Temasek posts 1.5% one-year TSR on weak Asian markets

[SINGAPORE] Temasek Holdings has posted total shareholder return (TSR), in Singapore dollars, of an underwhelming 1.5 per cent on a one-year basis, mainly due to weakness in the Singapore and China markets.

But undeterred by the poor markets, Temasek seized the opportunities offered by lower asset prices and made the most investments - $24 billion - since 2007; half of which were in Asia and two fifths in Europe and North America.

Reporting for the year ended March 31, 2014, Temasek said that its 1.5 per cent one-year TSR was due to weakness in key Asian markets. TSR for the previous year was 8.86 per cent.

In US dollar terms, the one-year total shareholder return was zero per cent.

Its three-year TSR was 3.89 per cent, five-year TSR was 10.86 per cent and 9 per cent on a 10-year basis. Twenty-year TSR was 6 per cent, and TSR since inception in 1974 was 16 per cent.

Temasek's own measurement of performance to beat is 8 per cent which is also its cost of capital.

Realistically, one-year returns are volatile, said Rohit Sipahimalani, Temasek co-head, investment group, at yesterday's press briefing. Its performance over the medium to long term - 5 and 10 years - "has been respectable", he said.

"We are conscious of the return hurdle of 8 per cent and investing with a view to exceed that," he said.

About half of Temasek's companies are listed in Singapore and Hong Kong and these markets showed negative returns last year, said Mr Sipahimalani. Some of these markets over the last quarter has recovered and returned over 4-5 per cent, he noted.

The Standard & Poor's 500 Index rose 19 per cent in the year ended March while the Stoxx Europe 600 Index climbed 14 per cent, outpacing the 1.8 per cent return for the MSCI Asia Pacific Index. The Straits Times Index fell 3.6 per cent in the year.

Temasek's portfolio rose 3.7 per cent to $223 billion, from $215 billion the year before. It received a $5 billion shareholder capital injection during the year.

In its most active year of investments since the Global Financial Crisis, Temasek made $24 billion in new investments for the period, while divesting $10 billion.

"This year has been one of our most active for new investments - the most active since the Global Financial Crisis - driven by softer Asian markets of interest, as well as the continued recovery of the global economy," said Temasek chairman Lim Boon Heng.

The group's net profit was $10.9 billion for the year, up from $10.6 billion previously. On its investments during the year, the top three sectors were financial services, life sciences and energy. Towards the end of the year, it stepped up investment activity in the consumer sector.

Temasek completed its US$5.7 billion purchase of a 24.95 per cent stake in AS Watson from Hutchison Whampoa in April this year.

This is one of its largest single transactions, increasing Temasek's exposure to the consumer sector, especially to a growing Asia and a recovering Europe.

While financial services remain Temasek's single largest sector at 30 per cent of total portfolio, life sciences, consumer and real estate rose to 14 per cent from 12 per cent.

It will be larger if Watson and Olam are included. In March this year, wholly owned subsidiary, Breedens Investments, made an offer for Olam, an integrated supply chain manager and processor of agricultural products and food ingredients. The offer closed in May, and the stake in the company increased to 58.5 per cent.

In the financial services sector, Temasek raised its stake in AIA, the largest independent pan-Asia insurer, to over 3.5 per cent, and increased its holdings in Industrial and Commercial Bank of China to 8.9 per cent of its outstanding H-shares.

It also acquired about 1.1 per cent of Lloyds Banking Group, the largest domestic UK bank by assets, with leading market shares in mortgage and deposits.

Opportunities in the life sciences sector included an investment of almost US$1 billion in Gilead Sciences, a major developer of treatments for cancer, HIV and other diseases; and US$500 million in Thermo Fisher Scientific, a provider of laboratory equipment and consumables.

In the energy space, Temasek invested £235 million (S$500.2 million) in the BG Group, a UK-listed oil and gas company. It also invested about $2 billion in Pavilion Energy, which purchased a 20 per cent interest in three gas concession blocks in Tanzania from Ophir Energy. Post March transactions included a US$150 million commitment to Seven Energy in Nigeria, an indigenous oil and gas producer.

The company remains confident in China despite slowing growth and the worrying shadow banking activity, said Wu Yibing, Temasek head, China. He does not expect a hard landing in China while the country transits to slower and stable growth.

Temasek continues to see many opportunities in Chinese financial institutions and the country's regulators have "ample policy tools to manage this through", he said.

Geographically, China makes up its second largest exposure at 25 per cent of portfolio, up from 23 per cent, after Singapore which rose to 31 per cent from 30 per cent. Australia is third with 10 per cent.