii) 13,362,707 14,804,729 Liquidity gap (55,820) (55,820) 22 Kenanga Malaysian Inc Fund Annual Report

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) i. Financial assets Analysis of financial 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 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 unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of accounting The financial 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 accounting policies adopted are consistent with those of the previous financial period except for the adoption of the new and amended MFRS and IC Interpretations which became effective for the Fund on 1 February The adoption of the new and amended MFRS and IC Interpretations did not have any significant impact on the financial position or performance of the Fund. The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. Kenanga Malaysian Inc Fund Annual Report 23

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, Amendments and Interpretations Issued But Not Yet Effective As at the date of authorisation of these financial statements, the following Standards, Amendments and Interpretations have been issued by MASB but are not yet effective and have not been adopted by the Fund: Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual Improvements cycle 1 July 2014 Amendments to MFRS contained in the documents entitled Annual Improvements cycle 1 July 2014 Amendments to MFRS 119: Defined Benefit Plans: Employee Contributions 1 July 2014 MFRS 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2016 Amendments to MFRS contained in the documents entitled Annual Improvements to MFRS cycle 1 January 2016 MFRS 15 Revenue from Contracts with Customers 1 January 2017 MFRS 9 Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014) 1 January 2018 The Fund will adopt the above pronouncements when they become effective in the respective financial period. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. 24 Kenanga Malaysian Inc Fund Annual Report

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial Assets Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. i. Financial assets at FVTPL Financial assets are classified as financial 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 collective investment schemes and unquoted warrants acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those financial instruments are recorded in profit 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 fixed or determinable payments that are not quoted in an active market are classified as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profit 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. d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Kenanga Malaysian Inc Fund Annual Report 25

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of Financial Assets (Contd.) 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 flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial 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 year, 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 profit or loss. e. Income Income is recognised to the extent that it is probable that the economic benefits will flow 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. f. Cash and Cash Equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and short term deposits with financial institutions. g. Income Tax Income tax on the profit or loss for the year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year. 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 classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. 26 Kenanga Malaysian Inc Fund Annual Report

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) i. Financial Liabilities (Contd.) Financial liabilities are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. The Fund s financial liabilities are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit 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 classified 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 financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is 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. m. Significant Accounting Judgments and Estimates The preparation of financial 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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Kenanga Malaysian Inc Fund Annual Report 27

33 4. FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Quoted equity securities 10,970,479 11,443,841 Quoted collective investment schemes 468,052 1,566,114 Unquoted warrants 8,519-11,447,050 13,009,955 Net gain on financial assets at FVTPL comprised: Realised gain on disposals 1,278,054 1,978,882 Unrealised changes in fair values 15,815 56,216 1,293,869 2,035,098 Details of financial assets at FVTPL as at 31 January 2015: Quoted equity securities Quantity Aggregate Percentage cost Fair value of NAV RM RM % Trading/Services Axiata Group Berhad 71, , , Berjaya Auto Berhad 59, , , Bumi Armada Berhad 284, , , Genting Malaysia Berhad 51, , , KPJ Healthcare Berhad 77, , , Media Prima Berhad 89, , , SapuraKencana Petroleum Berhad 147, , , Scicom (MSC) Berhad 164, , , Sime Darby Berhad 28, , , Telekom Malaysia Berhad 37, , , Tenaga Nasional Berhad 50, , , Yinson Holdings Berhad 49, , , ,112,926 3,731,092 3,815, Properties IJM Land Berhad 114, , , KSL Holdings Berhad 124, , , S P Setia Berhad 79, , , Sunway Berhad 126, , , Tambun Indah Land Berhad 118, , , ,360 1,493,662 1,572, Kenanga Malaysian Inc Fund Annual Report

34 4. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of financial assets at FVTPL as at 31 January 2015 (Contd.): Quoted equity securities (Contd.) Quantity Aggregate Percentage cost Fair value of NAV RM RM % Industrial products Cahya Mata Sarawak Berhad 52, , , PETRONAS Gas Berhad 11, , , Reach Energy Berhad 360, , , SKP Resources Bhd 407, , , V. S. Industry Berhad 47,600 98, , Wellcall Holdings Berhad 146, , , ,025,300 1,298,049 1,450, Finance Malayan Banking Berhad 30, , , Public Bank Berhad 34, , , RHB Capital Berhad 17, , , ,633 1,044,811 1,034, Construction Econpile Holdings Berhad 162, , , Gamuda Berhad 96, , , Mitrajaya Holdings Berhad 230, , , , , , Technology Globetronics Technology Bhd. 52, , , IFCA MSC Berhad 150, , , Inari Amertron Berhad 118, , , K-One Technology Berhad 180,800 66,896 96, , , , Infrastructure DiGi.Com Berhad 85, , , Puncak Niaga Holdings Berhad 63, , , , , , Kenanga Malaysian Inc Fund Annual Report 29