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Saturday 20 August 2016

Tan Sri Abdul Wahid Omar


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
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.
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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