KUALA LUMPUR (April 8): Permodalan Nasional Bhd's (PNB) net income for the year 2020 rose 2.8% year-on-year to RM11 billion, from RM10.7 billion in 2019, as gains from its growing international portfolio more than offset the weaker performance in the domestic front.
Gross income, however, retreated by 3.97% to RM14.5 billion, from RM15.1 billion in 2019, according to PNB's 2020 annual report today.
Total distribution retreated 15.91% to RM11.1 billion, from RM13.2 billion in 2019, chairman Tan Sri Dr Zeti Akhtar Aziz said during a briefing for the report. It paid out RM15 billion in 2018 — the largest paid since inception.
Assets under management rose 3.4% to RM322.6 billion at end-2020 from RM312 billion in 2019, supported by 4% increase in units in circulation to 264 billion units from 253.8 billion units, on the back of an increase in unitholders to 14.5 million, from 14.3 million.
The group increased its international portfolio to 12% of total portfolio, from 8.5% in 2019. Former chief executive officer (CEO) Abdul Jalil Abdul Rasheed reportedly said last year that the target was to grow it to 30% by 2022.
The diversification helped the fund more than double its international public equity income to RM3.7 billion or 25.5% of gross income, from RM1.8 billion or 11.6% of 2019 gross income.
"Diversification efforts have really helped fortify our financials," said CEO Ahmad Zulqarnain Onn during the briefing.
Zeti also attributed the performance to effective management and forex exposure, the establishment of a dedicated treasury unit in December 2019, and a more robust risk management arrangement.
Diversification to intensify — including to de-risk in equities
On PNB's strategy moving forward, Zeti said that efforts to increase PNB's international exposure will intensify.
This is on top of the ongoing move to reduce the portfolio exposure in equities "to remain resilient against major shifts in the environment", she said.
"Our risk is over-concentrated in the equity market. During a down cycle, the fixed income portfolio does better than equities [and vice versa]," she said.
"This is the rationale and motivation to diversify our portfolio from being over-concentrated in the equities so that we will be resilient to major shifts in the environment," she said.
Under the fixed income portfolio, PNB will seek "tactical trading" opportunities in the emerging markets fixed income portfolio and to continue trading government bonds.
While PNB's international equity portfolio has risen as part of its international diversification efforts, domestic equity ownership fell to 66.4% of the total portfolio from 68% in 2019.
The fund also increased its real estate share to 4.3%, from 3.5%, as well as fixed income to 7.2%, from 6.4%. Cash equivalents were reduced to 10.1%, from 13.4% of total assets.
PNB did not elaborate on the potential restructuring of its domestic portfolio. Under the core companies portfolio, the fund owns substantial stakes in companies like Telekom Malaysia Bhd, Axiata Group Bhd, Gamuda Bhd, and Maxis Bhd to name a few.
It also holds major stakes in 10 listed Malaysian companies with between 40% and 63% shareholding.
Focusing on creating value in these strategic companies, Zulqarnain said PNB stands guided by the stewardship framework published in May last year, underlining itself as a more active shareholder with the strategic companies.
This includes the setting up of short- and medium-term targets, disciplined capital allocation, undertaking best practices for board composition and to review its value creation plan.
The goal is to "outperform the three-year total return of the FBM100 Index" for all investee companies in the country, Zulqarnain said. PNB's strategic companies portfolio underperformed in the period at -3.9%, as opposed to -0.05% by the benchmark.
This, he said, forms part of the continuation of the Focus4 strategy, namely value creation, diversification, risk management, and organisational transformation.
On real estate, Zulqarnain sees PNB is exploring opportunities in supply chain logistics and data centres under the real estate segment in 2021.
For the development of the Phase 2 of the Battersea Power Station in the UK, of which the Employees Provident Fund is also a shareholder, PNB said it is "progressing well and on track" to complete in 2021.
The Merdeka 118 tower, meanwhile, is seeing further delay due to Covid-19 and is now expected to be complete in the second quarter of 2022, from the first quarter previously. The first wave of the outbreak had already pushed the project from its initial deadline of end-2021.
"We are in advanced discussions with a number of large domestic and international corporations on being co-anchors together with PNB," said Zulqarnain. Among the tenants are Park Hyatt, which has taken up the upper 17 floors of the tower.