SIZE does not necessarily mean a better performance and profits. It can also mean having to do a lot of leg-work to sweat the assets. On that score, Permodalan Nasional Bhd (PNB) is one example.
It has done well to consistently declare healthy dividends of about 7% .
However, going forward, its biggest challenge is sustaining the 7% payouts to its contributors, who form a large portion of voters.
The Employees Provident Fund and Retirement Fund Inc, or better known as KWAP, have both signalled that maintaining their returns would be tough in the years to come due to the low interest rate environment.
On this matter, PNB has remained silent, which means the guessing game is still on.
On this score, newly-appointed chairman Tan Sri Abdul Wahid Omar certainly has his work cut out in ensuring and energising PNB’s portfolio of investments to sustain the returns of the fund.
Regionally, if there was a list of funds that have an imposing presence in the corporate world drawn out, PNB would certainly be among them.
For starters, it is easily the largest owner of land ripe for development in the country. Its land bank along the east coast of Peninsular Malaysia stretching from Kedah right down to Johor carries immediate development potential.
The land bank is held through listed companies such as Sime Darby Bhd
, SP Setia Bhd and a slew of unlisted companies. Among the unlisted companies is I&P Group Sdn Bhd.
It has the largest bank in Malaysia in the form of Malayan Banking Bhd (Maybank). Maybank also has a regional presence.
Apart from Maybank, PNB has other companies in the financial services sector such as Malaysian National Reinsurance Bhd (MNRB) and the MIDF group.
In Sime, PNB has a large plantation company that is easily among the Top 3 in the world.
However, the profits of Sime had been dropping in the past three years.
As far as property assets are concerned, PNB can claim to be the owner of Malaysia’s tallest tower in the form of the Menara Warisan Merdeka 118 in time to come.
It is being built near Stadium Merdeka, and is slated to be the tallest building in the country and second in Asia.
Apart from Menara Warisan Merdeka 118, it has a slew of property assets in every nook and corner of the country.
A lot of the properties are located in the heart of major towns, including the Golden Traingle in Kuala Lumpur.
The plan is for all the companies within Kuala Lumpur to move to the 118-storey tower.
The existing buildings are to be refurbished and rented out for recurring income.
Outside Malaysia, it has several property assets from Australia to London.
For all the assets and investments it has under its belt, there is a view that PNB can do more to ensure the companies it has put money in do more to consistently give healthy returns to its shareholders.
Against the backdrop of a low-yield environment, where the returns are expected to be depressed for up to another 10 years or even more, PNB needs to ensure sustainable returns from its investments.
For that to happen, PNB needs to really drill the management of the companies where it has invested in to improve greater synergies, cost efficiencies and reduce duplication and competition.
For instance, Sime has consistently been recording lower numbers and had pointed the finger at its falling profits from the plantation, heavy equipment and automotive divisions.
However, can the management of Sime do more to extract returns for its shareholders by breaking up the company?
This is something that the investment community has sought in the last two years, but has not seen any results.
PNB has many companies operating in similar sectors competing against each other for the same market.
A small example is MIDF that is in some ways competing against Maybank’s investment bank for the local brokerage business. Although the brokerage business is small for Maybank as a group, it raises the question of whether the management of both companies should be told to sit and see if they can do something to benefit their common shareholder, which is PNB.
The duplication is also profound in the property segment, although there is a view that there are benefits from PNB spreading its money in companies with different strengths.
For instance, SP Setia and Sime Properties Sdn Bhd have different branding and reach. Both have a mix of local and international projects. On the other hand, I&P Group and other unlisted property companies under PNB generally cater to domestic demand only.
In the area of insurance and reinsurance, PNB has MNRB that is trading at a deep discount to its net asset value.
Although most companies in financial services are trading at deep discounts to the book value due to the low interest rate environment, MNRB has an edge that has not been converted to its advantage.
MNRB is the country’s leading re-insurer, a position it has held for a long time, but its dominance has not been reflected in its bottom line.
PNB is not like Khazanah that takes on an active role in driving operations of companies where it has interest. However, it has an aerial view of its investments and drives the management to produce better results.
The ability of PNB to sustain its dividends has been raised many times before. Some are sceptical, but the proponents of PNB say that the fund has enough assets to ensure steady payouts to its contributors.
So, the verdict is still mixed on PNB’s ability to sustain its dividends to its contributors.
Wahid has proven his prowess as a person who is able to undertake major corporate restructurings. Remember, he led the team to restructure the massive Renong group.
Now, he brings his experience to work on improving returns of companies that PNB has invested in. This is a different kettle of fish.
It is even more challenging considering that he is replacing someone who had headed the PNB for almost two decades.
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