PERMODALAN Nasional Bhd (PNB) expects its returns on assets (ROA) to decline to the lowest level in three years, as a result of diminished gains from the local equity market.
Chairman Tan Sri Abdul Wahid Omar said the decline will pressure the fund in its effort to maintain consistent payouts to its over 12 million unitholders.
“There are current and future challenges that we are facing,” Abdul Wahid told a media briefing in Kuala Lumpur yesterday.
The fund forecasts ROA of 6.1% in 2016, down from 6.8% in 2015, and 7.6% in 2014.
Net income is also expected to drop from RM15.78 billion to just around RM15 billion this year.
“Obviously, dividends overall will be lower,” Abdul Wahid said.
Currently, 60% or RM169.1 billion of PNB’s RM260 billion total assets are invested in the local equity market.
Of the total, a large portion is invested in what PNB defines as “strategic investments” like Malayan Banking Bhd (Maybank), Tenaga Nasional Bhd and Sime Darby Bhd, which make up more than 67% of Skim Amanah Saham Bumiputera, one of PNB’s flagship funds.
Maybank has lost -8.33% this year, although Sime Darby has risen over 3% in the same period.
PNB president and group CEO Datuk Abdul Rahman Ahmad said the performance of Malaysia’s large-cap companies in recent years “has been very, very weak”.
“When large companies fail to perform, invariably large investment houses such as ours will get affected. We need to boost domestic equity performance.
“If it doesn’t, it’s going to be tough to generate returns from other asset classes,” he said.
PNB will not exit underperforming strategic investments, but will exercise the power of its shareholding should the companies continue to slide in a distressed industry and if they need to restructure.
Abdul Rahman said that besides the underperforming large-cap counters, an unprecedented environment of low yields or interest rates has also placed a huge pressure on investment institutions like PNB.
He said declining returns from the local equity market — which has been down for three years running — have pushed PNB to switch to a situational approach of investing rather than a passive approach.
At the briefing, PNB also unveiled a six-year strategic plan that will diversify its assets further into foreign assets and private equities.
PNB is also expected to move some of its RM50 billion cash pile to fixed income, while growing the fund’s total size to RM350 billion by 2022.
PNB will increase its allocation to mid- and small-cap stocks to RM2.7 billion from RM2.2 billion as part of a Ministry of Finance-initiated push for the wider part of the market to foreign investors and fund managers. Currently, 98% of PNB’s investments are in Malaysia.
Abdul Rahman said a move to increase the fund’s exposure to foreign investments will only come after the ringgit recovers from current undervalued levels, a move that would see PNB operating from its existing offices in Singapore, Tokyo and London.
Abdul Rahman said property investments will also be consolidated under a single entity, which include an initiative to construct 5,000 affordable houses.
He, however, declined to specify the amount of investment that would be involved in the property project.
Despite the challenges, Abdul Rahman said PNB is “bullish” on a market recovery in 2017.
“Historically, three years of negative growth only happens once or twice in the course of our history. We have just gone past the historical low of corporate earnings,” he added.