-- Temasek's net profit declined 16% to S$10.7 billion in the year end March 31 amid tough global environment

-- State investor pivots towards energy and resources, eyes opportunistic buys in Europe

-- Temasek remains positive on China's long-term prospects, but flags concerns from U.S. and Europe

(Rewrites first paragraph, updates throughout.)

 
   By Chun Han Wong and Martin Vaughan

SINGAPORE--Singapore state-investment firm Temasek Holdings Pte. Ltd. will continue scooping up energy and resource assets and make opportunistic buys in Europe, bidding to stave off the impact from a sluggish global economy that led to a 16% decline in its net profit over the past year.

Net profit at the company, led by Chief Executive Ho Ching, wife of Singapore Prime Minister Lee Hsien Loong, fell to 10.7 billion Singapore dollars (US$8.4 billion)for the year ending March 31 from S$12.7 billion in the same period last year, Temasek said in a report published Thursday. Company officials attributed the decline to lower contributions from units amid a tough global investment environment, which is likely to persist given tepid growth in the U.S. and Europe.

But Temasek's portfolio still grew 2.6% to a record S$198 billion, helped by energy-sector investments in the past year, including putting about S$3.4 billion into three North American companies--shale energy firm FTS International, fertilizer producer Mosaic Co. (MOS) and alternative fuel company Clean Energy Fuels Corp. (CLNE)

"We believe that energy and resources will continue to be a growth segment, and has got great long-term potential--that is a sector (in which) we will have significant exposure," Chia Song Hwee, Temasek's head of strategy, said at a news briefing.

Temasek makes its earnings from selling assets, as well as dividends from its portfolio companies, including Singapore's biggest corporations--including Singapore Airlines Ltd. (C6L.SG), shipping company Neptune Orient Lines Ltd. (N03.SG) and flagship telco Singapore Telecommunications Ltd. (Z74.SG). Their recent performances have soured on rising costs and weaker worldwide demand, and dragged Temasek's profits.

The state investor--the world's ninth-largest according to the Sovereign Wealth Fund Institute--has in recent years sought to shift its focus toward emerging markets away from its home Singapore market and mature-market financial services, padding out its China footprint and shelling out on energy and resources assets.

Energy and resources now contribute a bigger slice of Temasek's holdings, rising to 6% as at March 31 from 3% a year earlier. Meanwhile financial services' share of the portfolio slid to 31% from 36%, mainly due declining market valuations.

But banks still continue to make up the largest portion by sector of Temasek's portfolio. The fund in recent months pared its holdings in some China banks while increasing in others, resulting in little change to its China bank exposure. Temasek now holds a 5.3% stake in Industrial and Commercial Bank of China Ltd. (1398.HK), a 7.4% stake in China Construction Bank Corp. (0939.HK) and a 3.7% stake in Bank of China Ltd. (3988.HK).

Temasek remains "positive about the long-term growth prospects of China," Mr. Chia said, but also warned of "significant" global contagion risks from sluggish growth in Europe and the U.S.

"We think heightened volatility will be the mainstay of the investment environment going forward," he said, but added that the company will still track European opportunities as investors there continue casting off assets.

The company--led by Chief Executive Ho Ching, wife of Singapore Prime Minister Lee Hsien Loong--barely eked out a positive total shareholder return of 1.5% in the year ended March 31, its lowest since registering negative 30% returns in the year ending March 2009. But officials stressed their long-term investment goals and pointed to a 15% shareholder return over the last three years.

Temasek spent S$22 billion on new investments in the year ending March 31, boosting its North American and European holdings to 11% of its portfolio from 8% a year earlier. Singapore's share of the company's assets fell to 30% from 32%, while Asia excluding Singapore now makes up 42%, down from 45%.

The fund said that during the year, it sold S$15 billion worth of assets, including stakes in Indonesian petrochemical maker Chandra Asri Petrochemical (TPIA.JK), Singapore-listed Hutchison Port Holdings Trust (NS8U.SG), India's ICICI Bank Ltd. (532174.BY) and Chinese real-estate firm Kaisa Group Holdings Ltd. (1638.HK)

Write to Chun Han Wong at chunhan.wong@dowjones.com and Martin Vaughan at martin.vaughan@dowjones.com