KUALA LUMPUR: Christmas comes early for Guinness Anchor Bhd (GAB) shareholders. The brewery yesterday announced a special single-tier dividend of 60 sen per share. The latest dividend payment has exceeded GAB’s full dividends of 54 sen in FY11 ended June 30 and 45 sen in FY10.
Expectation is growing that there could be more dividend payouts for GAB shareholders in the pipeline as the brewery is believed to be making efforts to improve its capital structure, which will allow it to reward shareholders with higher dividends.
GAB’s share price rocketed to a record high of RM12.28 yesterday, up 28 sen or 2.3%, with 111,500 shares traded. It was among the top gainers on Bursa Malaysia yesterday. The stock has gained 21% year-to-date.
GAB announced last month it proposed a plan to issue debt notes of up to RM500 million. The proposed debt paper programme was assigned a rating of AAA by RAM Rating Services Bhd.
GAB said the proposed debt paper programme would provide it with an alternative source of financing and enable it to effectively plan and manage its funding costs and requirements.
It added that the proceeds of the proposed CP/MTN programme will be utilised for general corporate purposes including repayment of bank borrowings, if any.
It is worth noting that GAB is in a net cash position of RM163.98 million as at end-September with no borrowings.
According to OSK Research, GAB’s dividend payout ratio has averaged 88.4% in the last five years. “With a more optimal capital structure, it can definitely accommodate a higher payout ratio. In fact, we do not discount the possibility of a special dividend,” it commented.
Another analyst points out that more companies are looking at more efficient capital, such as Public Bank Bhd and DiGi.Com Bhd, and that resulted in increased dividends and higher stock prices as companies became more attractive dividend yield stocks.
The current low interest rate environment has made it conducive for companies with healthy and steady cash flow to raise debt to improve capital structure.
“A balance sheet with a too large cash pile may be viewed as a ‘lazy balance sheet’, which some consider not optimum. Hence, it does make commercial sense to gear up to a healthy level since the operation is generating healthy cash flow to service the loans,” said the analyst.
“Being in the relatively defensive brewery sector, we argue that GAB’s capital structure pre-debt issuance is not optimal.”
With no debt in its current capital structure, OSK Research said GAB’s weighted average cost of capital (WACC) and cost of equity stands at 7.1%, based on a risk free rate of 4.1%, market risk premium of 5%, and beta of 0.6 times. Given the AAA rating, OSK Research feels GAB’s cost of debt should be around 4.5%.
Based on GAB’s 1QFY12 (ended Sept 30) shareholders’ fund of RM571.8 million, the RM500 million in new debt would translate to gross and net debt to equity ratios of 0.87 times and 0.59 times, respectively.
Post debt issuance, GAB’s WACC will be lower at 5.4% (assuming an effective tax rate of 25%), stated the analyst’s report.
On the reasons for issuing the debt, OSK Research said that GAB’s management guided that the issue will mainly be used for capital expenditure and working capital requirements. GAB has clarified that the issue proceeds will not be used for acquisition purposes.
The OSK report said GAB intends to allocate RM80 million to RM100 million for FY12 (ending June) which includes a new packaging line (RM40 million) and an upgrade of its SAP system (RM30 million).
In FY11, the brewery posted a net profit of RM181.38 million on revenue of RM1.48 billion.
Expectation is growing that there could be more dividend payouts for GAB shareholders in the pipeline as the brewery is believed to be making efforts to improve its capital structure, which will allow it to reward shareholders with higher dividends.
GAB’s share price rocketed to a record high of RM12.28 yesterday, up 28 sen or 2.3%, with 111,500 shares traded. It was among the top gainers on Bursa Malaysia yesterday. The stock has gained 21% year-to-date.
GAB announced last month it proposed a plan to issue debt notes of up to RM500 million. The proposed debt paper programme was assigned a rating of AAA by RAM Rating Services Bhd.
GAB said the proposed debt paper programme would provide it with an alternative source of financing and enable it to effectively plan and manage its funding costs and requirements.
It added that the proceeds of the proposed CP/MTN programme will be utilised for general corporate purposes including repayment of bank borrowings, if any.
It is worth noting that GAB is in a net cash position of RM163.98 million as at end-September with no borrowings.
According to OSK Research, GAB’s dividend payout ratio has averaged 88.4% in the last five years. “With a more optimal capital structure, it can definitely accommodate a higher payout ratio. In fact, we do not discount the possibility of a special dividend,” it commented.
Another analyst points out that more companies are looking at more efficient capital, such as Public Bank Bhd and DiGi.Com Bhd, and that resulted in increased dividends and higher stock prices as companies became more attractive dividend yield stocks.
The current low interest rate environment has made it conducive for companies with healthy and steady cash flow to raise debt to improve capital structure.
“A balance sheet with a too large cash pile may be viewed as a ‘lazy balance sheet’, which some consider not optimum. Hence, it does make commercial sense to gear up to a healthy level since the operation is generating healthy cash flow to service the loans,” said the analyst.
“Being in the relatively defensive brewery sector, we argue that GAB’s capital structure pre-debt issuance is not optimal.”
With no debt in its current capital structure, OSK Research said GAB’s weighted average cost of capital (WACC) and cost of equity stands at 7.1%, based on a risk free rate of 4.1%, market risk premium of 5%, and beta of 0.6 times. Given the AAA rating, OSK Research feels GAB’s cost of debt should be around 4.5%.
Based on GAB’s 1QFY12 (ended Sept 30) shareholders’ fund of RM571.8 million, the RM500 million in new debt would translate to gross and net debt to equity ratios of 0.87 times and 0.59 times, respectively.
Post debt issuance, GAB’s WACC will be lower at 5.4% (assuming an effective tax rate of 25%), stated the analyst’s report.
On the reasons for issuing the debt, OSK Research said that GAB’s management guided that the issue will mainly be used for capital expenditure and working capital requirements. GAB has clarified that the issue proceeds will not be used for acquisition purposes.
The OSK report said GAB intends to allocate RM80 million to RM100 million for FY12 (ending June) which includes a new packaging line (RM40 million) and an upgrade of its SAP system (RM30 million).
In FY11, the brewery posted a net profit of RM181.38 million on revenue of RM1.48 billion.
