Wah Seong Corporation Berhad Annual Report 2018

8 INVESTMENT IN ASSOCIATES Group 2018 2017 RM’000 RM’000 Quoted shares in Malaysia 130,114 130,114 Unquoted shares 85,095 84,093 Share of post-acquisition results and reserves (33,180) (28,984) 182,029 185,223 Share of net assets of associates 182,029 185,223 Quoted shares in Malaysia at fair value 35,053 71,404 Quoted shares – Petra Energy Berhad As at 31 December 2018 and 31 December 2017, the fair value of the Group’s investment in quoted shares is based on Level 1 of the fair value hierarchy. The market value of the Group’s interest in quoted shares, representing its fair value as at 31 December 2018, was approximately RM35,053,000 (2017: RM71,404,000). This fair value is approximately RM52,892,000 (2017: RM22,920,000) below the carrying value, giving rise to an impairment indicator. Therefore, the recoverable amount is determined using value-in-use calculations. These calculations are based on the discounted cash flows expected to be generated from the investment. Financial budgets approved by management covering a period of 5 years and the terminal period are based on past performance and management’s expectation of the future market developments. The value-in-use calculations are mainly driven by the revenue growth rate, terminal value growth rate and discount rate. The discount rate reflects the current market assessment of the risks specific to the industry and is based on the cost of equity expected of the investment. The revenue growth rate takes into consideration the secured contracts as at 31 December 2018 and the historical performance. The growth rate assumed for terminal value considers external macroeconomic sources of data and industry specific trends. The following table presents the key assumptions used for the value-in-use calculations. 2018 2017 Revenue growth rate for 5 years <0%* – 3.0% <0%* – 3.0% Discount rate 12.5% 12.9% Growth rate for terminal value 2.0% 2.0% * Negative growth is due to end of ongoing project. The value-in-use is above the carrying value of the Group’s investment in quoted shares. As such, no impairment loss is deemed necessary to be recognised during the financial year. Sensitivity The recoverable amount of the investment in quoted shares would equal its carrying amount if the key assumptions were to change as follows: 2018 2017 From To From To Revenue growth rate for 5 years 3.0% (2.9%) 1.5% (2.1%) Discount rate 12.5% 15.9% 12.9% 18.1% Growth rate for terminal value 2.0% (3.3%) 2.0% (4.8%) NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 WAH SEONG CORPORATION BERHAD 128