Wahid’s New Task
Executive of New PNB
chairman has his work cut out for him to lift the corporate performance of
companies under the fund.
Improving performance: Wahid has been meeting the management at PNB to understand his new
surroundings better and — Bernama
TheStarOnline: Business/Market Watch
SMEBiz: Business News
TheStarOnline: Business/Market Watch
SMEBiz: Business News
A NEW job but the same challenge. At every
stop Tan Sri Abdul Wahid Omar has been, the one constant in his job brief is
the need for improvement and transformation.
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The former executive of Amanah Capital and
senator cut his teeth on the corporate world when he was tasked with the role
of transforming the UEM Group right after the Asian Financial Crisis. From
there, he moved to Telekom Malaysia Bhd and Malayan Banking Bhd (Maybank), and
in each case, left those companies in better shape than before.
This
time, the job for Wahid is something similar; as the new chairman of Permodalan Nasional Bhd (PNB), he has been asked to improve the corporate performance of
the fund.
To get going on accomplishing that task,
Wahid has been meeting the management at PNB to understand his new
surroundings better and to come up with new strategies to do his job.
But the task of transforming PNB might not
be as straightforward as it would seem. While it needs to generate a return
for its members, the asset management company also needs to perform its
strategic social role of improving the bumiputra participation in the economy.
Observers
say it was that strategic objective that has been a drag on its dividends. “Those
three companies have a big challenge,” says one observer.
PNB is the largest shareholder in Maybank
and Sime Darby Bhd, both noted as among the country’s largest companies. PNB
owns substantial stakes in companies such as UMW Holdings Bhd and also a slew
of property companies such as SP Setia Bhd and Island & Peninsular Sdn Bhd
(I&P). The anchor on PNB’s performance of late has been that of the big companies
it controls.
But the performances of those companies
have waned a bit in recent times and each has been affected for its own reason.
Maybank still makes good money but with loans growth slowing in Malaysia, the
country’s largest bank will be under pressure to grow its dividends. The dividend declared by Maybank during its 2015
financial year was 54 sen a share compared with 57 sen a share previously.
The dip in
dividends was seen at Sime too, which has not only been strained by the
increase in debt from the purchase of New Britain Palm Oil Ltd in Papua New
Guinea, but also the sluggish performances of its heavy equipment and motor
divisions. Sime, for its 2015 financial year, registered a dividend of 25 sen
a share compared with 36 sen a year earlier.
UMW Holdings is
the most affected by the slowdown in car sales and also the oil and gas business.
UMW Holdings’ dividend fell from 41 sen to 20 sen a share over the same period.
With PNB relying
heavily on the dividend income from those three companies, it has undoubtedly
seen a dip in the returns it delivers to members over the past few years.
Amanah Saham
Nasional Bhd (ASN), which is the pioneer fund under PNB, declared a dividend of
six sen in 2010 and that rose to a high of 6.45 sen in 2014 before dropping to
6.1 sen in 2015. The current performance of ASN is a pale shadow of the
superior returns members received when the stock market was booming in the
1990s and when the companies in its stable were growing fast.
The performance
of its other bellwether fund, Amanah Saham Bumiputra (ASB), too has been
treading water during the same period, with dividends inching upwards from 7.5
sen in 2010 to a high of 7.75 sen in 2012 before seeing its money paid to members
easing to 7.25 sen in 2015. ASB, however, declared a bonus of 1.25 sen in 2010
and that declined to 0.5 sen last year.
With ASN and ASB
heavily invested in equities, particularly in companies on Bursa Malaysia, the
performances of the funds almost mirror that of the stock market.
To put PNB’s
dividend performance in perspective, one just has to compare it against that
being generated by the Employees Provident Fund (EPF).
There are those
who say the performances of two of the largest funds should be compared
side-by- side as their objectives are different. But both are ultimately
judged by the returns they deliver.
In comparison,
the EPF declared a dividend of 5.80% in 2010 and that rose to a recent high of
6.75% in 2014 before a weak market shaved off returns to 6.40% last year.
The reason why
the EPF of today has managed to greatly deliver is the internal transformation
it undertook about a decade ago. Its portfolio of investments was more
concentrated, as it greatly cut the number of companies on Bursa Malaysia it
invests in to just over a 100. The EPF’s move to increase its exposure to
equities has also seen its returns improve.
The overdrive in
the EPF’s returns has been its ability to invest abroad, which has delivered
returns that outweigh what its local portfolio has managed to churn out. Most
of the main funds of PNB are concentrated on the local market.
With the EPF
holding large but non-controlling stakes in companies with the exception of
RHB Capital Bhd, Malaysian Resources Corp Bhd and Malaysia Building Society Bhd
made a net profit of RM63mil in the second quarter ended June 30, 2016, which accounts
for a large but not overbearing amount of its investible funds. That
nimbleness and flexibility has allowed the EPF to generate better returns of
late.
Sweating its assets
The first task
for Wahid is to improve the corporate performance of the group and its group
companies, which is one of three mandates from the Government. With a swath of
companies in its portfolio, executives familiar with PNB suggest that a
restructuring of companies in its portfolio is inevitable. “PNB has a lot of
assets, but the returns are not great,” says an executive.
Towards this
end, the slew of property companies within the stable of PNB that can be
improved stick out.
As a group, PNB
controls a number of property companies, none larger than SP Setia. Within
that property grouping is I&P and the property arm of Sime Darby, both are
businesses that go with the current buildings the group owns abroad.
“I would not say
that PNB is more inefficient than other government-linked investment companies
or GLICs such as the EPF or Khazanah Nasional Bhd. The main issue is that our
portfolio of property assets is not exactly firing on all cylinders right
now,” a source says.
“We are invested
in a few large listed and unlisted property companies, but the opportunities
(to monetise) them are minimal. But in the property assets that we own
directly, there is opportunity to do something there.”
There had been
talk in the past that PNB was interested to merge three of its biggest property
companies to create value from them.
It had studied a
move to amalgamate SP Setia, I&P and the property businesses of Sime to
bring about efficiencies in its broader shareholding, and in the process create
the largest property company in Malaysia.
Nothing
materialised from such contemplations, but on hindsight, the move was a right
one, given the slowdown in the property business.
“PNB has been
fairly passive at what it does. Depending on the period the economy is in, that
might be seen as a defensive move,” says an observer.
Executives say that
a thorough examination of the companies under PNB will be undertaken and a
restructuring of those companies will be a certainty.
But with the
need to do more, a restructuring of its assets looks like it will happen, given
that the provision of affordable housing is one of Wahid’s mandates when he
was appointed chairman on Aug 1.
“We have several
property development projects in the country under our roof. I think it is
about mobilising the resources and putting them into the provision of
affordable homes and this will be done on an ad hoc basis,” he was reported as
saying.
How PNB's top holdings
performed
TAN Sri Abdul Wahid Omar faces a daunting
task in unlocking the value of Permodalan Nasional Bhd’s (PNB) vast portfolio
of assets.
Apart from major stakes in listed and
unlisted property companies as well as buildings that it owns, PNB also has an
outsized presence in the financial services sector.
Its holdings in this segment are seen as
severely undervalued due to the current unfavourable market scenario. For
example, some of the country’s top banks have seen their shares trade at far
below their book values due to the gloomy outlook in the finance sector, as
well as tighter capital preservation requirements under the Basel III
framework.
Among the stakes held by PNB in the
financial services sector are Malayan Banking Bhd (Maybank), the MIDF group and
reinsurer MNRB Holdings Bhd.
While a previous plan to divest its stake
in MNRB is believed to have fizzled out, it may make sense for PNB’s new chief
to consider a corporate exercise, considering its low valuations.
The following are among PNB’s top holdings
which have been essential cash-flow contributors to its investment funds due
to their generous dividend yields.
For example, PNB’s flagship fund, Amanah
Saham Bumiputera (ASB), has a 36.95% stake in Maybank valued at RM28bil. ASB
also has a 39.7% stake in Sime Darby Bhd worth RM20bil and a further 40.77%
stake in BMW Holding Bhd worth RM2.9bil.
As at Dec 31, 2015, the combined
shareholding in these three companies made up about 35% of ASB’s total net
assets, which means that they have an outsized influence on the fund’s ability
to maintain its dividend payments in the future.
Maybank
Wahid’s tenure at the helm of Maybank
coincided with the recovery in investor sentiment towards the stock following
the 2008-2009 global financial crisis.
Since taking over as chief executive
officer in 2008, he transformed Maybank into a leaner entity and successfully
grew its regional footprint at the same time.
Between 2010 and 2015, Maybank’s assets
doubled to RM708bil as the group became the fourth-biggest financial services
group in Asean. Today, it remains the largest listed entity on Bursa Malaysia
with a market capitalisation of about RM80bil.
Prior to his departure in 2013, Wahid
turned Maybank into a serious regional player, notably with the US$1.5bil
acquisition of a 56% stake in Bank Internasio- nal Indonesia in 2008 and the
acquisition of Singapore’s Kim Eng Holdings Ltd in 2011 for US$1.4bil.
On the domestic front, the group has
successfully capitalised on the growth of the Islamic finance industry over
the past decade, with Maybank Islamic Bhd emerging as the country’s biggest
Islamic lender with some RM147bil in assets.
Last year marked the first time Maybank
provided more
Islamic loans than non-syari- ah-compliant
financing, turning the segment into a key growth driver for the group.
Maybank’s earnings base has continued to
grow at a staggering pace. Its revenue has quadrupled from RM10.19bil in
financial year 2010 (FY10) to RM40.56bil in FY15, while its net interest income
grew from RM6.8bil to RM11.26bil during the same period.
The steady improvement in Maybank’s
earnings, as well as its historically high dividend payouts, have garnered
substantial goodwill towards Maybank’s stock price, enriching longterm
shareholders in the process.
Between Aug 19, 2010 and Aug 19, 2016, the
stock rose from RM5.40 to RM8, or a 50% capital appreciation.
Additionally, Maybank’s dividend yields
have stayed between 6% and 10% in the past five years, far above the broader
market’s average of 3% over the same period, according to Bloomberg
data.
The bank announced a record dividend
payout of 68 sen per share for its FY11 ended Dec 31.
On the other hand, it can be argued that
the bank has largely benefited from the cheap access to capital and a massive
demand for loans in the property segment that is partly fueled by speculative
activity.
Since Bank Negara instituted new curbs to
lending in mid- 2013, Maybank’s return on equity (ROE) has faltered from an
average of 15% between 2010 and 2013. For FY14 and FY15, its ROE stood at
13.57% and 11.92%, respectively.
Malaysia’s largest listed conglomerate
has been dogged by inconsistency in its financial performance. Unfavourable
market conditions in each of its three largest segments - property, plantations
and automotive - have left it vulnerable to further earnings deterioration.
The group is also burdened with a crushing
debt load. In March, ratings firm Moody’s Investors Service downgraded Sime’s
debt rating to Baal from A3 with a negative outlook, citing the
delay in its degearing exercise and deteriorating cash generation across
multiple segments as key factors.
Some 36% of its total outstanding debt as
at Dec 31, 2015 is maturing by the first quarter of next year, according to
Moody’s.
It estimated that the group’s cash
balances plus cash flow of operations over the next 12 to 18 months would be
insufficient to service gross short-term debt totalling RM7.3bil, thus necessitating
the need for Sime to ramp up its monetisation of assets.
Despite the headwinds, Sime has remained
profitable and has, in fact, increased its dividend payout from its total net
income to appease shareholders.
The group’s dividend yields have averaged
around 3% between FY12 and FY15, while at the same time, its dividend payout
ratio has increased from 50% to 67%.
Last year, Sime committed to a massive
investment in purchasing New Britain Palm Oil Ltd in an RM6bil deal, which is
primarily financed through new debt, exacerbating its current cashflow
problem.
The Sime of today is a merger of PNB’s
stable of property and plantation assets, amongst other things, that took place
in 2006.
The RM31bil merger, the biggest in
corporate Malaysia at that time, culminated in the creation of the world’s
biggest plantation company that is now known as Sime.
While the listed entity has seen its
shares recover from a low of RM4 during the global financial crisis in 2008, it
is worth noting that Sime’s shares have been flat for the past 10 years. This
means that its market capitalisation has largely stagnated in the RM50bil
range.
As at Aug 20, the stock was last traded at
RM8, or 20% lower than its pre-financial crisis peak of RM9.89 in January 2008.
UMW Holdings
UMW’s fortunes are largely tied to the
automotive sector, from which the conglomerate derives 80% of its total
revenue. However, more recently, the underperformance of its oil and gas
business has impacted its bottom line, which poses a question over its ability
to pay out dividends going forward.
Between FY12 and FY15, its revenue base
grew from RM12.82bil to RM14.44bil largely on the sales of its Toyota vehicles.
Its automotive arm, UMW Toyota Motor Sdn Bhd, sold 95,861 vehicles last year.
However, the figure was a decrease from the
sale of 103,636 vehicles in 2014, owing increased competition and a slowdown in
auto purchases partly due to stricter borrowing requirements, as well as weaker
consumer sentiment arising from the goods and services tax introduction.
UMW’s dividend yields have averaged around
3% over the past five years, although its net income performance has been far
more erratic than of Maybank or Sime.
The group reported a record net profit of
RM994.3mil in FY12 due to improved performances across all segments. However,
the figure dipped to RM652mil in FY14 as it began to grapple with the weakening
performance of UMW Oil & Gas Corp Bhd (UMW- OG), a listed subsidiary.
UMW fell into the red in FY15 with a net
loss of RM37.2mil, as the consequences of the crude oil price collapse began to
be reflected in its financials. The losses were due to the massive asset
impairments made by UMW-OG, which swung into a pretax loss of RM411.31mil for
the financial year.
Despite finishing the year with a loss,
UMW paid out total dividends amounting to 20 sen for FY15, compared to 41 sen
for the year before.
From a shareholder’s standpoint, UMW’s
share price performance is a great cause of concern. Its shares peaked at
RM13.12 on July 13 before declining by more than 50% since. At its Aug 19
closing price of RM6.12, UMW’s shares are trading near a four-year low.
Partly due to the sharp fall in its market
capitalisation, UMW was removed as a constituent stock from the FBM KLCI in
June.
www.thestar.com.my › Business ›
Business News
26 August 2017
Many
would have thought that Wahid would take it easy as group chairman of PNB. But he is obviously
having none of that, as he sweats the ...
It is important for our companies to generate profits
so that they can distribute a sufficient quantum to the shareholders.
Tan Sri Abdul Wahid Omar
Below are excerpts of StarBizWeek’s interview
with PNB group chairman Tan Sri Abdul Wahid Omar.
PNB is one of the unique fund-investment
companies where you have fixed price redemption - everybody is wondering how
you do this.
It is a very basic model in the sense that
in the good years, we don’t distribute all the gains and we build up reserves.
This is the reason why we can still pay
dividends during tough times.
For example, in the last three years, it
has been tough for the stock market. Last year, it was minus 3% for the FBM
KLCI, but we were still able to pay dividends because we have reserves.
Have you given your companies their
targets?
They have their KPIs set by their
respective boards. We don’t set their KPIs.
As far as we are concerned, we will like
all our companies to deliver their total shareholder returns that can come from
both dividends and share price appreciation.
Has PNB directly put money into fintech?
No, because we don’t know enough and we
need to learn a lot more before we are brave enough to invest in those areas.
Of course, it is something that we can’t ignore. We need to learn and decide.
Yes, the potential upside is there, but
then there is also the potential downside.
Do you think our property sector will go
through a fire-sale situation?
I think if you look at public property
companies, if you are not highly leveraged, then you will have the (holding)
power.
At the end of the day, it is the ability
to come up with the products that people want.
I think this is where property developers
need to be more discerning and really find out what is it that the market wants
rather than just churning out products that are generic.
What are your thoughts on being appointed
as chairman of Sime Darby Property?
This wasn’t part of the original plan, but
there was a request from the Sime Darby board.
I would like to look at it objectively and
constructively. Sime Darby Property has an 18,000-acre land- bank at strategic
prime locations.
This is a dream landbank for any property
developer because the potential is immense.
We just need to focus on what can be done.
Will there be any arbitrage when it comes
to the share prices of Maybank and Maybank-i?
The share prices will be subjected to the
supply and demand and determined by market forces.
Just like in the past, we had Public Bank
Bhd, foreign and local shares where whenever there was a greater demand for
Public Bank foreign, it traded at a premium to the local shares.
Likewise, in the event that there is more
demand for the i-shares, it will not be impossible that these may be traded
higher than the conventional shares.
Would you like to see PNB create one
mega-financial entity that is purely Islamic to fulfill Bank Negara’s
aspirations?
Again, we are very supportive of all the
efforts to promote Islamic financial services, Islamic banking and Islamic
capital markets. So, we will do what we can in terms of creating more
instruments. We are very supportive of Bank Negara’s efforts.
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