by MARK RAO / pic by BERNAMA

PERMODALAN Nasional Bhd (PNB) will work with its core telecommunications (telco) and construction companies on their earnings as the battering of Malaysian equities in 2018 is expected to persist this year.

The fund saw its net income dipped 4% to RM17.01 billion last year from the RM17.71 billion reported in the previous year, as a result of the weaker domestic and foreign equity markets, while return on assets came in lower at 6% (2017: 6.7%).

Domestically, the benchmark FTSE Bursa Malaysia KLCI fell 5.9% in 2018 and remains in the red, declining 2.93% year-to-date. Local equities make up PNB’s largest exposure at close to 70% of its investment portfolio.

PNB intends to work with its core companies on strengthening their earnings, as lacklustre to dismal corporate earnings are weighing on investor and market sentiment.

“Our focus is to work with the board and the management of the company to really focus on the core earnings.

“We believe by providing earnings growth and improving return on equity, the share price and share value of our strategic companies can increase,” PNB president and group CEO Datuk Abdul Rahman Ahmad said during the launch of PNB’s latest annual report in Kuala Lumpur yesterday.

He identified telco and construction as among the sectors that would continue to be severely affected by industry challenges and headwinds.

Abdul Rahman said PNB will engage with the board and management of these companies, as well as other controlling shareholders to determine the best way forward.

“Our idea is to be precise, to outline our views, listen to the challenges that we face and give input as a responsible shareholder,” he said.

Core companies are defined as those in which PNB has more than a 50% interest or an over RM1 billion exposure.

The fund owns substantial stakes in top Malaysian telco providers today, namely 22%, 19%, 12% and 11% interests in Telekom Malaysia Bhd (TM), Axiata Group Bhd, DiGi.Com Bhd and Maxis Bhd respectively.

TM and Axiata were the worst performing telcos in 2018 as government-led reforms on broadband prices and costly provisions weighed on their earnings.

PNB also holds 19% and 18% shareholdings in IJM Corp Bhd and Gamuda Bhd respectively who have been similarly impacted by government-led changes which create uncertainty over the construction industry on a whole.

However, its chairman and former central bank governor Tan Sri Dr Zeti Akhtar Aziz dismissed the prospects of PNB divesting some of its stakes in these companies.

Zeti said the fund will not contribute to any disruptions in the domestic market, as well as in its strategic or core companies.

“PNB will always perform our function as a responsible investor… whatever decision that is made, it is a very rigorous process,” she said at the same event.

The initiatives are expected to reflect the turnaround efforts carried out last year for Sapura Energy Bhd and MNRB Holdings Bhd which benefitted from a cash call and sukuk issuance respectively.

With such a large exposure to domestic public equities, PNB will include more foreign investments and domestic bonds in its portfolio to reduce concentration risk.

While growing, investments abroad only comprised 3.3% of total investments last year, while fixed income made up 6.5%.

Zeti said PNB is managing its liquidity position, so it can hold lower levels of cash and invest in other asset classes in international markets, which will include both developed and emerging economies.

Cash and the money market made up 17.4% of the fund’s portfolio in 2018 — down from 18.6% in 2017. PNB also identified six global fund managers to increase its exposure to private property investments worldwide.

Zeti said PNB’s diversification strategy will not be limited to global financial markets, but includes the domestic market as well, especially the Malaysian fixed-income market.

“We all know that our bond market is one of the most developed in Asia in terms of its number of instruments that have been raised and issued in that market, the term structure, the maturity structure and so on,” she said.

She added that the fund will venture into other asset classes such as real estate investment trusts domestically.

Meanwhile, PNB declared income distributions of six sen and 5.5 sen per unit for its Amanah Saham Bumiputera 2 (ASB2) and Amanah Saham Malaysia fixed-price funds respectively yesterday, for a combined RM1.71 billion payout.

Distributions of 4.1 sen, 4.2 sen and five sen were also announced for variable price funds Amanah Saham Nasional (ASN) Equity 3, ASN Imbang 2 and ASN Sara 1 respectively for a total RM236.1 million payout.

This brought total payout to RM15 billion in 2018, the highest ever since 1981, when accounting for the distributions for ASB and ASN announced earlier in December last year. PNB managed RM298.52 billion in assets and 13.8 million accounts in 2018.