Friday, February 10, 2006
The Performance Of PNB
Splendid or Fortunate or Well-Planned
Permodalan Nasional Berhad was incorporated on March 17, 1978. PNB was conceived as an important instrument of the Government's New Economic Policy to promote share ownership in the corporate sector among the Bumiputera. Prior to the establishment of PNB, shares allocated to individuals were seldom retained. When Bumiputera shareholders sold their shares, the profits generated were consumed and not reinvested. Through PNB, substantial shares acquired in major Malaysian corporations from funds provided by Yayasan Pelaburan Bumiputra or Bumiputra Investment Foundation were transferred to a trust fund and sold to the Bumiputera in the form of smaller units. By doing this, PNB ensured that these shares are retained, resulting in the cultivation of widespread savings habits. Total funds managed by PNB now surpassed RM50 billion.
However, that does not explain its ability to pay decent dividends year in year out. Even the best fund managers will find it tough. The main thing is that PNB recruited well, operated with a lot of transparency, and is accountable to the board of trustee. That sets the platform for a well managed company. The other factor why PNB garnered so much success is that they have a strong research and investment link - all invested companies are followed diligently.
In the 2004 annual report PNB remarked that it has invested in 322 companies of which 275 companies are listed. That means 85.4% of their holdings are listed. That means PNB has a stake in about a quarter of total listed firms on KLSE. Strong performance can be obtained depending on your entry price, even if the company's prospects are just so-so. One can safely surmise that PNB would have manage to obtain the bulk of shares at IPO price or even pre-IPO prices. This will form an excellent buffer to ensuring good performance.
In cases where PNB takes up shares allocation of a listed company, usually the placements will come at a discount, which again will provide a similar buffer. This is not to say that anyone can do PNB's job - they still have to develop the expertise to screen out companies that they don't want to hold any stakes. The fact that PNB has stakes in only 25% of total listed firms says a lot about selectivity.
The other reason for the good performance of PNB is in holdings of unlisted companies - these are usually undiscovered gems that are listable in 2-5 years time. Naturally if they are well nurtured, the gains upon listing will be manifold. PNB being PNB, will naturally have a solid networking and access to important incubation ideas and can leverage on their influence and capital. Their mandate is a powerful persuasion tool.
Besides that, PNB follows up with instilling good corporate governance practice via their nominee directors (167 nominee directors in 111 investee companies for year ended 2004).
PNB also cleverly "controls" significant sectors of the economy, thereby allowing them to exercise strategic moves to maximise efficiency and productivity within that sector. For example, PNB have significant stakes in Golden Hope Plantations and Island &Peninsular - the rationalisation exercise have created two more focused giants in plantation and property development.
Another useful example is in the area of Islamic banking. PNB acquired Bank Islam Holdings Berhad to strengthen its Islamic banking exposure. This complements PNB's Islamic insurance management (takaful) role through Syarikat Takaful Malaysia (via Bank Islam), Takaful Nasional (via Malaysian National Reinsurance) and Mayban Takaful (via Maybank). By leveraging on these linkages, PNB will be able to push these companies to develop and offer more Islamic financial products and at the same time have the ability to add more distribution power.
The best strategic play in recent times by PNB has been the consolidation of its holdings in Chemical Company of Malaysia. CCM is a highly attractive, efficient and profitable company. CCM controls the chemical and fertilizer industry in Malaysia. PNB have the following plantation companies such as Kumpulan Guthrie, Consplant and Golden Hope. This type of upstream-downstream value addedness is what PNB does well.
Their mantra - hire well, invest well, monitor well, synergy, synergy... the rest wil fall into place. So, is PNB really that great after all that - PNB has done a very creditable job, despite the fact that PNB does get some preferential share placements, it will not be sufficient to mask a badly run company - so credit is due, PNB did well.