This article first appeared in The Edge Financial Daily on March 16, 2018
KUALA LUMPUR: Oil and gas (O&G) and construction are the sectoral themes for PMB Investment Bhd’s equity investment strategy this year, amid improving prospects underscored by Petroliam Nasional Bhd’s (Petronas) significantly higher earnings last year.
The technology sector had been the focus of PMB’s investments last year, its chief executive officer Najmi Mohamed told a media conference yesterday.
He said the Islamic fund management firm intends to increase its exposure to O&G, given Petroliam Nasional Bhd’s encouraging financial performance for the year to end December when it doubled its profit attributable to shareholders to RM37.66 billion, with revenue rising for the first time in three years to RM223.62 billion.
Significantly also, the national oil company plans to increase its capital expenditure to around RM55 billion this year from RM44.5 billion last year.
“I think Petronas, too, sees an increase in contract awards to the players,” said Najmi. “(The) crude oil price has also stabilised, and (it) has maintained at the US$60 (RM234.6) levels so far.”
Najmi revealed that PMB had also increased its investments in construction, noting that based on the Construction Industry Development Board (CIDB) figures, the sector attracted some RM300 billion in contracts last year. Some of the big-ticket projects included the MRT3, East Coast Rail Link and the Pan-Borneo Highway.
There will be “losers” as a result of PMB’s portfolio shift, and these include media and cement-related stocks.
“The returns expected are not there [at the level we want],” Najmi said, adding that PMB had “pared down a lot” of its exposure in the sectors.
“We don’t stay away permanently, but for media companies, the decrease in circulation as well as reduction in advertising revenue is very obvious.”
On the cement sector, he observed a price war among the players. “[The selling] price is already low, everyone wants to have a share in the industry. They are cutting costs, and also cutting the [selling] price,” he said.
Touching on the capital market, Najmi said PMB had centred on five key themes: the strengthening of the ringgit; GE14 “plays”; China’s One Belt, One Road initiative and rail theme, as well as China-related stocks; the transformation of Permodalan Nasional Bhd companies; and small- and mid-cap companies.
PMB expects the stock market to stabilise in the second half after GE14 with an upward bias. “Based on our observation, over the last five GEs, only once did the market decline [immediately] post-election,” Najmi observed.
PMB is projecting a year-end target of 1,900-1,920 for the FBM KLCI.
The fund management company plans to launch its first international unit trust fund — called PMB ASEAN Star — in the second quarter of the year and is targeting an initial US$30-US$50 million.
Because of its greater liquidity, the fund intends to target Malaysia, Singapore, Indonesia, Thailand and the Philippines for starters.
Although other countries such as Vietnam have syariah-compliant equities, Najmi said, “the value is small, making it inconvenient for trade.”
Excluding the upcoming ASEAN Star, PMB manages 14 unit trust funds, two wholesale funds and several other portfolio mandates, all of which are invested locally. Some 80% of its asset under management (AUM) are invested in equities and sukuk.
Currently, there are some RM77 billion worth of syariah-compliant funds being managed in Malaysia.
PMB manages about 1.3% of that — its total AUM stood at RM1.04 billion as at end-February and it plans to add a further RM850 million by the year’s end.
PMB also announced the performance of five of its best funds under management, with a rate of return ranging between 23% and 33% for the year ended Dec 31, led by PMB Shariah Small-Cap Fund and PMB Shariah Growth Fund. The latter topped 57 funds under the Equity Malaysia category.