KENANGA MALAYSIAN INC FUND ANNUAL REPORT

Transcription

1 KENANGA MALAYSIAN INC FUND ANNUAL REPORT For the Financial Year Ended 31 January 2018

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3 KENANGA MALAYSIAN INC FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-6 Fund Performance 7-9 Trustee s Report 10 Independent Auditors Report Statement by the Manager 14 Financial Statement 15-42

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

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

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Malaysian Inc Fund (KMIF or the Fund) 1.2 Fund Category / Type Equity / Growth 1.3 Investment Objective The Fund aims to provide consistent annual returns and medium to long-term capital appreciation by investing in Malaysian securities with global reach. 1.4 Investment Strategy The Fund seeks to maximise total returns by providing investors with capital appreciation and income (if any), while reducing risk through diversifi ed investments mainly in equities and money market instruments. 1.5 Duration The Fund was launched on 9 November 2007 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.6 Performance Benchmark FTSE-Bursa Malaysia 100 Index 1.7 Distribution Policy The Fund intends to pay income by way of distribution or by the creation of additional units after the end of each Accrual Period or any specifi ed period, where possible. 1.8 Breakdown of unit holdings of KMIF as at 31 January 2018 Size of holdings No. of unit holders No. of units held 5,000 and below 3,824 4,442,398 5,001-10, ,018,456 10,001-50,000 1,936 43,239,310 50, , ,087, ,001 and above ,603,215 Total 7, ,390,772 1 Kenanga Malaysian Inc Fund Annual Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. The Fund has appreciated by 21.91% 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/ /01/2018) Kenanga Malaysian Inc Fund vs FTSE-Bursa Malaysia 100 Index Source: Lipper 2.3 Investment strategies and policies employed during the financial year under review For the fi nancial year under review, the Fund continued with its strategy of investing in companies with sustainable business models and competent management. These are also companies that trade at a discount to their intrinsic/fair value. Themes favoured for the year under review included construction and infrastructure stocks, exporters, GLC reform/restructuring plays and commodities. 2.4 The Fund s asset allocation as at 31 January 2018 and comparison with the previous financial year Asset 31 Jan Jan 2017 Listed investment securities 89.4% 79.2% Short term deposits and cash 10.6% 20.8% Reason for the differences in asset allocation As at 31 January 2018, the asset allocation of the Fund stood at around 89.4% in equities and the balance of around 10.6% in liquidity. The investment level increased as the fund manager took a more positive view of the market and deployed liquidity. Kenanga Malaysian Inc Fund Annual Report 2

8 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Malaysian Inc Fund 21.91% FTSE-Bursa Malaysia 100 Index (FBM-100) 14.18% Source: Lipper For the year under review, the Fund appreciated 21.91%, outperforming the 14.18% increase in the FBM100. The outperformance was mainly due to better stock selection. 2.6 Review of the market Market Review Asian equity markets started January 2017 with a positive rally, thanks to the spilled over optimism from the US markets as Dow Jones hit all-time high of above 20,000 points.the FBMS Index continued its surge in February and March courtesy to persistent foreign buying after being absent in the domestic market for more than 3 years. March 2017 also recorded the largest foreign inflow of RM4.4bil (Mac 16: RM6.1bil foreign net infl ow) after three consecutive years ( ) of foreigners net selling totaling about RM30bil. Malaysia recorded 4Q2016 GDP growth of 4.5% yoy, above estimate of 4.4%, bringing 2016 growth to 4.2%. In Feb 2017, two major FDI milestones were announced: a) the launch of Digital Free Trade Zone with Alibaba setting up a regional distribution hub in KLIA Aeropolis; and b) US$7b investment by Saudi Aramco in RAPID refi nery and petrochemical project. There was no surprise monetary actions from the central banks in 1Q2017, both ECB and BOJ stay pat but Fed hiked 25bps as widely expected. The Bank Negara s annual report released by end March provided GDP growth forecast of 4.3%- 4.8% and CPI projection of 3%-4%, which were well within market expectations. The market charted another positive month in April but took a breather in May which is always a seasonally slow month. The US launched a military strike on a Syrian government airbase in response to a chemical weapons attack killing civilians and later dropped the largest conventional bomb on an ISIS area in eastern Afghanistan. North Korea also unveiled its new missile technology where US President Donald Trump was hoping on China to rein in North Korea s military aggression. In EU, UK Prime Minister Theresa May called for snap UK general election to strengthen her political grips before Brexit negotiation. Meanwhile, Emmanuel Macron defeated Marine Le Pen in the French presidential election which removed the risk of France leaving EU. In a widely expected move, OPEC and non-members agreed to extend production cuts by another nine months to March On the local front, Bank Negara announced liberalisation of MGS. The market and corporates was however shocked by a surprised announcement from TRX City voiding the sales of 60%-stake in Bandar Malaysia to IWH-CREC consortium done in Midsmall caps started a price correction as investors took profi t following a strong rally since beginning of the year. Malaysia also reported 1Q2017 GDP of 5.6% yoy which was above the 4.8% forecast, which is the strongest growth rate since 1Q Kenanga Malaysian Inc Fund Annual Report

9 2.6 Review of the market (contd.) Market Review (contd.) Asian markets continued to perform well in June with key indices reaching all-time high. As a widely expected move, US Fed raised interest rates for the second time in 2017 by 25bps after upgrading GDP growth forecast to 2.2% and unemployment rate to 4.3% for Sector wise, Technology suffered a minor selldown in June as investors rotate into fi nancial and energy stocks for value. The International Monetary Fund (IMF) remained confi dent that the global economic recovery is on a fi rmer footing this year on expectations of accelerating growth in the Euro-zone, Japan and China. In the July 2017 update of its World Economic Outlook (WEO), the IMF kept its global GDP forecast at 3.5% for 2017 and 3.6% for 2018 unchanged from its April 2017 outlook. Major European and Asian Indexes fell early August with concerns over North Korea, Hurricane Harvey, Spain terror attacks and the US political environment. Stronger economic data and positive corporate earnings propped up August numbers. The Jackson Hole Economic Policy Symposium accentuates the challenges faced by central bankers to spur wage infl ation despite falling global unemployment, as speeches from Janet Yellen and Mario Draghi avoided monetary policy, focusing on regulatory reforms and market risks. The third round of negotiations between UK and EU has begun, with a multi-year transitional agreement likely to arrive after March The regional markets were jittery in September as sabre rattling by North Korea sent investors into selling mode while heightened expectations of another US interest rate hike and balance sheet contraction this year following comments from Federal Reserve offi cials also added to the downbeat sentiment. Meanwhile, the Asian Development Bank came out a report and remained confi dent that the global economic recovery is on a fi rmer footing this year as controlled growth moderation in China is balanced by expected healthy growth elsewhere. Regional markets fared better in October compared to previous month driven by a recovery in tech stocks and easing geopolitical tension between China and Korea following the year-long standoff over deployment of anti-missile systems. Following this, both economies agreed to a currency swap agreement, which was key rerating catalyst for China-centric Korean equities. The month of November started off with the Bank of England raising UK interest rates for fi rst time since The Bank of England raised rates by 25bps but the Pound still fell as gloomy forecasts for growth appeared to rule out the prospect of steep increases in the cost of credit before As largely expected, President Donald Trump has named Jerome Powell as the next Federal Reserve Chairman. Key markets saw 2017 ended with mixed performance amid thin trading volume towards the end of the year. All three major US indices ended 2017 with the best annual gains since Nasdaq recorded the biggest yearly gain of 28.2% followed by Dow Jones and S&P500 which advanced by 25.1% and 19.4% each respectively. Kenanga Malaysian Inc Fund Annual Report 4

10 2.6 Review of the market (contd.) Market Review (contd.) The US Fed started to double the pace of its balance sheet reduction from USD10b to USD20b and will increase it by USD10b every three months. Meanwhile, ECB s plan is to reduce asset purchases from EUR60b to EUR30b until at least September. Bank of Japan reduced purchase of 10 to 25-year bonds and 25 to 40-year bonds by JPY10b each. China s December data were broadly within expectations but 4Q17 GDP growth was higher than expected and brought 2017 GDP growth to 6.9%, the fi rst pick-up since After the US Government shutdown ended, President Trump slapped steep tariffs of 20-50% on imported washing machines and solar panels. Korea stock exchange announced KRX300 Index to be launched on Feb 5, another bright spot for small-mid caps. In January 2018, MSCI Asia Pacifi c ex-japan posted the best monthly return since March 2016, gained 7.5% and outperformed MSCI World s 1%. Leaders were HSCEI, Hang Seng and SHCOMP. Upward revision on global growth forecast, USD weakness and increasing commodities prices presented an upbeat sentiment. Financials re-rated on better macroeconomic backdrop, Internet sector recovered after remaining subdued for the previous two months as investors rotated into value stocks but Technology hardware was still plagued by smartphone shipment concern. Brent and WTI crude oil were up 3% and 7% respectively due to strong demand in extremely cold winter. MYR, THB and RMB top the list of best-performing currencies, while PHP, KRW and HKD among the worst-performing. On the domestic front, FBMKLCI closed 4% higher driven by fi nancials that rallied on 25bps OPR hike by Bank Negara and the outperformance of PNB-related companies. Net infl ows expanded by another RM3.4b in January after total infl ows of RM10.8b in 2017, and international reserves continued to grow to USD103b as at Jan 22. Other key news include the tender submission for MRT Circle Line by three Malaysian consortiums and a Chinese joint-venture. Market Outlook Sentiment turned negative stepping into February with all markets reversing their earlier gains and Malaysia was no exception. We believe fundamentals have not changed materially to warrant a trend reversal, although equities valuations have admittedly turned overly expensive for certain markets, rendering this correction somewhat timely. Specifi cally for Malaysia, our positive view is supported by the strong economic growth, improving corporate earnings, whilst the appreciating MYR is supportive of fund fl ows. Post election, we anticipate the return of foreign fl ows and certain themes like rising FDI, China s Belt Road Initiatives, railway construction awards, GLC transformation should become more discerning in 2H, providing the positive backdrop. 5 Kenanga Malaysian Inc Fund Annual Report

11 2.6 Review of the market (contd.) Strategy With the timeline of GE14 closing in, we will tactically be more defensive and adopt buyon-weakness strategy in the next 3 months. Post-election, we anticipate the return of foreign fl ows and certain themes like rising FDI, China s Belt Road Initiatives, railway construction awards, GLC transformation should become more discerning in 2H, providing the positive backdrop. 2.7 Distribution For the fi nancial 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 fi nancial year under review. 2.9 Significant changes in the state of affair of the Fund during the financial year The fund has revised its investment policy and strategy by investing into global equities markets effect from 2 February Kindly refer to our Supplemental Master Prospectus dated 2 February 2018 for further details Circumstances that materially affect any interests of the unit holders During the fi nancial year under review, there were no circumstances that materially affected any interests of the unitholders Rebates & Soft commissions Any rebates received are channelled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, fi nancial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the fi nancial year under review, the Manager has received soft commissions from stockbrokers. Kenanga Malaysian Inc Fund Annual Report 6

12 3. FUND PERFORMANCE 3.1 Details of portfolio composition of the Fund for the last three financial years as at 31 January are as follow: a. Distribution among industry sectors and category of investments: FY FY FY % % % Trading/Services Industrial products Finance Constructions Consumer products Technology Properties Hotel Special Purpose Acquisition Company Plantations Real Estate Investment Trusts Warrants Loan stocks 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 listed investment securities and cash instruments only. 7 Kenanga Malaysian Inc Fund Annual Report

13 3.2 Performance details of the Fund for the last three financial years ended 31 January are as follows: FY FY FY Net asset value ( NAV ) (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income growth (%) Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective fi nancial years, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. Above NAV and NAV per unit are not shown as ex-distribution as there were no distribution declared by the Fund in the fi nancial year under review. 1 MER is lower against previous fi nancial years mainly due to the increase in average fund size during the fi nancial year under review. 2 PTR is higher against last fi nancial year as the fund manager deployed capital. * Based on bid price fair valuation method on all investments held by the Fund as at 31 January 2018, the NAV and NAV per unit would be RM million and RM respectively. (As disclosed under Note 12 of the fi nancial statements) Kenanga Malaysian Inc Fund Annual Report 8

14 3.3 Average total return of the Fund 1 Year 3 Years 5 Years 31 Jan Jan Jan Jan Jan Jan 18 Kenanga Malaysian Inc Fund 21.91% 12.83% 12.54% FTSE-Bursa Malaysia 100 Index 14.18% 3.22% 3.88% Source: Lipper 3.4 Annual total return of the Fund Period Period under review 1 Year 1 Year 1 Year from 31 Jan Jan Jan Jan Dec Jan Jan Jan Jan Jan 14 Kenanga Malaysian Inc Fund 21.91% 10.66% 7.46% 8.26% 13.85% FTSE-Bursa Malaysia 100 Index 14.18% 1.43% -5.83% -1.62% 7.73% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. 9 Kenanga Malaysian Inc Fund Annual Report

15 4 TRUSTEE S REPORT TO THE UNIT HOLDERS OF KENANGA MALAYSIAN INC FUND We, CIMB Commerce Trustee Berhad being the trustee of Kenanga Malaysian Inc Fund ( the Fund ), are of the opinion that Kenanga Investors Berhad ( the Manager ), acting in the capacity as Manager of the Fund, has fulfi lled its duties in the following manner for the fi nancial year ended 31 January a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation and pricing for the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB Commerce Trustee Berhad Lee Kooi Yoke Chief Operating Offi cer Kuala Lumpur, Malaysia 28 March 2018 Kenanga Malaysian Inc Fund Annual Report 10

16 5 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA MALAYSIAN INC FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the fi nancial statements of Kenanga Malaysian Inc Fund ( the Fund ), which comprise the statement of fi nancial position as at 31 January 2018, and the statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows of the Fund for the fi nancial year then ended, and notes to the fi nancial statements, including a summary of signifi cant accounting policies and other explanatory information, as set out on pages 15 to 42. In our opinion, the accompanying fi nancial statements give a true and fair view of the fi nancial position of the Fund as at 31 December 2017 and of its fi nancial performance and cash fl ows for the fi nancial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Basis for opinion We conducted our audit in accordance with approved standards of auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the fi nancial statements section of our report. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfi lled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the fi nancial statements and auditors report thereon The Manager of the Fund ( the Manager ) is responsible for the other information. The other information comprises the information included in the annual report of the Fund, but does not include the fi nancial statements of the Fund and our auditors report thereon. Our opinion on the fi nancial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the fi nancial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the fi nancial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 11 Kenanga Malaysian Inc Fund Annual Report

17 5 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA MALAYSIAN INC FUND (CONTD.) Responsibilities of the Manager and Trustee for the fi nancial statements The Manager is responsible for the preparation of fi nancial statements of the Fund that give a true and fair view in accordance with Malaysia 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 fi nancial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the fi nancial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund s fi nancial reporting process. The Trustee is also responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these fi nancial statements. Auditors responsibility for the audit of the fi nancial statements Our objectives are to obtain reasonable assurance about whether the fi nancial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these fi nancial statements. As part of an audit in accordance with approved standards of auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the fi nancial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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. Kenanga Malaysian Inc Fund Annual Report 12

18 5 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA MALAYSIAN INC FUND (CONTD.) Auditors responsibility for the audit of the fi nancial statements (contd.) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signifi cant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the fi nancial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the fi nancial statements of the Fund, including the disclosures, and whether the fi nancial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identify during our audit. Other matters This report is made solely to the unitholders of the Fund, as a body, in accordance with the Guidelines on Unit Trust Funds issued by the Securities Commission Malaysia 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.02844/02/2020 J Chartered Accountant Kuala Lumpur, Malaysia 28 March Kenanga Malaysian Inc Fund Annual Report

19 6. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 January 2018 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial year ended 31 January 2018 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the fi nancial position of Kenanga Malaysian Inc Fund as at 31 January 2018 and of its fi nancial performance and cash fl ows for the fi nancial 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 Executive Director/Chief Executive Offi cer Kuala Lumpur, Malaysia 28 March 2018 Kenanga Malaysian Inc Fund Annual Report 14

20 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2018 INVESTMENT INCOME Note RM RM Dividend income 3,594,030 1,024,507 Interest income 505, ,932 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 4 21,518,386 3,666,134 25,617,607 4,900,573 EXPENSES Manager s fee 5 2,294, ,932 Trustee s fee 6 63,761 18,942 Auditors remuneration 12,000 7,000 Tax agent s fee 4,000 4,000 Administration expenses 224,121 80,700 Brokerage and other transaction costs 1,093, ,320 3,692,294 1,159,894 NET INCOME BEFORE TAX 21,925,313 3,740,679 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 21,925,313 3,740,679 Net income after tax is made up as follows: Realised gain 7,410,982 1,454,379 Unrealised gain 4 14,514,331 2,286,300 21,925,313 3,740,679 The accompanying notes form an integral part of the financial statements. 15 Kenanga Malaysian Inc Fund Annual Report

21 7.2 STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY 2018 Note RM RM ASSETS INVESTMENTS Financial assets at FVTPL 4 179,908,603 50,174,355 Short term deposits 8 21,200,000 13,156, ,108,603 63,330,631 OTHER ASSETS Amount due from Manager 1,611, ,399 Amount due from licensed fi nancial institutions 8,266, ,529 Other receivables 9 135,117 51,161 Cash at bank 100,857 6,878 10,113, ,967 TOTAL ASSETS 211,222,189 63,652,598 LIABILITIES Amount due to Trustee 7,679 2,644 Amount due from licensed fi nancial institutions 18,027, ,733 Other payables 10 40,548 33,700 TOTAL LIABILITIES 18,076, ,077 EQUITY Unit holders contribution 176,734,770 68,828,595 Retained earning/(accumulated loss) 16,411,239 (5,514,074) NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNIT HOLDERS ,146,009 63,314,521 TOTAL LIABILITIES AND EQUITY 211,222,189 63,652,598 NUMBER OF UNITS IN CIRCULATION 11(a) 228,390,772 91,106,187 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Annual Report 16

22 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 JANUARY 2018 Retained earnings/ Unit holders (Accumulated Total Note contribution loss) NAV RM RM RM 2018 At beginning of the financial year 68,828,595 (5,514,074) 63,314,521 Total comprehensive income - 21,925,313 21,925,313 Creation of units 11(a) 140,994, ,994,565 Cancellation of units 11(a) (36,326,385) - (36,326,385) Distribution equalisation 11(a) 3,237,995-3,237,995 At end of the financial year 176,734,770 16,411, ,146, At beginning of the financial year 28,714,867 (9,254,753) 19,460,114 Total comprehensive income - 3,740,679 3,740,679 Creation of units 11(a) 43,094,961-43,094,961 Cancellation of units 11(a) (3,836,299) - (3,836,299) Distribution equalisation 11(a) 855, ,066 At end of the financial year 68,828,595 (5,514,074) 63,314,521 The accompanying notes form an integral part of the financial statements. 17 Kenanga Malaysian Inc Fund Annual Report

23 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JANUARY RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of fi nancial assets at FVTPL 140,768,594 39,254,019 Dividends received 3,507, ,222 Interest from deposits received 507, ,596 Tax agent s fee paid (3,500) (4,000) Auditors remuneration paid (9,500) (7,000) Trustee s fee paid (58,726) (17,025) Payment for other fees and expenses (169,867) (60,420) Manager s fee paid (2,110,654) (615,756) Purchase of fi nancial assets at FVTPL (240,547,168) (71,699,975) Cash used in operating and investing activities (98,115,556) (31,955,339) Income tax refunded - 42,269 Net cash used in operating and investing activities (98,115,556) (31,913,070) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 143,828,720 43,820,203 Cash paid on units cancelled (37,575,461) (3,938,275) Net cash generated from fi nancing activities 106,253,259 39,881,928 NET INCREASE IN CASH AND CASH EQUIVALENTS 8,137,703 7,968,858 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 13,163,154 5,194,296 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 21,300,857 13,163,154 Cash and cash equivalents comprise: Cash at bank 100,857 6,878 Short term deposits 21,200,000 13,156,276 21,300,857 13,163,154 The accompanying notes form an integral part of the financial statements. Kenanga Malaysian Inc Fund Annual Report 18

24 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR 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 with Part 12 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad. Prior to 1 November 2016, Kenanga Investment Bank Berhad was a whollyowned subsidiary of K & N Kenanga Holdings Berhad that was listed on the Main Market of Bursa Malaysia Securities Berhad. Pursuant to an internal reorganisation exercise completed on 1 November 2016, Kenanga Investment Bank Berhad has become the holding company of K & N Kenanga Holdings Berhad. On 2 November 2016, Kenanga Investment Bank Berhad has assumed the listing status of K & N Kenanga Holdings Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide consistent annual returns and medium to long term capital appreciation by investing in Malaysian securities with global reach. The fi nancial statements were authorised for issue by the Chief Executive Offi cer of the Manager on 28 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 fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unit holders, consistent with the long term objectives of the Fund. 19 Kenanga Malaysian Inc Fund Annual Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) 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 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 prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavourable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the performance of Fund s investments. Rate offered by the fi nancial institutions will fl uctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in deposits. The Fund is not exposed to signifi cant interest rate risk as its deposits are short term in nature and have fi xed interest rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s fi nancial assets and fi nancial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Weighted Non- average exposure to effective Up to interest rate interest 1 year movement Total rate* RM RM RM % 2018 Assets Financial assets at FVTPL - 179,908, ,908,603 Short term deposits 21,200,000-21,200, Other assets - 10,113,586 10,113,586 21,200, ,022, ,222,189 Liabilities Other liabilities - 18,035,632 18,035,632 Total interest rate sensitivity gap 21,200, ,986, ,186,557 Kenanga Malaysian Inc Fund Annual Report 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) i. Interest rate risk (contd.) Interest rate risk exposure (contd.) 21 Kenanga Malaysian Inc Fund Annual Report Weighted Non- average exposure to effective Up to interest rate interest 1 year movement Total rate* RM RM RM % 2017 Assets Financial assets at FVTPL - 50,174,355 50,174,355 Short term deposits 13,156,276-13,156, Other assets - 321, ,967 13,156,276 50,496,322 63,652,598 Liabilities Other liabilities - 304, ,377 Total interest rate sensitivity gap 13,156,276 50,191,945 63,348,221 * Computed based on assets with exposure to interest rate movement only. ii. Price risk Price risk is the risk of unfavourable changes in the fair values of listed equity securities, listed collective investment schemes, listed warrants and listed loan stocks. The Fund invests in listed equity securities, listed collective investment schemes, listed warrants and listed loan stocks 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 financial year due to a reasonably possible change in investments in listed equity securities, listed collective investment schemes, listed warrants and listed loan stocks with all other variables held constant is indicated in the table below: Effects on profit for Changes in price the financial year Increase/(Decrease) Increase/(Decrease) Basis points RM 2018 Financial assets at FVTPL 5/(5) 89,954/(89,954) 2017 Financial assets at FVTPL 5/(5) 25,087/(25,087)

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) ii. Price risk (contd.) Price risk sensitivity (contd.) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 179,908,603 50,174, The Fund s concentration of price risk from the Fund s listed equity securities, listed collective investment schemes, listed warrants and listed loan stocks analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 65,895,529 14,201, Industrial products 25,171,266 6,043, Finance 22,752,962 5,829, Constructions 21,884,180 11,895, Consumer products 18,412,558 3,613, Technology 10,246,194 1,357, Properties 9,723,422 3,429, Hotel 583, Special Purpose Acquisition Company 481, , Plantations - 2,195, Real Estate Investments Trusts 3,478,994 1,162, Warrants 821, Loan stocks 457, ,908,603 50,174, b. Credit risk Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. Kenanga Malaysian Inc Fund Annual Report 22

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk (contd.) i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no fi nancial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests in deposits with fi nancial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed fi nancial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating P WR c. Liquidity risk Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unit holders by the Manager are cancellable at the unit holders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The liquid assets comprise cash, short term deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days. 23 Kenanga Malaysian Inc Fund Annual Report

29 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.) The following table analyses the maturity profi le of the Fund s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Up to 1 year Note RM RM Assets Financial assets at FVTPL 179,908,603 50,174,355 Short term deposits 21,200,000 13,156,276 Other assets 10,113, ,967 i. 211,222,189 63,652,598 Liabilities Other liabilities ii. 18,035, ,377 Equity iii. 193,146,009 63,314,521 Liquidity gap 40,548 33,700 i. Financial assets Analysis of fi nancial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in listed equity securities, listed collective investment schemes, listed warrants and listed loan stocks 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 unit holders equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. ii. Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. iii. Equity As the unit holders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. Kenanga Malaysian Inc Fund Annual Report 24

30 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) d. Regulatory reportings It is the Manager s responsibility to ensure full compliance of all requirements under the Guidelines on Unit Trust Funds issued by Securities Commission Malaysia. Any breach of any such requirement will be reported in the mandatory reporting to Securities Commission Malaysia on a monthly basis. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of accounting The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous fi nancial year except for the adoption of the new and amended MFRS which became effective for the Fund on 1 February The adoption of the new and amended MFRS did not have any signifi cant impact on the fi nancial position or performance of the Fund. The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards, amendments and interpretations issued but not yet effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretations that have been issued by MASB will be effective for the Fund in future periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 Amendments to MFRS 1: First-time Adoption of Malaysian Financial Reporting Standards contained in the documents entitled Annual Improvements to MFRS Standards Cycle 1 January 2018 Amendments to MFRS 128: Investment in Associates and Joint Ventures contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 Clarifications to MFRS 15: Revenue from Contracts with Customers 1 January 2018 Amendments to MFRS 2: Classifi cation and Measurement of Shared-based Payment Transactions 1 January Kenanga Malaysian Inc Fund Annual Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, amendments and interpretations issued but not yet effective (contd.) Description Effective for financial period beginning on or after Temporary exemption from MFRS 9 subject to certain criteria being met for annual periods beginning Amendments to MFRS 4: Applying MFRS 9 Financial on or after Instruments with MFRS 4 Insurance Contracts 1 January 2018 Amendments to MFRS 140: Transfers of Investment Property 1 January 2018 IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2018 Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 3: Business Combinations contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 11: Joint Arrangements contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 112: Income Tax Consequences of Payments on Financial Instruments Classifi ed as Equity contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Amendments to MFRS 123: Borrowing Costs Eligible for Capitalisation contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 MFRS 16: Leases 1 January 2019 Amendments to MFRS 9: Prepayment Features with Negative Compensation 1 January 2019 Amendment to MFRS 128: Long-term interests in Associates and Joint Ventures 1 January 2019 IC Interpretation 23: Uncertainty Over Income Tax Treatments 1 January 2019 MFRS 17: Insurance Contracts 1 January 2021 Amendments to MFRS 10 and MFRS 128: Sale or Contribution To be announced of Assets between an Investor and its Associate or Joint Venture by MASB The Fund will adopt the above pronouncements when they become effective in the respective fi nancial periods. These pronouncements are not expected to have any signifi cant impact to the fi nancial statements of the Fund upon their initial application, other than MFRS 9. Kenanga Malaysian Inc Fund Annual Report 26