"That is his pencil."
Translation:Itu pensil dia.
Ah, thank you. After reading some other comments and thinking about this it's a bit clearer to me now. I (and I think some others) were confused by another example sentence 'That book is hers', which translates into 'Buku itu miliknya' because, as you state, in that case the focus of the sentence is the book and not the person where in this case it is the reverse.