Annual REPORT. For the Financial Year Ended 31 July 2018

Transcription

1 KENANGA Oneprs shariah equity fund Annual REPORT For the Financial Year Ended 31 July 2018

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3 KENANGA ONEPRS SHARIAH EQUITY FUND Contents Page Corporate Directory ii Directory of PRS Provider s Offices iii Fund Information 1 PRS Provider s Report 2-5 Fund Performance 6-8 Trustee s Report 9 Shariah Adviser s Report 10 Independent Auditors Report Statement by the PRS Provider 14 Financial Statements 15-34

4 CORPORATE DIRECTORY Private Retirement Scheme (PRS) Provider: Kenanga Investors Berhad (Company No P) Registered Office Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Board of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat (Independent Director) Ismitz Matthew De Alwis Business Office Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Website: Investment Committee Dato Bruce Kho Yaw Huat (Chairman) Syed Zafilen 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 Scheme Trustee ( Trustee ): Maybank Trustees Berhad (5004-P) Registered and Business Address 8th Floor, Menara Maybank, 100, Jalan Tun Perak, Kuala Lumpur. Tel: / mtb@maybank.com.my Shariah Adviser: IBFIM (Company No W) 3rd Floor, Menara Takaful Malaysia, Jalan Sultan Sulaiman, Kuala Lumpur, Malaysia. Tel: Fax: Auditor: Ernst & Young (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Administrator: Private Pension Administrator Malaysia (PPA) Level 6, Menara Mudajaya, Jalan PJU 7/3, Mutiara Damansara, Petaling Jaya, Selangor. Tel: Fax: Website: askppa@ppa.my Membership: Federation of Investment Managers Malaysia (FIMM) , 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga OnePRS Shariah Equity Fund Annual Report

5 DIRECTORY OF PRS PROVIDER 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 Level 8, Wisma Great Eastern No. 68, Jalan Gaya, Kota Kinabalu, Sabah Tel: Fax: Petaling Jaya 44B, Jalan SS21/35 Damansara Utama Petaling Jaya, Selangor Tel: Fax: Kenanga OnePRS Shariah Equity Fund Annual Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga OnePRS Shariah Equity Fund (the Fund) 1.2 Fund Category / Type Feeder Fund (Equity) 1.3 Investment Objective The Fund seeks to provide capital growth. 1.4 Investment Strategy The Fund seeks to achieve its objective by investing a minimum of 95% of the Fund s NAV in Shariah-compliant equities and a maximum of 5% of the Fund s NAV in cash and/or Islamic money market instruments. 1.5 Performance Benchmark FTSE Bursa Malaysia Emas Shariah Index. The risk profile of the Fund is not the same as the risk profile of the performance benchmark. 1.6 Distribution Policy Distribution (if any) will be declared annually and reinvested into the Fund. Members who have reached their retirement age can opt to have the distribution paid to them by cheque or to their bank account. 1.7 Breakdown of unit holdings of the Fund as at 31 July 2018 Size of holdings No. of members No. of units held 5,000 and below 549 1,016,274 5,001-10, ,171,191 10,001-50, ,564,485 50, , , ,001 and above 0 0 Total 868 5,054,965 1 Kenanga OnePRS Shariah Equity Fund Annual Report

7 2. PRS PROVIDER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective For the financial year under review, the Fund has appreciated by 0.75% in NAV terms whilst its benchmark appreciated by 0.73% thus achieving the Fund s stated objective to provide capital growth. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (28/10/ /7/2018) Kenanga OnePRS Shariah Equity Fund vs Benchmark Source: Novagni Analytics & Advisory * Benchmark FTSE Bursa Malaysia Emas Shariah Index 2.3 Investment strategies and policies employed during the financial year under review As at 31 July 2018, the Fund had invested about 96.1% of its NAV in the Target Fund and about 3.9% in Islamic money market instruments or cash. It aims to provide unit holders with long term capital growth and income ranging from 3 to 5 years. 2.4 The Fund s asset allocation as at 31 July 2018 and comparison with the previous financial year Asset 31 July July 2017 Unlisted Islamic collective investment scheme 96.1% 96.1% Cash 3.9% 3.9% Reason for the differences in asset allocation The Fund maintained its allocation into Islamic collective investment schemes. Kenanga OnePRS Shariah Equity Fund Annual Report 2

8 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review year Year under Asset review Kenanga OnePRS Shariah Equity Fund 0.75% FTSE Bursa Malaysia Emas Shariah Index 0.73% Source: Lipper For the financial year under review, the Fund appreciated 0.75%, outperforming the 0.73% increase in the benchmark. The outperformance was mainly due to Shariah-compliant securities selection in the Target Fund. 2.6 Review of the market Market Review In the July 2017 update of its World Economic Outlook (WEO), the International Monetary Fund (IMF) kept its global Gross Domestic Product (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 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 officials also added to the downbeat sentiment. Meanwhile, the Asian Development Bank came out a report and remained confident that the global economic recovery is on a firmer 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 technology 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 first time since The Bank of England raised rates by 25 basis points (bps) 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. Fed then started to double the pace of its balance sheet reduction from USD10 billion to USD20 billion and will increase it by USD10 billion every three months. 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 first 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 February 5, another bright spot for small-mid caps. 3 Kenanga OnePRS Shariah Equity Fund Annual Report

9 2.6 Review of the market (Contd.) Market Review (Contd.) The month of February began with three days of intense sell-offs. Fears of rising interest rates in the US, due to measures aimed at controlling inflation, resulted in heightened volatility. Regional stock markets tumbled after Wall Street plummeted, as investors fled to safe havens in a highly volatile global market. Although the market did stage a mild rebound thereafter, it weakened again on news that the US would impose import tariffs on steel and aluminium, raising concern of higher prices and trade war. Asian equities dropped in line with global trend while the Federal Open Market Committee (FOMC) raised benchmark interest rate by 25bps, marking the sixth increase since the start of monetary policy tightening. The People Bank Of China (PBOC) also lifts short-term interest rates, following the Fed s move of rate normalization. The national people s congress approved merging China Insurance Regulatory Commission with the China Banking Regulatory Commission, while Yi Gang has been appointed as the new PBOC governor, as part of a sweeping reshuffle of China s cabinet cementing President Xi Jinping already strong influence. Global equities were mixed in April as trade war rhetoric continued to dominate headlines despite US announcing its willingness to hold negotiations for a resolution on the escalating trade rift with China; whilst geopolitical advances were seen as North and South Korea pledged to bring a formal end to Korean War. Meanwhile, geopolitical tensions in the Middle East continued to weigh on global equity markets. Markets were then rattled by the return of US-China trade conflicts after President Donald Trump announced that a final list involving US$50 billion in Chinese imports that would be subjected to 25% tariffs, would be released in mid-june, with investment restrictions on Chinese acquisitions of U.S. technology to be announced shortly thereafter. At the close of the month, Trump administration also announced that it will place tariffs on steel and aluminium imports from the European Union, Mexico and Canada a news that was immediately responded with threats of proportional reciprocal measures from all affected countries. Despite concerns over elevated trade tensions in July, a strong round of US corporate earnings have helped pacify market jitters and lifted US stock indices. Boosted by surge in consumer spending and business investment, US GDP grew at a solid 4.1% pace in 2Q18, the fastest rate of growth since the 4.9% in 3Q14 and the third-best growth rate since the Great Recession. US and EU also came to an agreement to work towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. Market Outlook Key risks to markets remain escalation of the US-China trade wars and also monetary tightening by global central banks. We can expect some policy divergence ahead as central banks are balancing growth risks and macro stability. Investors will be closely tracking local news development regarding policy and leadership changes at the government-linked companies (GLCs). Investors will be also keeping close tabs on news flow on the minimum wage, and developments on the High Speed Rail and East Cost Rail Link projects. Other highlights for September include the release of trade data for July and the outcome of Bank Negara s policy meeting. Strategy We remain defensive overall, while focusing on Shariah-compliant securities picking for outperformance. We continue to favour beneficiaries of the weak ringgit like exporters technology, selective oil & gas names due to higher oil prices, Shariah-compliant securities related to domestic consumption, as well as tourism. Kenanga OnePRS Shariah Equity Fund Annual Report 4

10 2.7 Income Distribution For the financial year under review, the Fund did not declare any income distribution. 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial year under review. 2.9 Significant changes in the state of affair of the Fund during the financial year There were no significant changes in the state of affair of the Fund during the financial year and up until the date of the PRS Provider s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the members During the financial year under review, there were no circumstances that materially affected any interests of the members Cross trade During the financial year under review, there were no cross-trade transactions Rebates & Soft commissions It is the policy of the PRS Provider to credit any rebates received into the account of the Fund. Any soft commissions received by investment manager on behalf of the Fund are in the form of research and advisory services that assist in the decision making process relating to the investment of the Fund which are of demonstrable benefit to members of the Fund. For the financial year under review, the PRS Provider has received soft commissions from the stockbrokers. 5 Kenanga OnePRS Shariah Equity Fund Annual Report

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga OnePRS Shariah Equity Fund ( the Fund ) for the last three financial years as at 31 July are as follows: a. Distribution among industry sectors and category of Shariah-compliant investments: FY FY FY % % % Unlisted Islamic collective investment scheme Cash Note: The above mentioned percentages are based on total Shariah-compliant investment market value plus cash. b. Distribution among markets The Fund invests in unlisted Islamic collective investment scheme and cash instruments only. Kenanga OnePRS Shariah Equity Fund Annual Report 6

12 3.2 Performance details of the Fund for the last three financial years ended 31 July are as follows: FY 2018 FY 2017 FY 2016 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 financial 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 in the financial period year review. 1. MER for the financial year under review is nil as the expenses of the Fund is borne by the PRS Provider. 2. PTR for the financial year is lower due to less trading activities taking place. 7 Kenanga OnePRS Shariah Equity Fund Annual Report

13 3.3 Average total return of the Fund 1 Year 31 Jul Jul 18 3 Years 31 Jul Jul 18 Kenanga OnePRS Shariah Equity Fund 0.75% 2.31% FTSE Bursa Malaysia Emas Shariah Index 0.73% 1.10% Source: Lipper 3.4 Annual total return of the Fund 1 Year 31 Jul Jul 18 1 Year 31 Jul Jul 17 1 Year 31 Jul Jul 16 Since Inception 28 Oct Jul 15 Kenanga OnePRS Shariah Equity Fund 0.75% 5.89% -0.47% 3.10% FTSE Bursa Malaysia Emas Shariah Index 0.73% 4.25% -1.41% -5.46% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga OnePRS Shariah Equity Fund Annual Report 8

14 4 TRUSTEE S REPORT TO THE MEMBERS OF KENANGA ONEPRS SHARIAH EQUITY FUND We have acted as Trustee for Kenanga OnePRS Shariah Equity Fund ( the Fund ) for the financial year ended 31 July To the best of our knowledge, Kenanga Investors Berhad ( the PRS Provider ) has managed the Fund for the financial year under review in accordance with the following: 1. Limitations imposed on the investment powers of the PRS Provider Trustee under the Deed, securities laws and Guidelines on Private Retirement Schemes. 2. Valuation and pricing of the Fund are carried out in accordance with the Deed and any regulatory requirement; and 3. Creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirement. For Maybank Trustees Berhad (Company No.: 5004-P) EIDA MAHADI Head, Business Development Kuala Lumpur, Malaysia 14 September Kenanga OnePRS Shariah Equity Fund Annual Report

15 5. SHARIAH ADVISER S REPORT TO THE MEMBERS OF KENANGA ONEPRS SHARIAH EQUITY FUND We have acted as the Shariah Adviser of Kenanga OnePRS Shariah Equity 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 OnePRS Shariah Equity Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 31 July In addition, we also confirm that the investment portfolio of Kenanga OnePRS Shariah Equity Fund comprises instruments which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and the Shariah Advisory Council of Bank Negara Malaysia. As for the instruments which are not classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and the Shariah Advisory Council of Bank Negara Malaysia, we have reviewed the said instruments and opine that these instruments are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM Dr. Ahmad Zakirullah Bin Mohamed Shaarani Managing Advisor (Shariah)/Designated Person Responsible for Shariah Advisory Kuala Lumpur, Malaysia 14 September 2018 Kenanga OnePRS Shariah Equity Fund Annual Report 10

16 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA ONEPRS SHARIAH EQUITY FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Kenanga OnePRS Shariah Equity Fund ( the Fund ), which comprise the statement of financial position as at 31 July 2018, and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows of the Fund for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, as set out on pages 15 to 34. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 31 July 2018 and of its financial performance and cash flows for the financial 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 financial statements section of our report. We believe that the audit evidence we have obtained is sufficient 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 fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors report thereon The PRS Provider of the Fund ( the PRS Provider ) 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 financial statements of the Fund and our auditors report thereon. Our opinion on the financial 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 financial 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 financial 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 OnePRS Shariah Equity Fund Annual Report

17 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA ONEPRS SHARIAH EQUITY FUND (CONTD.) Responsibilities of the PRS Provider and Trustee for the financial statements The PRS Provider is responsible for the preparation of financial statements of the Fund that give a true and fair view in accordance with Malaysia Financial Reporting Standards and International Financial Reporting Standards. The PRS Provider is also responsible for such internal control as the PRS Provider determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the PRS Provider 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 PRS Provider 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 financial reporting process. The Trustee is also responsible for ensuring that the PRS Provider maintains proper accounting and other records as are necessary to enable true and fair presentation of these financial statements. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial 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 influence the economic decisions of users taken on the basis of these financial 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 skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial 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 sufficient 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the PRS Provider. Kenanga OnePRS Shariah Equity Fund Annual Report 12

18 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA ONEPRS SHARIAH EQUITY FUND (CONTD.) Auditors responsibilities for the audit of the financial statements (Contd.) Conclude on the appropriateness of the PRS Provider 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 significant 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 financial 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 financial statements of the Fund, including the disclosures, and whether the financial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the PRS Provider regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Other matters This report is made solely to the members of the Fund, as a body, in accordance with the Guidelines on Private Retirement Schemes 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. 2844/02/2020 J Chartered Accountant Kuala Lumpur, Malaysia 14 September Kenanga OnePRS Shariah Equity Fund Annual Report

19 7. STATEMENT BY THE PRS PROVIDER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the PRS Provider, the accompanying statement of financial position as at 31 July 2018 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year ended 31 July 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 financial position of Kenanga OnePRS Shariah Equity Fund as at 31 July 2018 and of its financial performance and cash flows for the financial year then ended and comply with the requirements of the Deed. For and on behalf of the PRS Provider KENANGA INVESTORS BERHAD ISMITZ MATTHEW DE ALWIS Executive Director/Chief Executive Officer Kuala Lumpur, Malaysia 14 September 2018 Kenanga OnePRS Shariah Equity Fund Annual Report 14

20 8. FINANCIAL STATEMENTS 8.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 INVESTMENT INCOME Note RM RM Net gain from Shariah-compliant investment: - Financial asset at fair value through profit or loss ( FVTPL ) 4 7,127 93,334 7,127 93,334 NET INCOME BEFORE TAX 7,127 93,334 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR 7,127 93,334 Net income after tax is made up as follows: Realised gain/(loss) 856 (194) Unrealised gain 4 6,271 93,528 7,127 93,334 The accompanying notes form an integral part of the financial statements. 15 Kenanga OnePRS Shariah Equity Fund Annual Report

21 8.2 STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2018 Note RM RM ASSETS INVESTMENT Financial asset at FVTPL 4 2,657,105 1,855,126 OTHER ASSETS Amount due from PRS Provider 1,316 1,544 Cash at bank 108,897 75, ,213 77,483 TOTAL ASSETS 2,767,318 1,932,609 EQUITY Members contribution 2,652,869 1,825,287 Retained earnings 114, ,322 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO MEMBERS, REPRESENTING TOTAL EQUITY 9 2,767,318 1,932,609 NUMBER OF UNITS IN CIRCULATION 9(a) 5,054,965 3,556,914 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga OnePRS Shariah Equity Fund Annual Report 16

22 8.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Note Members contribution Retained earnings Total NAV RM RM RM 2018 At beginning of the financial year 1,825, ,322 1,932,609 Total comprehensive income - 7,127 7,127 Creation of units 9(a) 862, ,095 Cancellation of units 9(a) (34,686) - (34,686) Distribution equalisation 9(a) At end of the financial year 2,652, ,449 2,767, At beginning of the financial year 787,282 13, ,270 Total comprehensive income - 93,334 93,334 Creation of units 9(a) 1,043,883-1,043,883 Cancellation of units 9(a) (6,040) - (6,040) Distribution equalisation 9(a) At end of the financial year 1,825, ,322 1,932,609 The accompanying notes form an integral part of the financial statements. 17 Kenanga OnePRS Shariah Equity Fund Annual Report

23 8.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JULY RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial asset at FVTPL 41,463 7,311 Reimbursements from PRS Provider Payment for other fees and expenses - (584) Purchase of financial asset at FVTPL (836,854) (1,000,550) Net cash used in operating and investing activities (794,960) (993,823) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 862,613 1,044,800 Cash paid on units cancelled (34,695) (6,041) Net cash generated from financing activities 827,918 1,038,759 NET INCREASE IN CASH AND CASH EQUIVALENTS 32,958 44,936 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 75,939 31,003 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 108,897 75,939 Cash and cash equivalents comprise: Cash at bank 108,897 75,939 The accompanying notes form an integral part of the financial statements. Kenanga OnePRS Shariah Equity Fund Annual Report 18

24 8.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY THE FUND, THE PRS PROVIDER AND THEIR PRINCIPAL ACTIVITIES Kenanga OnePRS Shariah Equity Fund ( the Fund ) was constituted pursuant to the executed Deed dated 2 October 2014 (collectively, together with the deeds supplemental thereto, referred to as the Deed ) between the Private Retirement Scheme Provider (the PRS Provider ), Kenanga Investors Berhad and Maybank Trustees Berhad ( the Trustee ). The Fund commenced operations on 28 October 2014 and will continue to be in operation until terminated as provided under Part 16 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad that is listed on the Main Market of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the PRS Provider is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide capital growth by investing in the target fund, Kenanga Syariah Growth Fund. To achieve the objective of the Fund, it will invest a minimum 95% of its funds in Kenanga Syariah Growth Fund ( the Target Fund ), an Islamic fund which is managed by the PRS Provider. The financial statements were authorised for issue by the Chief Executive Officer of the PRS Provider on 14 September FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES To the extent the Fund invests in the Target Fund, which has investments in equities that comply with Shariah requirements, it is exposed to market risk (which includes interest rate risk and price risk), credit risk, liquidity risk and reclassification of Shariah status risk. The PRS Provider monitors the portfolio of the Target Fund to ensure that the underlying fund is positioned to meet its investment objective. The PRS Provider may seek alternative Islamic collective investment schemes or any permissible instruments that are consistent with the objective 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. 19 Kenanga OnePRS Shariah Equity Fund Annual Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (Contd.) Market risk arises when the value of the Shariah-compliant investment 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 investment s price caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The PRS Provider manages the risk of unfavourable changes in prices by cautious review of the Shariah-compliant investment and continuous monitoring of its performance and risk profiles. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the valuation 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 an Islamic fund or otherwise. It does not in any way suggest that the Fund will invest in conventional financial instruments. The Fund is not exposed to interest rate risk as it does not hold any assets and liabilities that have exposure to interest rate movement. However, the Fund has indirect exposure to interest rate risk through its investment in the Target Fund. ii. Price risk Price risk is the risk of unfavourable changes in the NAV of unlisted Islamic collective investment scheme. The Fund invests in unlisted Islamic collective investment scheme which are exposed to price fluctuations. This may then affect the NAV per unit of the Fund. Price risk sensitivity The PRS Provider s best estimate of the effect on the profit for the financial year due to a reasonably possible change in investment in unlisted Islamic collective investment scheme with all other variables held constant is indicated in the table below: Kenanga OnePRS Shariah Equity Fund Annual Report 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity (Contd.) Changes in price Increase/ (Decrease) Basis points Effects on profit for the financial year Increase/ (Decrease) RM 2018 Financial asset at FVTPL 5/(5) 1,329/(1,329) 2017 Financial asset at FVTPL 5/(5) 928/(928) 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 Shariah-compliant financial instrument as at the reporting date. Fair value Percentage of NAV RM RM % % b. Credit risk Financial asset at FVTPL 2,657,105 1,855, 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 PRS Provider manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of financial asset recognised in the statement of financial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no financial assets that are either past due or impaired. 21 Kenanga OnePRS Shariah Equity Fund Annual Report

27 2. FINANCIAL RISK 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 members by the PRS Provider are cancellable at the members 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. Up to 1 year Note RM RM Assets Financial asset at FVTPL 2,657,105 1,855,126 Other assets 110,213 77,483 i. 2,767,318 1,932,609 Liabilities Other liabilities ii. - - Equity iii. 2,767,318 1,932,609 Liquidity gap - - i. Financial assets Analysis of financial asset at FVTPL into maturity groupings is based on the expected date on which the asset will be realised. The Fund s investment in unlisted Islamic collective investment scheme has been included in the up to 1 year category on the assumption that this is highly liquid Islamic investment which can be realised should all of the Fund s members 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. Kenanga OnePRS Shariah Equity Fund Annual Report 22

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk 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 members 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 Target Fund may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission Malaysia performed twice yearly. If this occurs, the manager of the Target Fund will take the necessary steps to dispose of such securities. There may be opportunity loss to the Target Fund due to the Target Fund not being allowed to retain the excess capital gains derived from the disposal of the Shariah non-compliant equities. The value of the Target Fund may also be adversely affected in the event of a disposal of Shariah non-compliant equities at a price lower than the investment cost. e. Regulatory reportings It is the PRS Provider s responsibility to ensure full compliance of all requirements under the Guidelines on Private Retirement Scheme issued by Securities Commission Malaysia. Any breach of any such requirement has been reported in the mandatory reporting to Securities Commission Malaysia on a monthly basis. 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 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 financial year except for the adoption of the new and amended MFRS which became effective for the Fund on 1 August The adoption of the new and amended MFRS 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. 23 Kenanga OnePRS Shariah Equity Fund Annual Report

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, amendments and interpretations issued but not yet effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretation that have been issued by MASB will be effective for the Fund in future periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 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: Classification and Measurement of Shared-based Payment Transactions 1 January 2018 Temporary exemption from MFRS 9 subject to certain criteria being met for annual periods Amendments to MFRS 4: Applying MFRS 9 Financial beginning 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 Classified as Equity contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2019 Kenanga OnePRS Shariah Equity Fund Annual Report 24

30 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 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 Amendments to MFRS 119: Plan Amendment, Curtailment or Settlement 1 January 2019 Amendments 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 Amendments to MFRS 2: Share-based Payment 1 January 2020 Amendments to MFRS 3: Business Combinations 1 January 2020 Amendments to MFRS 6: Exploration for and Evaluation of Mineral Resources 1 January 2020 Amendments to MFRS 14: Regulatory Deferral Accounts 1 January 2020 Amendments to MFRS 101: Presentation of Financial Statements 1 January 2020 Amendments to MFRS 108: Accounting Policies, Changes in Accounting Estimates and Errors 1 January 2020 Amendments to MFRS 134: Interim Financial Reporting 1 January 2020 Amendment to MFRS 137: Provisions, Contingent Liabilities and Contingent Assets 1 January 2020 Amendment to MFRS 138: Intangible Assets 1 January 2020 Amendments to IC Interpretation 12: Service Concession Arrangements 1 January 2020 Amendments to IC Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments 1 January 2020 Amendments to IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2020 Amendments to IC Interpretation 132: Intangible Assets - Website Costs 1 January 2020 MFRS 17: Insurance Contracts 1 January 2021 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture To be announced by MASB The Fund will adopt the above pronouncements when they become effective in the respective financial periods. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund does not expect any change in classification and any potential material financial impact arising from the adoption of this standard. 25 Kenanga OnePRS Shariah Equity Fund Annual Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial assets Shariah-compliant 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 instruments. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. i. Financial assets at FVTPL Shariah-compliant financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Shariah-compliant financial assets held for trading include unlisted Islamic collective investment scheme 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 Shariah-compliant financial instruments are recorded in profit or loss. Distribution revenue element of such instruments is recorded in distribution income. 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 yield 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 OnePRS Shariah Equity Fund Annual Report 26