Kenanga Investors Berhad ( P) KENANGA ISLAMIC FUND. For the Financial Period 1 January 2014 to 30 June 2014

Transcription

1 Kenanga Investors Berhad ( P) KENANGA ISLAMIC FUND Interim Report For the Financial Period 1 January 2014 to 30 June 2014

2 KENANGA ISLAMIC FUND Contents Page Corporate Directory ii-iii Directory of Manager s Offices iv Fund Information 1 Manager s Report 2-4 Fund Performance 5-7 Trustee s Report 8 Shariah Adviser s Report 9 Statement by the Manager 10 Financial Statement 11-37

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) YM Raja Dato Seri Abdul Aziz bin Raja Salim (Independent Director) Vivek Sharma (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) Vivek Sharma (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: External Fund Manager: Kenanga Islamic Investors Berhad (Company No D) Registered Office Kenanga Islamic Investors Berhad (KIIB) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Trustee: Universal Trustee (Malaysia) Berhad (Company No D) 1 Jalan Ampang, 3rd Floor, Kuala Lumpur, Malaysia. Tel: Fax: , , Shariah Adviser: IBFIM (Company No W) Registered Office Level 149A, 149B, 151B Persiaran Raja Muda Musa Port Klang Selangor Darul Ehsan, Malaysia Business Office Suite 12.03, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Business Office 3rd Floor, Menara Takaful Malaysia Jalan Sultan Sulaiman Kuala Lumpur, Malaysia. Tel: Fax: ii Kenanga Islamic Fund Interim Report

4 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: Kenanga Islamic Fund Interim Report iii

5 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 : iv Kenanga Islamic Fund Interim Report

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Islamic Fund (KIF or the Fund) 1.2 Fund Category / Type Equity (Islamic) / Growth 1.3 Investment Objective The Fund aims to achieve steady capital growth and income distribution (incidental) over the medium to long-term period by investing in a diversified portfolio of authorised investments in accordance with acceptable Shariah principles. 1.4 Investment Strategy The Fund seeks to maximise total returns by providing investors with a combination of capital appreciation and income distribution, if any, while reducing risk through diversified investments in Shariah-compliant equities. 1.5 Duration The Fund was launched on 15 August 2002 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 Emas Shariah Index (FBMS) 1.7 Distribution Policy The Fund intends to pay income by way of distributions or by the creation of additional units after the end of each Accrual Period (i.e. 12-month period ending on the last day of December of each year) or any specified period, where possible. 1.8 External Fund Manager Kenanga Islamic Investors Berhad 1.9 Breakdown of unit holdings of KIF as at 30 June 2014 Size of holdings No. of unitholders No. of units held 5,000 and below 2,436 4,235,818 5,001-10, ,806,780 10,001-50, ,143,519 50, , ,519, ,001 and above 13 30,224,298 Total 3,897 76,929,976 Kenanga Islamic Fund Interim Report 1

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund has appreciated by 6.9% in Net Asset Value terms for the period under review thereby achieving the Fund s stated objective of medium to long term capital appreciation. 2.2 Comparison between the Fund s performance during period under review and performance of the benchmark Performance Chart Since Launch (15/08/ /6/2014) Kenanga Islamic Fund vs FBMS % Growth, Cum, TR, ExD, MYR, Launch to 30/06/ /8/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /6/2014 Kenanga Islamic : FTSE Bursa Malaysia Emas Shariah CR : 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 Shariah-compliant securities of companies with sustainable business models and competent management. These companies also need to trade at a discount to their intrinsic/fair value. Sectors that we favour include the oil & gas related companies, consumer staples, takaful, Islamic REITS and companies with exposure ETP projects. 2 Kenanga Islamic Fund Interim Report

8 2.4 The Fund s asset allocation as at 30 June 2014 and comparison with the previous financial period Asset 30 June June 2013 Quoted Shariah-compliant investment securities 84.5% 88.2% Short term Islamic deposits and cash 15.5% 11.8% Reason for the differences in asset allocation As at 30 June 2014, the invested level of the Fund was 84.5% in Shariah-compliant investment securities. The decline in the invested level was due to high valuation in terms of price-earningsratio (PER) especially for the FBM Small Cap index. 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Islamic Fund 6.88% FTSE Bursa Malaysia Emas Shariah Index 2.57% Source: Lipper For the period under review to 30 June 2014, the Fund has appreciated by 6.9%, outperform the FBMS benchmark return by 4.3%. The outperformance was mainly due to Shariah-compliant stock selection. 2.6 Review of the market Market Review Market sentiment took a dive in January after the US Fed officially announced the QE reduction programme to start in January 2014, whilst keeping interest rates low. On the other hand, China saw sharp increases in interbank rates, as concerns over liquidity and rising credit spooked investors. As a result, most regional markets experienced a sell-off as capital was flowing out from the emerging markets. On the local front, the FBMS was down 3.4% month-on-month in January However, equity markets were quick to recover in the coming months, driven by rising optimism of US growth, coupled with further financial stimulus from European Central Bank (ECB) and Japan to stimulate their respective economies. India was the biggest gainer as it benchmark index rose 20% during the first half of 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. Meanwhile, risk of a hard landing in China seems to be abating as the Chinese May Purchasing Managers Index (PMI) regained momentum thanks to lower funding cost, tax cuts for small firms and accelerated spending for its infrastructure project by regional governments. On the local front, the FBMS index rose by 2.6% in the first half helped by a strong performance in the regional markets. Malaysia experienced a wave of foreign selling in the first quarter but the trend reversed as there is expectation that earnings growth will be stronger in the region. Malaysia recorded a strong first quarter GDP growth of 6.2%. However, the FBMS index was flatish in the final two months of the period under review due to expectation that Bank Negara will raise interest rates going forward. Kenanga Islamic Fund Interim Report 3

9 2.6 Review of the market (Contd.) Market Outlook We remain optimistic on equities as prospects are for global economic growth to gain momentum in the foreseeable future. However, interest rates globally are likely to trend up after staying at record lows for an extended period. Malaysia GDP growth will continue to remain strong due to improving exports and strong private investments. Corporate earnings, however, are likely to stayed muted this year as rising costs partially negates topline expansion. Pegging the FMBKLCI at 16.5x FY15 EPS, we believe the market has an upside potential to end the year higher with an index target of The 3rd quarter market performance is not among the most exciting based on historical statistics. The KLCI Index fell on average by 0.4% quarter-on-quarter from 2003 to We are currently experiencing a toppish market valuation, threat of an interest rate hike, creeping inflation but this is backed by ample liquidity. Put together, we think that the market would be lack-lustre with range bound trading until corporate earnings catches up with the current premium valuations. Portfolio Strategy We will continue to adopt a bar-bell strategy of beta and defensive Shariah-compliant stocks while adding positions on any market weakness. Our Shariah-compliant stock selection remains to favour sectors that will benefit from being the main economic drivers particularly the Islamic REITs, oil & gas, construction, exporters and manufacturers. The oil & gas sector continues to benefit from Petronas robust capital expenditure to develop the local oil & gas sector, whilst infrastructure development under the Economic Transformation Programme (ETP) will benefit the construction sector. The exporters/manufacturers will benefit from weaker Ringgit and improved external demand such as technology counters, gloves and materials. 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. 4 Kenanga Islamic Fund Interim Report

10 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Islamic Fund ( the Fund ) for the financial period as at 30 June 2014 against last 3 financial years as at 31 December are as follows: a. Distribution among industry sectors and category of investments: As at FY FY FY % % % % Trading/Services Plantation Industrial products Consumer products Finance Properties Construction Infrastructure Technology Islamic Real Estate Investment Trusts (REITs) Shariah-compliant Warrants Short term Islamic deposits and cash Note: The above mentioned percentages are based on total Shariah-compliant investment market value plus cash. b. Distribution among markets The Fund invested in local Shariah-compliant investment securities and cash instruments only. Kenanga Islamic Fund Interim Report 5

11 3.2 Performance details of the Fund for the financial period ended 30 June 2014 against last 3 financial years ended 31 December are as follows: Period from to FY FY FY Net asset value ( NAV ) (RM Million) 53.31* 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 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 Shariah-compliant 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 during the period under review. 1 MER is lower against last financial year as the computation is in respect of 6 months only. 2 PTR is lower against previous year due to a more conservative approach. * Based on bid price fair valuation method on all Shariah-compliant investments held by the Fund as at 30 June 2014, the NAV and NAV per unit would be RM53.05 million and RM respectively. (As disclosed under Note 13 of the financial statements) 6 Kenanga Islamic Fund Interim Report

12 3.3 Average total return of the Fund 1 Year 30 Jun Jun 14 3 Years 30 Jun Jun 14 5 Years 30 Jun Jun 14 Kenanga Islamic Fund 13.98% 14.80% 20.91% FTSE Bursa Malaysia Emas Shariah Index 8.89% 9.10% 15.96% Source: Lipper 3.4 Annual total return of the Fund Kenanga Islamic Fund FTSE Bursa Malaysia Emas Shariah Index Period under review 31 Dec Jun 14 1 Year 31 Dec Dec 13 1 Year 31 Dec Dec 12 1 Year 31 Dec Dec 11 1 Year 31 Dec Dec 10 1 Year 31 Dec Dec % 19.80% 8.69% 13.01% 18.50% 33.59% 2.57% 13.29% 11.85% 2.41% 18.20% 43.03% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga Islamic Fund Interim Report 7

13 4. TRUSTEE S REPORT We, Universal Trustee (Malaysia) Berhad ( the Trustee ), being the Trustee of Kenanga Islamic 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 period ended 30 June (a) (b) (c) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, other provisions of the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Securities Commission s Act 1993, Capital Markets and Services Act 2007 and other applicable laws during the financial period ended 30 June 2014; Valuation/pricing has been carried out in accordance with the Deed and any regulatory requirements; and Creation and cancellation of units have been carried out in accordance with the Deed and any relevant regulatory requirements. For and on behalf of the Trustee UNIVERSAL TRUSTEE (MALAYSIA) BERHAD LIEW KOK WAH Chief Executive Officer Kuala Lumpur, Malaysia 25 August Kenanga Islamic Fund Interim Report

14 5. SHARIAH ADVISER S REPORT To the Unitholders of Kenanga Islamic Fund We have acted as the Shariah Adviser of Kenanga Islamic Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Islamic Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial period ended 30 June We wish to draw your attention to the following: IOI Properties Group Bhd, a Shariah non-compliant security, was acquired on 19 December 2013 and subsequently disposed of on 15 January Net gain amounting to RM17, is to be channelled to baitulmal. In addition, we also confirm that the investment portfolio of Kenanga Islamic Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opine that these securities are designated as Shariahcompliant. For and on behalf of the Shariah Adviser IBFIM BUDEEMAN MANA Senior Shariah Officer/ Designated Person Responsible for Shariah Advisory Kuala Lumpur 25 August 2014 Kenanga Islamic Fund Interim Report 9

15 6. STATEMENT BY THE MANAGER We, Ismitz Matthew De Alwis 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 financial position as at 30 June 2014 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial period ended 30 June 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 financial position of Kenanga Islamic Fund as at 30 June 2014 and of its financial performance and cash flows for the period then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Bruce Kho Yaw Huat Kuala Lumpur, Malaysia 25 August Kenanga Islamic Fund Interim Report

16 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 1 JANUARY 2014 TO 30 JUNE 2014 (unaudited) Note to RM to RM INVESTMENT INCOME Profit income 111, ,159 Dividend income 652, ,264 Net gain from Shariah-compliant investments: - Financial assets at fair value through profit or loss ( FVTPL ) 7 2,924,994 4,132,502 3,689,602 4,794,925 EXPENSES Manager s fee 4 462, ,510 Trustee s fee 5 19,476 15,306 Auditors remuneration 4,113 8,093 Tax agent s fee 1,736 1,471 Administration expenses 4,169 7,280 Brokerage and other transaction cost 79,919 23, , ,502 NET INCOME BEFORE TAX 3,117,646 4,375,423 Income tax credit/(expense) (2,452) NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 3,117,961 4,372,971 Net income after tax is made up as follows: Realised gain 1,653,307 3,387,788 Unrealised gain 1,464, ,183 3,117,961 4,372,971 The accompanying notes form an integral part of the financial statements. Kenanga Islamic Fund Interim Report 11

17 7.2 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 (unaudited) Note RM RM INVESTMENTS Financial assets at FVTPL 7 44,869,346 35,519,627 Short term Islamic deposits 8,199,139 4,821,660 53,068,485 40,341,287 OTHER ASSETS Other receivables 10 28,913 59,848 Tax recoverable 19,519 64,723 Cash at bank 42,893 42,697 91, ,268 TOTAL ASSETS 53,159,810 40,508,555 LIABILITIES Amount due to Manager 67,454 59,960 Amount due to Trustee 3,499 2,496 Amount due to stockborkers - 112,860 Amount due to Baitulmal 9(a) 17,112 - Other payables 11 20,649 21,507 TOTAL LIABILITIES 108, ,823 EQUITY Unitholder s contribution 27,350,068 17,145,556 Retained earnings 25,701,028 23,166,176 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS 12 53,051,096 40,311,732 TOTAL EQUITY AND LIABILITIES 53,159,810 40,508,555 NUMBER OF UNITS IN CIRCULATION 12(a) 76,929,977 61,863,300 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. 12 Kenanga Islamic Fund Interim Report

18 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD 1 JANUARY 2014 TO 30 JUNE 2014 (unaudited) Note Unitholders contribution Retained earnings Total NAV RM RM RM At beginning of the period 20,304,395 22,583,067 42,887,462 Total comprehensive income - 3,117,961 3,117,961 Creation of units 12(a) 10,449,437-10,449,437 Cancellation of units 12(a) (3,554,819) - (3,554,819) Distribution equalisation 12(a) 151, ,055 At end of the period 27,350,068 25,701,028 53,051, At beginning of the period 20,571,568 18,793,205 39,364,773 Total comprehensive income - 4,372,971 4,372,971 Creation of units 12(a) 3,083,298-3,083,298 Cancellation of units 12(a) (5,395,524) - (5,395,524) Distribution equalisation 12(a) (1,113,786) - (1,113,786) At end of the period 17,145,556 23,166,176 40,311,732 The accompanying notes form an integral part of the financial statements. Kenanga Islamic Fund Interim Report 13

19 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD 1 JANUARY 2014 TO 30 JUNE 2014 (unaudited) to RM to RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial assets at FVTPL 8,428,314 22,916,712 Purchase of financial assets at FVTPL (10,357,886) (23,815,244) Net dividends received 836, ,135 Profit from Islamic deposits received 109, ,601 Manager s fee paid (448,935) (370,793) Trustee s fee paid (18,903) (15,613) Auditors remuneration paid (10,830) (16,500) Payment for other fees and expenses (6,539) (4,337) Cash used in operating and investing activities (1,468,853) (726,039) Refund of tax credit 16,742 50,876 Net cash used in operating and investing activities (1,452,111) (675,163) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 10,703,194 4,394,083 Cash paid on units cancelled (3,665,373) (7,840,306) Distribution paid (523,323) (2,854,723) Net cash generated from/(used in) financing activities 6,514,498 (6,300,946) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 5,062,387 (6,976,109) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 3,179,645 11,840,466 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 8,242,032 4,864,357 Cash and cash equivalents comprise: Cash at bank 42,893 42,697 Short term Islamic deposits 8,199,139 4,821,660 8,242,032 4,864,357 The accompanying notes form an integral part of the financial statements. 14 Kenanga Islamic Fund Interim Report

20 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD 1 JANUARY 2014 TO 30 JUNE 2014 (unaudited) 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Islamic Fund ( the Fund ) was constituted pursuant to the executed Deed dated 29 July 2002 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Investors Berhad and Universal Trustee (Malaysia) Berhad as the Trustee. The Fund commenced operation on 15 August 2002 and will continue to be in operation until terminated as provided under 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 achieve steady capital growth and income distribution (incidental) over the medium to long-term period by investing in a diversified portfolio of authorised investments in accordance with accepted Shariah principles. The financial statements were authorised for issue by the Interim Chief Executive Officer of the Manager on 25 August 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, liquidity risk and reclassification of Shariah status 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 a Shariah-compliant investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which set 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. Market risk arises when the value of the quoted Shariah-compliant 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 Shariah-compliant investments prices caused by uncertainties in the economic, political and social environment will affect the fair value of the Fund. Kenanga Islamic Fund Interim Report 15

21 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) The Manager manages the risk of unfavorable changes in prices by cautious review of the Shariah-compliant 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 Shariah-compliant instruments. In the event of a rising interest rate environment, the performance of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the overnight policy rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in any way suggest that the Fund will invest in conventional financial instruments. 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. Up to 1 year Nonexposure to interest rate movement Weighted average effective rate Total of return* RM RM RM % Assets Financial Assets at FVTPL - 44,869,346 44,869,346 Short term Islamic deposits 8,199,139-8,199, Other assets 2,539 69,267 71,806 8,201,678 44,938,613 53,140,291 Liabilities Other liabilities - 108, ,714 Total interest rate sensitivity gap 8,201,678 44,829,899 53,031, Kenanga Islamic Fund Interim Report

22 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Up to 1 year Nonexposure to interest rate movement Weighted average effective rate Total of return* RM RM RM % Assets Financial Assets at FVTPL - 35,519,627 35,519,627 Short term Islamic deposits 4,821,660-4,821, Other assets , ,545 4,822,397 35,621,435 40,443,832 Liabilities Other liabilities - 196, ,823 Total interest rate sensitivity gap 4,822,397 35,424,612 40,247,009 * Computed based on Shariah-compliant 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 Shariahcompliant equity securities and quoted Shariah-compliant collective investment schemes. The Fund invests in quoted Shariah-compliant equity securities and quoted Shariah-compliant collective investment schemes which are exposed to price fluctuations. This may then affect the unit price of the Fund. Price risk sensitivity Manager s best estimate of the effect on the profit for the year due to a reasonably possible change in investments in quoted Shariah-compliant equity securities and quoted Shariah-compliant collective investment schemes, with all other variables held constant is indicated in the table below: Kenanga Islamic Fund Interim Report 17

23 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity (Contd.) Changes in price Increase/(Decrease) Basis points Effect on profit for the period Increase/(Decrease) RM Financial assets at FVTPL 5/(5) 22,435/(22,435) Financial assets at FVTPL 5/(5) 17,760/(17,760) 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 financial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 44,869,346 35,519, The Fund s concentration of Shariah-compliant equity price risk from the Fund s Shariah-compliant equity securities and Shariah-compliant collective investment schemes, analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 17,226,295 14,265, Plantations 5,248,814 2,581, Industrial products 5,240,775 3,540, Consumer products 2,948,560 5,017, Finance 2,544,994 1,161, Properties 2,421,333 2,512, Construction 2,292,568 1,795, Kenanga Islamic Fund Interim Report

24 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) Fair value Percentage of NAV RM RM % % Infrastructure 1,511, , Technology 588, Islamic REITS 4,846,783 3,773, ,869,346 35,519, 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 assets 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 invest in Islamic deposits only with reputable financial institutions. The following table analyses the financial institutions by rating category: Short term Islamic deposits Percentage of total short term Islamic deposits Percentage of NAV % % % % Rating P Kenanga Islamic Fund Interim Report 19

25 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) 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 Islamic liquid assets comprise cash, Islamic deposits with licensed financial institutions and other Shariah-compliant 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 Assets Financial assets at FVTPL 44,869,346 Short term Islamic deposits 8,199,139 Other assets 71,806 (i) 53,140,291 Liabilities Other liabilities (ii) 108,714 Equity (iii) 53,051,096 Liquidity gap (19,519) Assets Financial assets at FVTPL 35,519,627 Short term Islamic deposits 4,821,660 Other assets 102,545 (i) 40,443,832 Liabilities Other liabilities (ii) 196,823 Equity (iii) 40,311,732 Liquidity gap (64,723) 20 Kenanga Islamic Fund Interim Report

26 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. 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. d. Reclassification of Shariah Status Risk The risk that the currently held Shariah-compliant securities in the portfolio of Shariahcompliant funds may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission ( SACSC ) performed twice yearly. If this occurs, the Manager will take the necessary steps to dispose of such securities. 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 year except for the adoption of the new and amended MFRS and IC interpretations which became effective for the Fund on 1 January 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 Islamic Fund Interim Report 21

27 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standard and Interpretations Issued But Not Yet Effective As at the date of authorisation of these financial statements, the following Standards and Amendments have been issued by MASB but are not yet effective and have not been adopted by the Fund. Description Effective for financial year 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 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 116 and MFRS 138: Property, Plant and Equipment and Intangible Assets 1 January 2016 Amendments to MFRS 11: Joint Arrangements 1 January 2016 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 Insrumentss: 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 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 reflects the first phase of work on the replacement of MFRS 139 and applies to classification and measurement of financial assets and financial liabilities as defined 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 first phase of MFRS 9 will have an effect on the classification and measurement of the Fund s financial assets, but will not have an impact on classification and measurements of the Fund s financial liabilities. The Fund will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued. 22 Kenanga Islamic Fund Interim Report

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial Assets Financial assets 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. 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 which are receivables. 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 Shariah-compliant equity securities and quoted Shariah-compliant collective investment schemes 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. Profit earned and dividend revenue elements of such instruments are recorded separately in profit 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 rate 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 Islamic Fund Interim Report 23

29 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 rate of return. 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. Profit income is recognised using the effective 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 flows, cash and cash equivalents include cash at bank and short term Islamic deposits with financial institutions. g. Income Tax Expense Income tax on the profit 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. h. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying Shariahcompliant 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. 24 Kenanga Islamic Fund Interim Report

30 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 rate 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 judgements 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 period. Kenanga Islamic Fund Interim Report 25

31 4. MANAGER S FEE The Manager s fee is calculated on a daily basis at a rate not exceeding 2.5% per annum of the NAV of the Fund as provided under Division 13.1 of the Deed. The Manager is currently charging Manager s fee of 1.90% per annum of the NAV of the Fund. 5. TRUSTEE S FEE The Trustee s fee is computed on a daily basis at 0.08% per annum of the NAV of the Fund and subject to a minimum fee of RM18,000 as provided under Division 13.2 of the Deed. The Trustee s fee is currently computed at 0.08% per annum of the NAV of the Fund. 6. INCOME TAX EXPENSE to RM to RM Malaysian income tax: Current period tax - 2,166 (Over)/Underprovision of tax in prior year (315) 286 (315) 2,452 Income tax is calculated at the Malaysian statutory tax rate of 25% of the estimated assessable income for the financial period. The statutory tax rate will be reduced to 24% effective from 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 RM to RM Net income before tax 3,117,646 4,375,423 Tax at Malaysian statutory tax rate of 25% (financial period 1 January 2013 to 30 June 2013: 25%) 779,411 1,093,856 Tax effect of: Income not subject to tax (922,400) (1,190,541) Expenses not deductible for tax purposes 25,581 11,239 Restriction on tax deductible expenses for unit trust fund 117,408 87,612 (Over)/Underprovision of tax in prior year (315) 286 Tax expense for the period (315) 2, Kenanga Islamic Fund Interim Report

32 7. FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Quoted Shariah-compliant equity securities 40,022,563 31,746,519 Quoted Shariah-compliant collective investment schemes 4,846,783 3,773,108 44,869,346 35,519,627 Net gain on financial assets at FVTPL comprised: Realised gain on disposals 1,460,340 3,147,318 Unrealised change in fair values 1,464, ,183 2,924,994 4,132,502 Details of financial assets at FVTPL as at 30 June 2014: Quoted Shariah-compliant equity securities Average Fair Percentage Quantity cost value of NAV Shares RM RM % Trading/Services AEON Co. (M) Berhad 283,400 1,108,112 1,125, Alam Maritim Resources Berhad 270, , , Axiata Group Berhad 58, , , Berjaya Auto Berhad 114, , , Dayang Enterprise Holdings Bhd. 290, ,000 1,039, Deleum Berhad 138, , , Dialog Group Berhad 285, ,928 1,078, Gas Malaysia Berhad 164, , , Integrax Berhad 99, , , Maxis Berhad 116, , , MBM Resources Berhad 159, , , Media Chinese International Limited [Note 9 (b) (i)] 704, , , Oldtown Berhad 409, , , Perdana Petroleum Berhad 304, , , Perisai Petroleum Teknologi Bhd. 433, , , PETRONAS Dagangan Berhad 55,900 1,378,890 1,343, SapuraKencana Petroleum Berhad 293, ,509 1,280, Sime Darby Berhad 85, , , Suria Capital Holdings Berhad 304, , , Telekom Malaysia Berhad 198, ,328 1,256, Tenaga Nasional Berhad 151,000 1,458,690 1,833, UMW Oil & Gas Corporation Berhad 64, , , ,986,430 14,338,715 17,226, Kenanga Islamic Fund Interim Report 27