rhb islamic bond fund annual report 2017 … · annual report 2017 incorporating the audited...

RHB Asset Management Sdn Bhd (174588-X)

Head OfficeLevel 8, Tower 2 & 3, RHB Centre Jalan Tun Razak50400 Kuala Lumpur, Malaysia

Tel : +603 9205 8000

Fax : +603 9205 8100

www.rhbgroup.com

RHB ISLAMIC BOND FUND

INTERIM REPORT 2018

For the financial period ended 31 March 2018

1

GENERAL INFORMATION ABOUT THE FUND

Fund Category and Type

Fund Name - RHB Islamic Bond Fund

Fund Category - Bond fund (Shariah-compliant)

Fund Type - Income fund

Investment Objective, Policy and Strategy

Objective of the Fund

To provide regular income to investors through investments in Islamic debt securities and bonds which are acceptable investment under the principles of Shariah.

Strategy

The asset allocation of the Fund will be as follows:-

Minimum of 60% and up to 95% of Net Asset Value

- Investments in Islamic debt securities and bonds (collectively referred to as “sukuk”)

Minimum of 5% of Net Asset Value

- Investments in liquid assets acceptable under Shariah principle

Although the Fund is actively managed, how active or the frequency of its trading strategy will very much depend on market opportunities. The Fund will invest in sukuk. Investments must carry a minimum long term credit rating of BBB and above or a minimum short term rating of P3 as assigned by RAM or its equivalent. To contain credit risk, the Manager will ensure that the diversification of credit rating (and duration standing) in the sukuk portfolio mitigate the overall risk position of the portfolio.

The Manager may also take temporary defensive measures that may be inconsistent with the Fund’s principal strategy in attempting to respond to adverse market conditions, economics, political or any other conditions which the Manager deem detrimental to the Fund. The defensive measures that the Manager may undertake are in no way to be deviated from the mandates or breaching any laws and regulations. The Fund’s strategies in yield enhancement for the portfolio will also be balanced with other investment needs of the Fund, such as liquidity and risk management. On liquidity management, the Fund will maintain sufficient amount of portfolio in liquid sukuk to accommodate redemption.

1

2

As for risk management, the portfolio duration is kept at optimal level where yield enhancement can be optimised on risk adjusted basis, and at the same time, balanced with the need for containing portfolio’s volatility.

Hence, during the temporary defensive period, the Manager may choose to increase the asset allocation by allocating more investment into risk free investments which are Islamic money market instruments and Islamic deposit in adverse market condition.

Investment Philosophy

Our investment philosophy describes the approach that the investment team will adhere to when constructing an equity or fixed income portfolio. The fund managers invest in well-managed companies with strong balance sheets that possess competitive advantages that should enable them to outperform their peers over economic cycles. The fund managers are active investors that make high conviction security selection decisions, but at the same time do not take unnecessary or excessive risks nor take speculative positions. The fund managers seek to outperform their peers and beat their benchmark by buying mispriced or cheap securities. Following our disciplined sell strategy, they would then exit positions when our target price is reached. Concurrently, the fund managers understand the Fund’s risk profile and act within the Fund’s mandate.

2

3

Investment Approach

Whenever the Fund invests in sukuk, the Manager’s investment approach will evolve around the following principles:-

Performance Benchmark

Maybank Islamic’s 12 months Islamic Fixed Deposit-I (“IFD-i”).

3

4

Permitted Investment and Restrictions

The Fund may invest or participate in sukuk traded on eligible markets and/or which are listed on Bursa Malaysia; Shariah-compliant warrants that carry the right in respect of a security traded in or under the rules of an eligible market; Shariah-compliant unlisted securities including securities not listed or quoted on a stock exchange but have been approved by the relevant regulatory authority for such listing or quotation and are offered directly to the Fund by the issuer; Shariah-compliant financial derivatives; Islamic collective investment schemes and Islamic structured products; Government Investment Issues (GII), Islamic accepted bills, Bank Negara Malaysia negotiable notes, cagamas mudharabah bonds and any other Malaysian government approved/guaranteed Islamic issues; sukuk generally in the form of corporate sukuk or Islamic commercial papers issued by private companies or public listed corporations that are traded in eligible markets; liquid assets (including money market instruments and deposits with any financial institutions); and any other investments permitted by the Securities Commission Malaysia from time to time.

Distribution Policy

Income (if any) will be distributed during the financial year.

4

5

MANAGER’S REPORT

MARKET REVIEW

During the period under review, on the last quarter of year 2017, focus has shifted on the prospects for tax reform and talks about the next Fed Chair nomination surrounding the market. Yields were generally inching higher in the months of October 2017 and November 2017 in anticipating of the final year of 2017 Fed Fund Rate hike in December 2017. In the final month of the year 2017, Federal Open Market Committee (“FOMC”) delivered its most anticipated rate hike and the yield curve bearish-flattened as market interpreted the action by FOMC as a dovish-hike. At the start of the year, US Treasury (“UST”) yields elevated higheras major economic data were stronger than anticipated and these have somewhat resulted in the market re-evaluating the risks ahead by adjusting higher rates as shown in UST yields action. With inflation expectations adjusting higher, UST yields curve bear-steepened with the longer curve of 10-year and 30-year UST grinding higher compared to previous month’s closing. These has continued in the month of February 2018 as market participants were caught surprised by better than expected jobs report at the early part of the month while the affirmation of a hawkish FOMC minutes further saw the benchmark 10-year UST yield rose to its high of 2.95% for the first time in four years. Towards the first quarter end of the year, UST yields whipsawed throughout most of the month of March 2018 before bull flattening toward the month-end. Market was buffeted by talks of a possible trade war stemming from the Trump administration’s announcement of imposing tariffs of 25% on steel and 10% on aluminum. These coupled with quarter end buying led treasuries to bull flatten massively toward the end of the month. Back in Malaysia, early part of the year saw Malaysian Ringgit (“MYR”) has continued to strengthen against United States Dollar (“USD”) amid anticipation for the rate hike by Bank Negara Malaysia (“BNM”) on its Monetary Policy Committee (“MPC”) meeting held in January 2018. While the sell-off has been exhibited in UST yields curve together with other global government bonds during the month, there has not been much of a follow through impact to the local bond markets. Instead, the 10-year and 15-year Malaysia Government Securities (“MGS”) yield curve were well bid up on several occasions which seemed contrasting to what we have seen in UST yield. On top of that, the auctions were well received during the period. MGS curve bear-flattened but this is more apparent on the shorter-end of the curve as BNM delivered its 25 basis points hike. In February 2018, 10-year MGS sighted some fragility ahead of the auction as the yield touched its high of 4.07% only to see it rallying post auction as the higher yield started to attract investors. Towards the end of first quarter, MYR rallied strongly against USD as mainly on oil rallying ~6% in the month of March 2018. USDMYR rallied from 3.9285 at the start of the month to finish strongly at 3.8635, representing a 1.65% total return, making MYR the second best performing Asian currency behind Korea for March 2018. All in all, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year MGS were bear-flattened during the period and closed at 3.448% (End September 2017: 3.327%), 3.484% (3.645%), 3.827% (3.844%), 3.949% (3.910%), 4.412% (4.307%), 4.537% (4.600%) and 4.821% (4.887%) respectively.

5

6

ECONOMIC OUTLOOK

On the local economic front, Malaysia’s Consumer Prices Index (“CPI”) for February 2018 was flat month-on-month (MoM), printing at 1.4% year-on-year (“YoY”) vs 2.7% previous month and below consensus estimates of 1.9%. The benign inflation reading was reflected in all 10 of the 12 main groups where seasonality factors due to the lunar New Year holiday pass through was less than expected. Transport and Clothing costs led the decline at -0.3% YoY and -0.7% YoY respectively. Alongside a 2.8% fall in RON95 prices in the first 21 days of March, headline inflation could remain modest at 1.5% in March, and stay below 2.0% in April 2018. Assuming relatively stable pump prices, headline inflation could remain below 3.0% through June. The dovish tone of the March 2018 Monetary Policy Committee (“MPC”) meeting, alongside the data reiterate our view that there will be no further rate hikes for the rest of this year. On the other note, Producer Price Index (“PPI”) for local production rose by 0.3% on a YoY basis in December 2017 compared to the 4.3% increased registered in November 2017. Nonetheless, the average PPI for the year increased by 6.7% as compared to the same period in year 2016. The higher PPI was contributed by the increases in index for four sectors namely Mining (+24.7%), Agriculture, forestry and fishing (+7.0%), Manufacturing (+5.3%) and Electricity and gas supply (+1.9%).

6

7

MARKET OUTLOOK AND STRATEGY GOING FORWARD

Since the start of the year, we had noted on the upside risks to the global growth, higher market-based inflation expectation and synchronized global growth leading to most Advanced Economy (“AE”) tightening. This was broadly the case for the first couple of months but trade war fears have caused volatility to return to the markets and bonds to finally rally toward the end of the first quarter of year 2018. The Standard & Poor’s 500 Index (“SPX”) is threatening to break through the 200 Daily Moving Average support on the downside at 2,589.13 (SPX closed the quarter at 2,640.87) while the SPX Volatility Index (“VIX”) gradually crept higher to close above 21 from a low of 15 in the month.

While our core view remains that AE rates (with the exception of some countries like Europe and Japan) should go higher, we’re using any rally in bonds to take profit or reduce duration despite the topic of trade wars dominating headlines in March. Our rationale being that the current proposal of $50-60 bio of tariffs on China imports to the US were met with China imposing a $3bio tariff on US imports into China and given total value China exports into US was around $463bio in year 2017, the overall impact of the current measures represent a small fraction of total exports, and we feel it’s more signaling to the US industries that have supported Trump’s campaign while forcing China to deal with the alleged Intellectual Property Rights Violation of US companies in China.

Since the start of the year, the increase in yields across AEs reversed the sell-off seen in the first 2 months with YTD US yields higher by almost 33 basis points, Eurozone and United Kingdom (“UK”) yields up at around 16 basis points with exception to Japan due to its yield-targeting policy which saw yields flat on the year at only -0.8 basis points.

On the fiscal side, the US spending package and tax reform at the end of year 2017, would result in the need to fund this via the sale of additional debt which is likely to put upward pressure on sovereign bond yields in the US, Treasury has estimated it needs to borrow $955bio in Financial Year of 2018, which represents an 84% increase over the $519bio of debt issued in year 2017.

7

8

On the Malaysian front, Malaysia’s Gross Domestic Product (“GDP”) for year 2017 full year, printed 5.9%, well above the official forecast of 5.2%-5.7% due to sterling quarters of GDP numbers that we have seen last year. In year 2018, the recently published BNM annual report noted modification on the BNM assessment to GDP forecast which has been revised higher to a range of 5.5%-6% from previously 5.0%-5.5%, while average inflation is circa 2.0%-3.0% which comfortably below the current Overnight Policy Rates (“OPR”) rate. Fiscal consolidation is on track to meet 3.0% for year 2017 and most likely to achieve 2.8% in year 2018. Going forward, we foresee Malaysia’s growth to remain resilient but may trend lower than last year’s sterling growth. With inflation assessment expected to average lower in year 2018 and a stronger MYR supports lower imported inflation, we are of a view that the current policy rate is still accommodative to the economy as the MPC continues to assess the balance of risks in growth and inflation. In term of strategy, we remain neutral on duration while mildly bullish in domestic bonds with the expectation that local demand dynamics to remain healthy and exceeding supply in first quarter of year 2018. As part of asset allocation strategy, we continue to overweight credit over government bonds for yield pick-up despite higher risk-free rates because we see improving credit profile in corporates in certain sectors thanks to sterling GDP performance to date. That said, we continue to be vigilant in monitoring the bond market and any significant sell off could be an opportunity to buy bonds especially government securities as we do not see significant hikes in OPR further from here.

8

9

PERFORMANCE REVIEW

For the financial period under review, the Fund registered a total return of 1.87%*compared to the benchmark return of 1.57%*. During the financial period under review, the Fund has met its investment objective.

* Lipper Investment Management (“Lipper IM”), 12 April 2018

PERFORMANCE DATA

30.09.2017 -31.03.2018

%

Annual Total ReturnsFinancial Year Ended 30 September

2017%

2016%

2015%

2014%

2013%

RHB Islamic Bond Fund

- Capital Return 1.87 (1.41) 5.39 (0.73) (2.15) 13.56- Income Return - 5.01 3.95 6.86 6.74 5.99- Total Return 1.87 3.53 9.55 6.08 4.45 20.36

Islamic Bond Index** 1.57 3.16 3.55 3.42 3.21 3.21

Average Total Returns1 Year

31.03.2017 -31.03.2018

%

3 Years31.03.2015 -31.03.2018

%

5 Years31.03.2013 -31.03.2018

%

10 Years31.03.2008 -31.03.2018

%RHB Islamic Bond Fund 4.19 5.75 5.42 7.24

Islamic Bond Index** 3.15 3.34 3.30 3.12

9

10

Performance of RHB Islamic Bond Fund For the period from 25 November 2002* to 31 March 2018

Cumulative Return Over the Period (%)

Source: Lipper IM, 12 April 2018

* The Maybank’s 12-month General Investment Account Rate is only available in Lipper database after 25 November 2002

The abovementioned performance figures are indicative returns based on daily Net Asset Value of a unit (as per Lipper Database) since inception.

The calculation of the above returns is based on computation methods of Lipper.

** Effective 1 January 2016, the Fund’s composite benchmark (Islamic Bond Index) was changed from Maybank Islamic Berhad’s 12 Months General Investment Account Rate to Maybank Islamic’s 12 months Islamic Fixed Deposit-I (“IFD-i”). The Fund’s composite benchmark performance has been adjusted to reflect the new benchmark.

A combination of benchmark/composite benchmark has been used for the performance computation as follows:

From 25 November 2002 - 31 December 2015

Maybank Islamic’s 12 Months General Investment Account Rate

1 January 2016 onwards Maybank Islamic’s 12 months IFD-i

Note : Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up.

The abovementioned performance computations have been adjusted to reflect distribution payments and unit splits wherever applicable.

10

11

Fund SizeAs At

31.03.2018As At 30 September

2017 2016 2015Net Asset Value (RM million) 299.57 260.73* 202.89* 42.99*Units In Circulation (million) 216.33 191.80 148.42 33.14Net Asset Value Per Unit (RM) 1.3848 1.3594* 1.3670* 1.2971*

01.10.2017-31.03.2018

Financial Year Ended30 September

Historical Data 2017 2016 2015Unit PricesNAV - Highest (RM) 1.3846 1.4149* 1.4200* 1.3994* - Lowest (RM) 1.3576 1.3377* 1.2974* 1.2929*

Distribution and Unit Split Gross Distribution Per Unit (sen) - 5.6000 5.4000 8.9000Net Distribution Per Unit (sen) - 5.6000 5.4000 8.9000Distribution Date - 20.09.2017 27.09.2016 28.09.2015NAV before distribution (cum) - 1.4151 1.4201 1.3869NAV after distribution (ex) - 1.3591 1.3661 1.2979

Unit Split - - - -

OthersManagement Expense Ratio

(MER) (%) # 0.41 0.79 1.86 1.20Portfolio Turnover Ratio (PTR) (times) ## 0.35 0.48 1.11 0.90

* The figures quoted are ex-distribution

# The MER for the financial period was higher compared with previous financial period due to higher expenses incurred for the financial period under review (refer to Note 11).

## The PTR for the financial period was higher compared with previous financial period due to higher investment activities for the financial period under review (refer to Note 12).

DISTRIBUTION

For the financial period under review, no distribution has been proposed by the Fund.

11

12

PORTFOLIO STRUCTURE

The asset allocations of the Fund as at reporting date were as follows:

As at As at 30 September31.03.2018 2017 2016 2015

% % % %SectorsUnquoted sukuk 95.10 88.29 91.45 98.65Liquid assets and other

net current assets 4.90 11.71 8.55 1.35100.00 100.00 100.00 100.00

The portfolio asset allocation has been relatively well-invested during the financial period under review, which reflected the Fund Manager’s tactical strategy in line with the market outlook, as well as managing liquidity risk.

BREAKDOWN OF UNIT HOLDINGS BY SIZE

Account Holders No. Of Units Held*Size of Holdings No. % (‘000) %5,000 and below 217 44.47 392 0.185,001 to 10,000 80 16.39 590 0.2710,001 to 50,000 123 25.20 2,687 1.2450,001 to 500,000 44 9.02 6,259 2.90500,001 and above 24 4.92 206,399 95.41Total 488 100.00 216,327 100.00

* Excluding Manager’s stock

12

13

REBATES AND SOFT COMMISSION The Fund Manager may only receive soft commission in the form of research and advisory services that assist in the decision-making process relating to the Fund’s investments.

During the financial period under review, the Manager did not receive or utilise any soft commission from brokers/dealers in consideration for directing dealings in the investment of the Fund. However, in the event the Manager were to receive any soft commission in the future, these will only be retained by the Manager if they were in the form of goods and services which were of demonstrable benefit to the unitholders.

CROSS TRADE

Cross trade transactions have been carried out during the reported period, reviewed and approved by the Investment Committee of the Fund on 22 May 2018 to ensure that such transactions are in the best interest of the Fund, transacted on an arm’s length (*) and fair value basis.

* Transactions at arm's length refer to transactions entered in the normal course of business at prevailing market price as at the date of cross trade.

13

14

RHB ISLAMIC BOND FUND UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2018

Note 31.03.2018 30.09.2017 RM RM

ASSETS Investments 5 284,894,183 230,214,577 Islamic deposits with licensed financial institutions 6 16,358,746 22,857,699

Bank balances 6 117,281 4,521,967 Amount due from Manager 2,769 6,592,646

───────── ─────────TOTAL ASSETS 301,372,979 264,186,889

───────── ─────────LIABILITIES Amount due to Manager 724,879 -Income distribution payable - 1,812,669 Accrued management fee 1,036,160 1,604,379Amount due to Trustee 27,243 21,708 Other payables and accruals 11,651 14,565

───────── ─────────TOTAL LIABILITIES 1,799,933 3,453,321

───────── ─────────NET ASSET VALUE 299,573,046 260,733,568

═════════ ═════════

EQUITY Unitholders’ capital 289,301,703 255,931,411 Retained earnings 10,271,343 4,802,157

───────── ───────── 299,573,046 260,733,568 ═════════ ═════════

UNITS IN CIRCULATION (UNITS) 7 216,332,623 191,798,623 ═════════ ═════════

NET ASSET VALUE PER UNIT(EX-DISTRIBUTION*) (RM) 1.3848 1.3594*

═════════ ═════════

The accompanying notes are an integral part of the financial statements. 17

RHB ISLAMIC BOND FUND UNAUDITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2018

01.10.2017 01.10.2016 to 31.03.2018 to 31.03.2017

RM RMCASH FLOWS FROM OPERATING ACTIVITIES

Proceeds from sale of investments 76,423,225 36,061,650 Purchase of investments (131,018,239) (61,819,480)Profit received from Islamic deposits with licensed financial institutions 359,388 315,091

Profit received from unquoted sukuk 6,225,768 4,717,126 Management fee paid (1,545,729) (1,686,524) Trustee’s fee paid (140,117) (105,644) Payment for other fees and expenses (80,314) (48,277)

──────── ────────Net cash used in operating activities (49,776,018) (22,566,058)

──────── ────────CASH FLOWS FROM FINANCING ACTIVITIES

Cash proceeds from units created 69,412,378 43,408,118 Payment for cancellation of units (28,727,330) (11,684,407) Payment for income distribution (1,812,669) (2,216,459)

──────── ────────Net cash generated from financing activities 38,872,379 29,507,252

──────── ────────Net (decrease)/increase in cash and

cash equivalents (10,903,639) 6,941,194 Cash and cash equivalents at the beginning of the financial period 27,379,666 24,010,771

──────── ────────Cash and cash equivalents at the end of the financial period 16,476,027 30,951,965

════════ ════════

The accompanying notes are an integral part of the financial statements.

14

15

RHB ISLAMIC BOND FUND UNAUDITED STATEMENT OF INCOME AND EXPENSES FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2018

01.10.2017 01.10.2016 Note to 31.03.2018 to 31.03.2017 RM RM

RM RMINCOME Profit from Islamic deposits with licensed financial institutions 359,388 315,091

Profit from unquoted sukuk 6,818,349 5,044,315 Net loss on investments 5 (507,989) (1,964,025)

───────── ───────── 6,669,748 3,395,381 ───────── ─────────

EXPENSES Management fee 8 (977,510) (490,610) Trustee’s fee 9 (145,652) (109,148) Audit fee (4,638) (4,637) Tax agent’s fee (1,900) (1,900) Other expenses (70,862) (37,684)

───────── ───────── (1,200,562) (643,979)

───────── ─────────

Net income before taxation 5,469,186 2,751,402 Taxation 10 - -

───────── ─────────Net income after taxation 5,469,186 2,751,402

═════════ ═════════

Net income after taxation is made up as follows: Realised amount 4,521,820 6,758,627 Unrealised amount (947,366) (4,156,704)

───────── ───────── 5,469,186 8,486,054 ═════════ ═════════



01.10.2017 01.10.2016 to 31.03.2018 to 31.03.2017











════════ ════════


15

16

RHB ISLAMIC BOND FUND UNAUDITED STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2018

Unitholders’ Retained Total net capital earnings asset value

RM RM RM

Balance as at 1 October 2016 196,645,368 6,241,655 202,887,023

Movement in net asset value: Net income after taxation - 2,751,402 2,751,402 Creation of units arising

from distribution 6,194,699 - 6,194,699Creation of units arising

from applications 48,644,592 - 48,644,592 Cancellation of units (11,742,461) - (11,742,461) ───────── ───────── ─────────Balance as at 31 March 2017 239,742,198 8,993,057 248,735,255

═════════ ═════════ ═════════

Balance as at 1 October 2017 255,931,411 4,802,157 260,733,568

Movement in net asset value: Net income after taxation - 5,469,186 5,469,186 Creation of units arising

from applications 62,822,501 - 62,822,501 Cancellation of units (29,452,209) - (29,452,209) ───────── ───────── ─────────Balance as at 31 March 2018 289,301,703 10,271,343 299,573,046

═════════ ═════════ ═════════



01.10.2017 01.10.2016 to 31.03.2018 to 31.03.2017











════════ ════════


16

17


01.10.2017 01.10.2016 to 31.03.2018 to 31.03.2017











════════ ════════



01.10.2017 01.10.2016 to 31.03.2018 to 31.03.2017











════════ ════════


17

18

RHB ISLAMIC BOND FUND NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2018

1 THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

The RHB Islamic Bond Fund (hereinafter referred to as “the Fund”) was constituted pursuant to the execution of a Master deed (Shariah funds) dated 12 June 2008 as amended via its first supplemental master deed (Shariah funds) dated 19 June 2009, second supplemental master deed (Shariah funds) dated 18 November 2009, third supplemental master deed (Shariah funds) dated 23 November 2009, fourth supplemental master deed (Shariah funds) dated 13 April 2012, fifth supplemental master deed (Shariah funds) dated 28 May 2012, seventh supplemental master deed (Shariah funds) dated 30 April 2013, eighth supplemental master deed (Shariah funds) dated 24 September 2013, ninth supplemental master deed (Shariah funds) dated 2 March 2015 and tenth supplemental master deed (Shariah funds) dated 20 May 2015 (collectively referred to as “the Deeds”) between RHB Asset Management Sdn Bhd (“the Manager”) and CIMB Islamic Trustee Berhad (“the Trustee”).

The Fund was launched on 25 August 2000 and will continue its operations until terminated according to the conditions provided in the Deeds.

The principal activity of the Fund is to invest in ‘Permitted Investments’ as defined in the Deeds, which includes sukuk, all types of Islamic collective investment schemes, Islamic money market instruments and any other form of investments as may be approved by the relevant authorities from time to time and acceptable under the Shariah principles.

The Fund’s activities shall be conducted strictly in accordance with the requirement of the Shariah principles and shall be monitored by the Shariah Adviser of the Fund.

All investments will be subject to the Securities Commission Malaysia’s (“SC”) Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and objective of the Fund.

The main objective of the Fund is to provide regular income to investors through investments in Islamic fixed income instruments and sukuk which are acceptable investments under the principles of Shariah.

18

19

1 THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES (CONTINUED)

The Manager, a company incorporated in Malaysia, is a wholly-owned subsidiary of RHB Investment Bank Berhad, effective 6 January 2003. Its principal activities include rendering of investment management services, management of unit trust funds and private retirement schemes and provision of investment advisory services.

These financial statements were authorised for issue by the Manager on 25 May2018.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation of the financial statements

The financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss, except as disclosed in this summary of significant accounting policies, and in accordance with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”).

The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the financial period. It also requires the Manager to exercise its judgement in the process of applying the Fund’s accounting policies. Although these estimates and judgement are based on the Manager’s best knowledge of current events and actions, actual results may differ.

(a) The Fund has applied the following amendments for the first time for the financial year beginning on 1 October 2017:

Amendments to MFRS 107 “Statement of Cash Flows – Disclosure

Initiative” (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities.

The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

19

20

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of preparation of the financial statements (continued)

(b) The new standards and amendments to published standards which are relevant to the Fund but not yet effective and have not been early adopted are as follows:

(i) Financial year beginning on/after 1 October 2018

MFRS 9 “Financial Instruments” (effective from 1 January 2018) will replace MFRS 139 “Financial Instruments: Recognition and Measurement”.

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income (“OCI”). The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and profit.

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch.

MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.

The above standards and amendments to published standards are not expected to have a significant impact on the Fund’s financial statements.

20

21


2.2 Financial assets

Classification

Financial assets are designated as fair value through profit or loss when they are managed and their performance evaluated on a fair value basis.

The Fund designates its investments in unquoted sukuk as financial assets at fair value through profit or loss at inception.

Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund’s financing and receivables comprise cash and cash equivalents and amount due from Manager which are all due within 12 months.

Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Subsequent to initial recognition, financial assets at fair value through statement of income and expenses are measured at fair value.

Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership.

Unrealised gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are recognised in statement of income and expenses in the financial period in which they arise.

Unquoted sukuk denominated in Ringgit Malaysia are valued based on a fair value prices quoted by a bond pricing agency (“BPA”) registered with the SC as per the SC Guidelines on Unit Trust Funds. Where such quotations are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted sukuk differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager:

(i) Records its basis for using a non-BPA price; (ii) Obtains necessary internal approvals to use the non-BPA price; and (iii) Keeps an audit trail of all decisions and basis for adopting the market price.

21

22


2.2 Financial assets (continued)

Recognition and measurement (continued)

Islamic deposits with a licensed financial institution are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective deposits, which is reasonable estimate of fair value due to the short-term nature of the deposits.

Financing and receivables are subsequently carried at amortised cost using the effective profit method.

Impairment of financial assets

For assets carried at amortised cost, the Fund assesses at the end of the financial period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

2.3 Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.

Financial liabilities, within the scope of MFRS 139, “Financial Instruments: Recognition and Measurement” are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument.

The Fund’s financial liabilities which include accrued amount due to Manager, management fee, amount due to Trustee and other payables and accruals are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective profit method.

A financial liability is de-recognised when the obligation under the liability is extinguished. Gains and losses are recognised in statement of income and expenses when the liabilities are de-recognised, and through the amortisation process.

22

23


2.4 Unitholders’ capital

The unitholders’ contributions to the Fund meet the criteria of the definition of the puttable instruments under MFRS 132 “Financial Instruments: Presentation”. Those criteria include:

the units entitle the holder to a proportionate share of the Fund’s net assets value;

the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset

other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based

substantially on the profit or loss of the Fund.

The outstanding units are carried at the redemption amount that is payable at each financial period if unitholder exercises the right to put the unit back to the Fund.

Units are created and cancelled at prices based on the Fund’s net asset value per unit at the time of creation or cancellation. The Fund’s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units.

2.5 Income recognition

Profit from Islamic deposits with licensed financial institutions and unquoted sukuk are recognised on an accrual basis using the effective profit method.

Realised gain and loss on sale of unquoted sukuk is measured by the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium.

Net income or loss is the total of income less expenses.

2.6 Taxation

Current tax expense is determined according to Malaysian tax laws and includes all taxes based upon the taxable income earned during the financial period.

23

24


2.7 Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise bank balances and Islamic deposits with licensed financial institutions which are subject to an insignificant risk of changes in value.

2.8 Presentation and functional currency

Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia(“RM”), which is the Fund’s presentation and functional currency.

2.9 Segmental information

Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The operating results are regularly reviewed by the Manager and the Investment Committee. The Investment Committee assumes the role of chief operating decision maker, for performance assessment purposes and to make decisions about resources allocated to the investment segment based on the recommendation by the Investment & SecuritySelection Committee.

3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is exposed to a variety of risks, which include market risk, price risk, profit rate risk, credit risk, liquidity risk, Shariah specific risk and capital risk.

Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the SC Guidelines on Unit Trust Funds.

Market risk

Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in profit or currency rates or adverse investors’ sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labour shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than sukuk. The market price of securities owned by a unit trust fund might go down or up, sometimes rapidly or unpredictably.

24

25

3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Price risk

Price risk is the risk that the fair value of the investments of the Fund will fluctuate because of changes in market prices.

The Fund is exposed to price risk arising from interest rate risk in relation to its investments of RM284,894,183 (30.09.2017: RM230,214,577) in unquoted sukuk.The Fund’s exposure to prise risk arising from profit rate risk and the related sensitivity analysis are disclosed in “Profit rate risk” below.

Profit rate risk

In general, when profit rates rise, unquoted sukuk prices will tend to fall and vice versa. Therefore, the net asset value of the Fund may also tend to fall when profit rates rise or are expected to rise. In order to mitigate profit rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future profit rate trend of the Manager, which is based on its continuous fundamental research and analysis.

This risk is crucial since unquoted sukuk portfolio management depends on forecasting profit rate movements. Unquoted sukuk with longer maturity and lower yield coupon rates are more susceptible to profit rate movements.

The table below summarises the sensitivity of the Fund’s net income/(loss) and net asset value as at reporting date to movements in prices of unquoted sukuk held by the Fund as a result of movement in profit rate. The analysis is based on the assumptions that the profit rate fluctuates by +/(-)% with all other variables held constant.

Impact on income or loss and net asset value31.03.2018 30.09.2017

RM RM% Change in profit rate

+ 1% (1,099,066) (858,144)- 1% 1,105,664 863,196

═════════ ════════

25

26


Credit risk

Credit risk refers to the possibility that the issuer of a particular investment will not be able to make timely or full payments of principal or income due on that investment. Credit risk arising from unquoted sukuk can be managed by performing continuous fundamental credit research and analysis to ascertain the creditworthiness of its issuer. In addition, the Manager imposes a minimum rating requirement as rated by either local and/or foreign rating agencies and manages the duration of the investment in accordance with the objective of the Fund. The risk arising from placements of Islamic deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the Information Memorandum or Securities Commission Guidelines on Unit Trust Fund.

26

27


Credit risk (continued)

The following table sets out the credit risk concentrations of the Fund.

InvestmentsRM

Cash andcash

equivalentsRM

Otherfinancial

assets*RM

TotalRM

31.03.2018Financial institutions:AAA 6,750,697 16,358,746 - 23,109,443AA1 10,189,407 - - 10,189,407AA2 26,001,317 - - 26,001,317AA3 33,561,026 - - 33,561,026AA+ 2,033,373 - - 2,033,373AA- 99,679,148 - - 99,679,148A 39,349,495 - - 39,349,495A1 10,024,145 - - 10,024,145A2 - 117,281 - 117,281A3 21,496,837 - - 21,496,837Non-rated 35,808,738 - - 35,808,738Others - - 2,769 2,769

284,894,183 16,476,027 2,769 301,372,979

27

28


Credit/default risk (continued)

InvestmentsRM

Cash andcash

equivalentsRM

Otherfinancial

assets*RM

TotalRM

30.09.2017Financial institutions:AAA 6,824,975 6,688,629 - 13,513,604AA1 3,050,942 - - 3,050,942AA2 39,134,546 - - 39,134,546AA3 14,148,107 - - 14,148,107AA+ 2,050,923 - - 2,050,923AA 4,392,956 - - 4,392,956AA- 74,366,001 - - 74,366,001A 37,670,102 - - 37,670,102A2 - 20,691,037 - 20,691,037A3 16,833,471 - - 16,833,471Non-rated 31,742,554 - - 31,742,554Others - - 6,592,646 6,592,646

230,214,577 27,379,666 6,592,646 264,186,889

* Comprise amount due from Manager.

The financial assets of the Fund are neither past due nor impaired.

Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations.

Liquidity risk exists when particular investments are difficult to sell, possibly preventing the fund from selling such illiquid securities at an advantageous time or price. Unit trust funds with principal investment strategies that involve securities or securities with substantial market and/or credit risk tend to have the greaterexposure to liquidity risk. As part of its risk management, the Manager will attempt to manage the liquidity of the Fund through asset allocation and diversification strategies within the portfolio. The Manager will also conduct constant fundamental research and analysis to forecast future liquidity of its investments.

28

29


Liquidity risk (continued)

The table below summarises the Fund’s financial liabilities into relevant maturity groupings based on the remaining period from the statement of financial position date to the contractual maturity date.

Between Less than 1 month 1 month to 1 year RM RM31.03.2018Amount due to Manager 724,879 -Accrued management fee 1,036,160 -Amount due to Trustee 27,243 -Other payables and accruals - 11,651 ───────── ─────────

1,788,282 11,651 ═════════ ═════════30.09.2017 Income distribution payable 1,812,669 -Accrued management fee 1,604,379 -Amount due to Trustee 21,708 -Other payables and accruals - 14,565 ───────── ─────────

3,438,756 14,565 ═════════ ═════════

Shariah specific risk

The risk that the investments do not conform to the principle of Shariah may result in those investments being not Shariah-compliant. Should the situation arise, necessary steps shall be taken to liquidate of such investments in accordance with the rules of divestment of non Shariah-compliant investments. If this occurs, the Fund could suffer losses from the liquidation and thus, adversely affecting the value of the Fund.

29

30


Capital risk

The capital of the Fund is represented by equity consisting of unitholders’ capital of RM289,301,703 (01.11.2016-31.03.2017: RM239,742,198) and retained earnings of RM10,271,343 (01.11.2016-31.03.2017: RM8,993,057). The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund’s objective when managing capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns for unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund.

4 FAIR VALUE ESTIMATION

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).

The fair value of financial assets traded in active market (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the period end date.

An active market is a market in which transactions for the assets or liabilities take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each financial period end date. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

30

31

4 FAIR VALUE ESTIMATION (CONTINUED)

For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equities, debt securities and other debt instruments for which market were or have been inactive during the financial period. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds.

Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counterparty risk.

The fair values are based on the following methodologies and assumptions:

(i) For bank balances and Islamic deposits with licensed financial institutions with maturities less than 1 year, the carrying value is a reasonable estimate of fair value.

(ii) The carrying value of receivables and payables are assumed to approximate their fair values due to their short term nature.

Fair value hierarchy

The Fund adopted MFRS 13 “Fair Value Measurement” in respect of disclosures about the degree of reliability of fair value measurement. This requires the Fund to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3: Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs)

31

32

4 FAIR VALUE ESTIMATION (CONTINUED)

Fair value hierarchy (continued)

The following table analyses within the fair value hierarchy the Fund’s financial assets (by class) measured at fair value:

Level 1 Level 2 Level 3 Total RM RM RM RM31.03.2018 Investments: - Unquoted sukuk - 284,894,183 - 284,894,183 ════════ ════════ ═══════ ════════

30.09.2017 Investments: - Unquoted sukuk - 230,214,577 - 230,214,577 ════════ ════════ ═══════ ════════

Financial instruments that trade in markets that are considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 instruments include unquoted sukuk. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. The Fund’s policies on valuation of these financial assets are stated in Note 2.2.

32

33

5 INVESTMENTS

31.03.2018 30.09.2017 RM RM Financial assets designated as FVTPL: - Unquoted sukuk 284,894,183 230,214,577 ════════ ════════

01.10.2017 - 01.10.2016 - 31.03.2018 31.03.2017

RM RM Net loss on investments comprised: - Net realised gain on disposal 439,376 2,043,200 - Net unrealised loss on changes

in fair value (947,365) (4,007,225) ──────── ──────── (507,989) (1,964,025) ════════ ════════

Investments as at 31 March 2018 are as follows:

Nominal % of Name of Counter value Cost Fair value net asset value

RM RM %UNQUOTED SUKUK

6.00% Al Dzahab Assets Bhd (Class b Tranche 5)

15/09/2026 AA3 5,000,000 5,013,151 5,035,751 1.68

5.70% Alpha Circle Sdn Bhd 18/11/2022 AA- 10,000,000 10,206,137 10,321,537 3.45



6.00% Alpha Circle Sdn Bhd 31/05/2023 A 20,200,000 21,033,397 20,774,864 6.93

33

34

5 INVESTMENTS (CONTINUED)

Investments as at 31 March 2018 are as follows: (continued)


RM RM %

UNQUOTED SUKUK (CONTINUED)

5.50% Bank Muamalat Malaysia Bhd IMTN

25/11/2021 A 18,000,000 18,368,547 18,574,630 6.20

5.80% Bank Muamalat Malaysia Bhd IMTN

15/06/2026 A3 21,000,000 21,411,745 21,496,837 7.18

5.60% BGSM Management Sdn Bhd

27/12/2023 AA3 1,700,000 1,752,157 1,805,063 0.60

2.50% Bright Focus Bhd IMTN 22/01/2031 AA2 7,000,000 4,862,132 5,215,273 1.74

5.02% Danga Capital BhdIMTN (Tranche 9)

21/09/2033 AAA 5,000,000 5,018,163 5,045,514 1.68

6.35% Edra Energy Sdn Bhd IMTN (Tranche 24)

05/07/2033 AA3 2,000,000 2,113,298 2,108,983 0.70


05/07/2034 AA3 1,500,000 1,584,180 1,584,345 0.53


05/07/2035 AA3 3,500,000 3,693,716 3,699,775 1.24

34

35



Nominal % of

Name of Counter value Cost Fair value net asset value RM RM %


6.59% Edra Energy Sdn Bhd IMTN (Tranche 30) 04/07/2036 AA3 5,000,000 5,271,704 5,278,886 1.76

4.258% GII Murabahah 26/07/2027 Non-rated 6,000,000 6,031,215 6,095,674 2.03


5.30% Gulf Investment Corporation G.S.C. 18/06/2027 AAA 1,200,000 1,226,716 1,213,442 0.41

6.20% Jimah East Power Sdn Bhd 04/12/2031

AA- 12,000,000 13,667,262 13,537,726 4.52

4.85% Kimanis Power Sdn Bhd 06/08/2021 AA- 1,000,000 1,031,041 1,019,170 0.34

5.11% Konsortium Prohawk Sdn Bhd 21/06/2024 AA2 10,000,000 10,503,562 10,370,700 3.46


5.72% KT Kira IMTN 15/07/2020 AA3 5,000,000 5,066,325 5,086,287 1.70

35

36



Nominal % of



4.80% LCSB IMTN 13/01/2020 A1 10,000,000 10,142,355 10,024,145 3.35

5.70% Maju Expressway Sdn Bhd 29/04/2027 AA- 10,000,000 10,871,730 10,733,032 3.58




5.70% MMC Corporation Bhd IMTN 24/03/2028 AA- 4,500,000 4,504,216 4,504,127 1.50

4.85% Perbadanan Tabung Pendidikan Tinggi Nasional 26/07/2041 Non-rated 15,000,000 15,123,575 14,521,625 4.85

5.01% Prasarana Sukuk Murabahah 14/09/2037 Non-rated 10,000,000 10,049,103 10,026,907 3.35

36

37



Nominal % of



6.12% QSPS Green SRI Sukuk – T32

06/10/2034 AA- 3,500,000 3,662,151 3,694,067 1.23

6.16% QSPS Green SRI Sukuk – T33

06/04/2035 AA- 3,500,000 3,663,706 3,697,616 1.23

5.32% Sarawak Energy Bhd 03/12/2032 AA1 8,000,000 8,178,988 8,193,385 2.74


5.45% SPG IMTN 31/10/2033 AA- 2,950,000 3,027,513 3,080,968 1.03

5.49% SPG IMTN28/04/2034 AA- 1,500,000 1,534,294 1,568,239 0.52

5.61% SPG IMTN 31/10/2035 AA- 2,000,000 2,085,035 2,095,524 0.70

5.40% TADAU SRISukuk – Tranche 7

28/07/2025 AA3 5,000,000 5,102,265 5,110,013 1.71

5.85% Tanjung Bin Energy Issuer Bhd

15/09/2028 AA3 1,000,000 1,076,778 1,081,374 0.36


15/09/2031 AA3 1,000,000 1,104,131 1,106,226 0.37

37

38



Nominal % of




16/03/2032 AA3 1,500,000 1,547,915 1,664,322 0.56

4.725% TNB Northern Energy Bhd 29/11/2034 AAA 500,000 459,390 491,741 0.16

7.20% Tracoma Holdings Bhd D* 1,461,231 1,220,223 - -

5.55% WCT IMTN 21/02/2025 AA- 5,000,000 5,042,006 5,063,930 1.69

4.58% Westports Malaysia Sdn Bhd 23/10/2024 AA+ 1,000,000 1,021,415 1,015,852 0.34


───────── ──────── ────

TOTAL UNQUOTED SUKUK 286,694,678 284,894,183 95.10 ═════════ ════════ ════

38

39


Investments as at 30 September 2017 are as follows:


RM RM %UNQUOTED SUKUK

5.70% ACSB IMTN Bhd 18/11/2022 AA- 10,000,000 10,212,384 10,500,184 4.03



6.00% Alpha Circle Sdn Bhd 31/05/2023 A 20,200,000 21,075,964 21,196,301 8.13

5.70% ANIH Bhd 27/11/2026 AA 2,500,000 2,694,998 2,733,950 1.05

5.85% ANIH Bhd 29/11/2027 AA 1,500,000 1,665,706 1,659,006 0.64

5.80% Bank Muamalat Malaysia Bhd IMTN 15/06/2026 A3 16,500,000 16,819,428 16,833,471 6.45

5.60% BGSM Management Sdn Bhd 27/12/2023 AA3 1,700,000 1,754,467 1,803,879 0.69

6.60% BGSM Management Sdn Bhd 27/12/2019 AA3 1,000,000 1,058,843 1,063,438 0.41

2.50% Bright Focus Bhd IMTN 22/01/2031 AA2 7,000,000 4,807,702 5,194,182 1.99


39

40


Investments as at 30 September 2017 are as follows: (continued)


RM RM %


5.30% Gulf Investment Corporation G.S.C. 18/06/2027 AAA 1,200,000 1,227,081 1,222,718 0.47

6.20% Jimah East Power Sdn Bhd 04/12/2031 AA- 12,000,000 13,703,270 13,641,166 5.23

4.85% Kimanis Power Sdn Bhd 06/08/2021 AA- 1,000,000 1,034,631 1,022,525 0.39




5.72% KT Kira IMTN 15/07/2020 AA3 5,000,000 5,068,100 5,091,500 1.95

4.80% LCSB IMTN 13/01/2020 AA2 10,000,000 10,158,963 10,177,605 3.90

5.70% Maju Expressway Sdn Bhd

29/04/2027 AA- 10,000,000 10,903,852 10,769,016 4.13

40

41




RM RM %


6.00% Maju Expressway Sdn Bhd

29/04/2030 AA- 10,000,000 11,075,560 10,991,438 4.22

5.80% MEX II IMTN 28/04/2028 AA- 15,000,000 16,474,962 16,268,836 6.24

6.20% MEX II IMTN 29/04/2032 AA- 5,000,000 5,534,842 5,550,643 2.13

5.50% Muamalat IMTN 25/11/2021 A 16,000,000 16,305,161 16,473,801 6.32

4.85% Perbadanan Tabung Pendidikan Tinggi Nasional 26/07/2041 Non-rated 15,000,000 15,131,548 14,628,898 5.61

5.01% Prasarana Sukuk Murabahah 14/09/2037 Non-rated 15,000,000 15,072,198 15,074,151 5.78


5.85% Tanjung Bin Energy Issuer Bhd 15/09/2028 AA3 1,000,000 1,078,988 1,083,164 0.42


41

42




RM RM %



5.18% Tenaga IMTN 03/08/2037 AAA 5,000,000 5,041,866 5,110,416 1.96

4.725% TNB Northern Energy Bhd 29/11/2034 AAA 500,000 458,650 491,841 0.19

7.20% Tracoma Holdings Bhd D* 1,461,231 1,220,223 - -



5.05% YTL Power International Bhd 03/05/2027 AA1 1,000,000 1,026,998 1,033,052 0.40

──────── ──────── ────

TOTAL UNQUOTED SUKUK 231,067,706 230,214,577 88.29 ════════ ════════ ════

42

43


* Tracoma Holdings Bhd (“Tracoma”) RM100 million Islamic Bai' Bithaman Ajil Debt Securities (“BaIDS”)

On 12 April 2011, Tracoma was granted an extension of the Restraining Order (“RO”) for another 6 months from 9 December 2010. This means that Tracoma has protection from any legal action up to the expiry of the RO i.e. 8 June 2011. Tracoma is expected to refine the restructuring scheme which was rejected by the BaIDS holders.

On 19 April 2011, Tracoma appointed KAF Investment Bank Bhd as the company’s Principal Advisor for the proposed restructuring scheme.

On 9 May 2011, Tracoma was again granted an extension of the RO for a period of six (6) months effective from 9 June 2011 until 8 December 2011 to restrain further proceedings against Tracoma Group.

However, as a result of a calling of an Event of Default (EOD) by the BaIDS holders on 10 October 2011, the Manager has fair valued the BaIDS at zero value for the financial year ended 30 September 2011 of the Fund.

BDO Consulting Sdn Bhd (“BDO”) was appointed as Receiver and Manager (“R&M”) on 30 December 2011 to undertake an asset disposal exercise for the recovery of Tracoma’s RM100 million BaIDS.

Most of Tracoma’s assets have been successfully disposed and the proceeds were distributed to the BaIDS holders in 4 distributions since December 2012. The total distribution amount of RM70.78 million translates to a 70.78% recovery rate to-date. R&M will continue to conclude the assets disposal exercise but expected recovery is likely to be negligible.

The BaIDS continue to be fair valued at zero value for the financial period ended 31 March 2018 pending conclusion of the asset disposal exercise.

43

44

6 CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise: 31.03.2018 30.09.2017 RM RM

Islamic deposits with licensed financial institutions 16,358,746 22,857,699 Bank balances 117,281 4,521,967 ──────── ──────── 16,476,027 27,379,666 ════════ ════════

7 UNITS IN CIRCULATION 31.03.2018 30.09.2017

Units Units

At the beginning of the financial period/year 191,798,623 148,415,000 Creation of units during the financial period/year: Arising from distribution - 10,164,623Arising from applications 46,010,000 70,222,000

Cancellation of units during the financial period/year (21,476,000) (37,003,000)

───────── ─────────At the end of the financial period/year 216,332,623 191,798,623 ═════════ ═════════

8 MANAGEMENT FEE

In accordance with the prospectus, the management fee provided in the financial statements is based on a profit sharing scheme between the Manager and the Fund at a ratio of 15:85 (01.10.2016 - 31.03.2017: 15:85) respectively based on the net investment income for the financial period.

9 TRUSTEE’S FEE

In accordance with the prospectus, the Trustee’s fee provided in the financial statements is 0.10% (01.10.2016 - 31.03.2017: 0.10%) per annum based on the net asset value of the Fund, calculated on a daily basis for the financial period.

44

45

10 TAXATION

(a) Tax charge for the financial period

01.10.2017 - 01.10.2016 - 31.03.2018 31.03.2017

RM RMCurrent taxation - -

════════ ════════

(b) Numerical reconciliation of income tax expense

The numerical reconciliation between the net income before taxation multiplied by the Malaysian statutory income tax rate and the tax expense of the Fund is as follows:

01.10.2017 - 01.10.2016 - 31.03.2018 31.03.2017

RM RM

Net income before taxation 5,469,186 2,751,402 ════════ ════════

Tax calculated at a tax rate of 24% 1,312,605 660,336 Tax effects of: - Income not subject to tax (1,600,740) (814,891) - Expenses not deductible for tax purposes 38,343 28,631 - Restriction on tax deductible expenses

for unit trust funds 249,792 125,924 ──────── ────────

Tax expense - - ════════ ════════

45

46

11 MANAGEMENT EXPENSE RATIO (“MER”)

01.10.2017 - 01.10.2016 - 31.03.2018 31.03.2017

% %

MER 0.41 0.29══════ ══════

The MER ratio is calculated based on total expenses (excluding Goods and Services Tax) of the Fund to the average net asset value of the Fund calculated on a daily basis.

12 PORTFOLIO TURNOVER RATIO (‘PTR’)

01.10.2017 - 01.10.2016 - 31.03.2018 31.03.2017

PTR (times) 0.35 0.22 ══════ ══════

The PTR ratio is calculated based on average of acquisition and disposals of the Fund for the financial period to the average net asset value of the Fund calculated on a daily basis.

46

47

13 UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER

The number of units held by the Manager is as follows:

31.03.2018 30.09.2017 Units RM Units RM

The Manager 5,975 8,274 1,507,588 2,049,415══════ ══════ ═══════ ═══════

The units are held beneficially by the Manager for booking purposes. The Manager is of the opinion that all transactions with the related parties have been entered into in the normal course of business at agreed terms between the related parties.

Other than the above, there were no units held by Directors or parties related to the Manager.

The holding company and the ultimate holding company of the Manager is RHB Investment Bank Berhad and RHB Bank Berhad respectively. The Manager treats RHB Bank Berhad group of companies including RHB Investment Bank Berhad and its subsidiaries as related parties.

47

48

14 TRANSACTIONS BY THE FUND

Details of transactions by the Fund for the financial period ended 31 March 2018 are as follows:

Percentage Percentage of total Value of of total Brokerage brokerage Financial institutions trades trades fees fees RM % RM %

RHB Investment Bank Bhd* 65,189,252 31.17 - - AmIslamic Bank Bhd 44,637,559 21.34 - - CIMB Islamic Bank Bhd 22,243,144 10.63 - - Affin Hwang Investment

Bank Bhd 21,049,948 10.06 - - CIMB Bank Bhd 20,149,897 9.63 - - AmBank Bank Bhd 9,774,219 4.67 - - Hong Leong Bank Bhd 9,207,978 4.40 - - OCBC Bank (Malaysia) Bhd 7,030,024 3.36 - - Bank Islam Malaysia Bhd 4,034,279 1.93 - - HSBC Bank (Malaysia) Bhd 3,004,200 1.44 - - Others 2,853,626 1.37 - -

───────── ───── ─────── ───── 209,174,126 100.00 - - ═════════ ═════ ═══════ ═════

48

49

14 TRANSACTIONS BY THE FUND (CONTINUED)

Details of transactions by the Fund for the financial year ended 30 September 2017 are as follows:

Percentage Percentage of total Value of of total Brokerage brokerage Financial institutions trades trades fees fees RM % RM %

RHB Investment Bank Bhd* 68,853,434 29.81 - - CIMB Bank Bhd 58,454,409 25.31 - - Malayan Banking Bhd 34,121,996 14.77 - - JPMorgan Securities (Malaysia) Sdn Bhd 27,572,277 11.94 - -

OCBC Bank (Malaysia) Bhd 16,000,000 6.93 - - Standard Chartered Bank Bhd 15,302,200 6.63 - - Hong Leong Investment Bank

Bhd 5,646,425 2.44 - - CIMB Islamic Bank Bhd 5,017,967 2.17 - -

───────── ───── ─────── ───── 230,968,708 100.00 - - ═════════ ═════ ═══════ ═════

* Included in transactions by the Fund are trades with the holding company of the Manager, RHB Investment Bank Bhd and a related company of the Manager, RHB Islamic Bank Bhd. The Manager is of the opinion that all transactions with the related companies have been entered into in the normal course of business at agreed terms between the related parties.

49

50

15 SEGMENT INFORMATION

The Investment & Security Selection Committee of the Manager recommends strategic resource allocations of the Fund to the Investment Committee of the Manager (collectively referred to as “Committee”).

The internal reporting provided to the Committee for the Fund’s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of MFRS and IFRS. The Committee considers the business from both a geographic and investment perspective. Geographically, the Committee considers the performance of investments in overall basis.

The reportable operating segments derive their income by seeking investments to achieve investment objectives commensurate with an acceptable level of risk within each portfolio. These returns consist of interest and gains on the appreciation in the value of investments and are derived from Malaysia.

There were no changes in the reportable segments during the financial period/year.

50

15 SEGMENT INFORMATION

The Investment & Security Selection Committee of the Manager recommends strategic resource allocations of the Fund to the Investment Committee of the Manager (collectively referred to as “Committee”).

The internal reporting provided to the Committee for the Fund’s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of MFRS and IFRS. The Committee considers the business from both a geographic and investment perspective. Geographically, the Committee considers the performance of investments in overall basis.

The reportable operating segments derive their income by seeking investments to achieve investment objectives commensurate with an acceptable level of risk within each portfolio. These returns consist of interest and gains on the appreciation in the value of investments and are derived from Malaysia.

There were no changes in the reportable segments during the financial period/year.

50

51

STATEMENT BY MANAGER

We, Abdul Aziz Peru Mohamed and Chin Yoong Kheong, two of the Directors of RHB Asset Management Sdn Bhd, do hereby state that in the opinion of the Directors of the Manager, the accompanying unaudited statement of financial position, unaudited statement of income and expenses, unaudited statement of changes in net asset value, unaudited statement of cash flows and theaccompanying notes, 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 the Fund as of 31 March 2018 and of its financial performance and cash flows for the financial period then ended and comply provisions of the Deeds .

On behalf of the Manager

ABDUL AZIZ PERU MOHAMED CHIN YOONG KHEONGDIRECTOR DIRECTOR

Kuala Lumpur 25 May 2018

51

52

TRUSTEE’S REPORT TO THE UNITHOLDERS OFRHB ISLAMIC BOND FUND

We, CIMB Islamic Trustee Berhad (“the Trustee”), being the Trustee for RHB Islamic Bond Fund (“the Fund”), are of the opinion that RHB Asset Management Sdn Bhd (“the Manager”), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial period ended 31 March 2018.

a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the management company under the Deeds, 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 Deeds and relevant regulatory requirements; and

c) Creation and cancellation of units have been carried out in accordance with the Deeds and relevant regulatory requirements.

For and on behalf of CIMB Islamic Trustee Berhad

Lee Kooi Yoke Chief Operating Officer

Kuala Lumpur25 May 2018

52

53

REPORT OF THE SHARIAH ADVISER

We have acted as the Shariah Adviser of RHB Islamic Bond Fund (“the Fund”).Our responsibility is to ensure that the procedures and processes employed by RHB Asset Management Sdn Bhd (“the Manager”) and that the provisions of the Deeds are in accordance with Shariah principles.

In our opinion, the Manager has managed and administered the Fund in accordance with Shariah principles and complied with the applicable guidelines, rulings and decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial period ended 31 March 2018.

I, Dr. Ghazali Jaapar, hereby confirm that all members of the Shariah Committee have been consulted and made aware of all the Shariah issues in relation to this report.

For and on behalf of RHB ISLAMIC BANK BERHAD (Company No: 680329-V)

Dr. Ghazali Jaapar Chairman Shariah Committee of RHB Islamic Bank Berhad

Kuala Lumpur 25 May 2018

53

54

CORPORATE INFORMATION

MANAGERRHB Asset Management Sdn Bhd

PRINCIPAL AND REGISTERED OFFICELevel 8, Tower 2 & 3, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur

BUSINESS OFFICELevel 8, Tower 2 & 3, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur

Email address: [email protected]: 03-9205 8000Fax: 03-9205 8100Website: http://www.rhbgroup.com

BOARD OF DIRECTORSMr Yap Chee Meng (Independent Non-Executive Chairman, appointed on 24 April 2018)Encik Abdul Aziz Peru Mohamed (Senior Independent Non-Executive Director)Mr Chin Yoong Kheong (Independent Non-Executive Director)Ms Ong Yin Suen (Managing Director)Dr. Ngo Get Ping (Independent Non-Executive Director)Mr Patrick Chin Yoke Chung (Non-Independent Non-Executive Chairman,

retired on 24 April 2018)Ms Choo Shan (Independent Non-Executive Director, retired on 24 April 2018)

INVESTMENT COMMITTEE MEMBERS Mr Yap Chee Meng (Independent Chairman, appointed on 24 April 2018)Encik Abdul Aziz Peru Mohamed (Appointed on 1 November 2017)YBhg Dato’ Darawati Hussain (Appointed on 1 December 2017)YBhg Dato’ Khairussaleh Ramli (Chairman, resigned on 1 November 2017)Mr Ong Seng Pheow (Resigned on 1 November 2017)YBhg Datuk Haji Faisal Siraj (Resigned on 1 December 2017)Mr Patrick Chin Yoke Chung (Chairman, retired on 24 April 2018)Ms Choo Shan (Retired on 24 April 2018)

CHIEF EXECUTIVE OFFICERMs Ong Yin Suen (Appointed on 28 February 2018)Mr Ho Seng Yee (Retired on 1 January 2018)

SHARIAH ADVISERRHB Islamic Bank Berhad

SECRETARYEncik Azman Shah Md Yaman (LS No. 0006901)

54

55

BRANCH OFFICEKuala Lumpur Office B-9-6, Megan Avenue 1

No. 189, Jalan Tun Razak50400 Kuala LumpurTel: 03-2171 2755 Fax: 03-2770 0022

Sri Petaling Office No. 53-1 & 53-2 Jalan Radin TengahBandar Baru Sri Petaling57000 Kuala LumpurTel: 03-9054 2470 Fax: 03-9054 0934

Penang Office 64-D, Level 5, Lebuh Bishop10200 PenangTel: 04-264 5639 / 04-263 4848Fax: 04-264 5640 / 04-262 8844

Butterworth Office 2677, Jalan Chain FerryTaman Inderawasih13600 Prai, PenangTel: 04-390 0022 Fax: 04-390 0023

Ipoh Office 4th Floor, 21-25Jalan Seenivasagam, Greentown30450 Ipoh, PerakTel: 05-242 4311 Fax: 05-242 4312

Johor Bahru Office 2nd Floor, 21 & 23Jalan Molek 1/30, Taman Molek81100 Johor Bahru, JohorTel: 07-358 3587 Fax: 07-358 3581

Kuantan Office B 32-34, 2nd Floor, Lorong Tun Ismail 8Sri Dagangan II25000 Kuantan, PahangTel: 09-517 3611 Fax: 09-517 3612

Kota Bharu Office No 3953-H, 1st FloorJalan Kebun Sultan15350 Kota Bharu, KelantanTel: 09-741 8539 Fax: 09-741 8540

Kota Kinabalu Office Lot No. C-02-04, 2nd FloorBlock C, Warisan SquareJalan Tun Fuad Stephens88000 Kota Kinabalu, SabahTel: 088-628 686/692 Fax: 088-528 685 55

56

Melaka Office 581B, Taman Melaka Raya75000 MelakaTel: 06-284 4211 Fax: 06-292 2212

Batu Pahat Office 53, 53-A and 53-B Jalan Sultanah83000 Batu Pahat, JohorTel: 07-438 0271 Fax: 07-438 0277

Miri Office Lot 1268, First FloorCentre Point Commercial CentreJalan Melayu98000 Miri, SarawakTel: 085-422 788 Fax: 085-415 243

Kuching Office Lot 172, Section 49, K.T.L.DJalan Chan Chin Ann93100 Kuching, SarawakTel: 082-245 611 Fax: 082-242 712

TRUSTEE CIMB Islamic Trustee Berhad

BANKER RHB Bank Berhad

AUDITORS PricewaterhouseCoopers

TAX ADVISER PricewaterhouseCoopers Taxation Services Sdn Bhd

DISTRIBUTORS AmInvestment Bank BerhadAreca Capital Sdn BhdCIMB Bank BerhadCIMB Investment Bank BerhadCIMB Islamic Bank BerhadGenexus Advisory Sdn BhdHSBC Amanah Malaysia BerhadHSBC Bank Malaysia BerhadiFast Capital Sdn BhdOCBC Al-Amin Bank BerhadOCBC Bank (Malaysia) BerhadPhillip Mutual BerhadRHB Bank BerhadRHB Islamic Bank BerhadRHB Investment Bank BerhadStandard Chartered Bank Malaysia BerhadStandard Financial Adviser Sdn BhdUnited Overseas Bank (Malaysia) BerhadRHB Asset Management Unit Trust Consultants

56

rhb islamic bond fund annual report 2017 … · annual report 2017 incorporating the audited...

Documents