KUALA LUMPUR: With Guinness Anchor Bhd (GAB) recently declaring a bumper dividend following its proposed debt issuance, could other multinational corporations (MNCs) listed on Bursa Malaysia follow suit? If they do, how much dividends could they potentially pay out?
Most large MNCs listed on Bursa Malaysia currently have minimal or no gearing. Coupled with a strong and stable free cash flow, they could potentially raise debt and declare a special dividend in the near future, according to industry observers.
“With interest rates at historically low levels, it would be advantageous for MNCs to raise long-term debt in order to lower their cost of capital,” said an analyst.
“Such a move creates a double benefit for the MNC. First, it improves the cash flow of the parent company overseas and reduces country risks as the investment here is reduced. Second, a higher dividend yield will boost the stock price, and thereby increase the value of the parent’s stake in the listed entity — even as more cash is withdrawn from the company”, he explained.
He said it is not uncommon for large and matured companies to gear up and pay more dividends.
“In general, provided that their gearing is low, it optimises the use of their balance sheets and debt-to-equity levels to maintain dividend yields.”
He said yield plays such as British American Tobacco (M) Bhd (BAT) had been issuing bonds from as far back as 10 years ago for this purpose.
Among the banks, he also noted Public Bank Bhd decided on a more optimum capital structure many years back and decided to return surplus capital to shareholders. This made the stock both a growth and yield play.
To recap, GAB on Dec 12 announced a special interim dividend of 60 sen per share, which exceeded its total dividend of 54 sen in FY11 (ended June).
The special dividend, amounting to RM181.26 million, came after its Nov 25 proposal to raise debt by implementing a commercial papers (CP) and medium-term notes (MTN) programme of up to RM500 million. The CP and MTN programme will have a tenor of seven years from the date of its first issue.
As at end-September, GAB was in a net cash position of RM164 million with no borrowings. Assuming that it issues RM500 million of debt, it will have a gross and net gearing of 0.87 and 0.59 times respectively.
Like Guinness, many MNCs, such as JT International Bhd, Dutch Lady Milk Industries Bhd, Ajinomoto (M) Bhd and Panasonic Manufacturing (M) Bhd (Panamy), were in a net cash position with no debt, as of end-September.
BAT, as a result of its RM650 million MTNs, had a relatively high gross and net gearing of 1.53 and 0.78 times respectively, while Carlsberg Brewery (M) Bhd and DiGi.Com Bhd had a gross gearing of 0.16 and 0.56 times respectively.
Incidentally, these are three of the better performing all-weather stocks on Bursa Malaysia, particularly DiGi.Com, as investors look for string management and yields in a volatile market environment.
The Edge Financial Daily takes a hypothetical look at some of the MNCs trading on Bursa Malaysia and the potential bumper dividends they could pay out if they decide to gear up, assuming a 35% net gearing ratio.
As of Sept 30, Carlsberg Malaysia had cash reserves of RM82.72 million and short-term loans of RM94.21 million, translating into a net debt position of RM11.49 million.
It had a gross and net gearing of 0.16 and 0.02 times respectively, based on its shareholders’ funds of RM603.33 million as of end-September.
Assuming that it raises debt equivalent to 35% of its shareholders’ funds, it could potentially borrow up to RM211.17 million.
Given its existing marginal net debt position, it could pay out as much as RM199.68 million, or 65 sen per share.
This amount is equivalent to 7.7% of its share price, representing some 3.4 times its annual dividends.
For FY10, Carlsberg paid net dividends of 19 sen (a 99.2% payout ratio), representing a net yield of 2.3% based on its closing price of RM8.40 yesterday.
JTI had cash reserves of RM189.94 million with no borrowings, as at end-September.
With shareholders’ funds of RM436.45 million, the company could borrow up to RM152.76 million to target a 35% gearing ratio.
Combining its net cash as of end-September with the debt proceeds, it could potentially pay up to RM342.70 million over the next few years.
On a per share basis, this comes to RM1.31 per share, representing 19% of its closing price of RM6.88 yesterday as well as 5.8 times its dividends last year.
For FY10, JTI paid net dividends amounting to 22.5 sen per share, translating into a dividend yield of 3.3% based on its closing price yesterday.
With a net earnings per share (EPS) of 51.2 sen in 2010, its payout ratio was 44%.
Panamy’s cash pile stood at RM446.55 million with no borrowings as at end-September.
Raising gearing to 35% of its shareholders’ funds of RM627.28 million could provide it with RM219.55 million in debt proceeds.
On this assumption, Panamy will be able to pay up to RM666.09 million in dividends or RM10.96 per share, representing a hefty 54.7% of its closing price of RM20.02 yesterday.
This is also equivalent to about ten times last year’s dividends.
For FY11, Panamay paid net dividends of RM66.06 million or RM1.09 per share, equivalent to 80% of its net profit in that year. Its net yield was 5.4% based on its last traded price.
Ajinomoto had cash and bank balances of RM66.75 million with zero borrowings as at end-September.
With shareholders’ funds of RM233.61 million, implementing a gross gearing of 35% would suggest the company could take on RM81.76 million in debt.
This would allow it to pay dividends of up to RM148.51 million or RM2.44 per share, equivalent to a sizable 61.5% of its closing price of RM3.97 yesterday.
Put it in another way, these potential bumper dividends could be as much as 14 times its annual historical payout.
For FY11 ended March, it paid net dividends of 17.25 sen per share or RM 10.45 million, amounting to 40.5% of its net profit. This translated into a net yield 4.35% based its last traded price.
As of end-September, Dutch Lady had a cash pile of RM145.77 million and no debt. Its shareholders’ funds stood at RM254.78 million.
Assuming that it employs a 35% gross gearing, it will raise RM89.17 million in debt and will be able to pay out cash of up to RM234.95 million or RM3.67 per share.
That would represent 15.7% of the current share price and five times last year’s dividend payout.
For FY10, Dutch Lady paid net dividends amounting to 72.5 sen or RM46.4 million, amounting to about 73% of its net profit.
With a closing price of RM23.42 yesterday, its FY10 net dividends represented a yield of 3.1%.
DiGi is one of the MNCs seen raising debt to increase its dividends. That strategy has paid off well, with a spectacular share price performance and a stock valued for its dividend yield and innovative management.
It had a cash pile of RM987.15 million and total borrowings of RM726.68 million as of end-September. Its net cash stood at RM260.47 million, while its gross gearing was 0.56 times based on its shareholders’ funds of RM1.305 billion.
If DiGi issues 35% of its shareholders’ funds as debt, it can potentially raise debt of RM456.71 million. Its total borrowings (including those at end-September) will increase to RM1.184 billion, increasing its end-September gross gearing to 0.91 from 0.56 times.
But with the debt proceeds and its end-September net cash, DiGi could potentially pay out cash of up to RM717.17 million, or 9 sen per share.
That is equivalent to 2.4% of the share price of RM3.68, after undergoing a 1-into-10 share split.
Incidentally, DiGi already appears to have a plan to reward its shareholders with more dividends.
In early September, the company announced that its wholly-owned subsidiary, DiGi Telecommunications Sdn Bhd (DiGiTel) was proposing to undertake a capital management initiative whereby DiGiTel would undertake a capital distribution of approximately RM509 million to DiGi.Com.
The proposed capital distribution entailed the issuance of redeemable preference shares from DiGiTel to DiGi.Com which upon redemption would result in a cash payment of approximately RM509 million to DiGi.Com.
DiGi.Com said it intended to distribute the excess proceeds from the capital distribution to all its shareholders by the first half of FY12.
This article appeared in The Edge Financial Daily, December 22, 2011.
Most large MNCs listed on Bursa Malaysia currently have minimal or no gearing. Coupled with a strong and stable free cash flow, they could potentially raise debt and declare a special dividend in the near future, according to industry observers.
“With interest rates at historically low levels, it would be advantageous for MNCs to raise long-term debt in order to lower their cost of capital,” said an analyst.
“Such a move creates a double benefit for the MNC. First, it improves the cash flow of the parent company overseas and reduces country risks as the investment here is reduced. Second, a higher dividend yield will boost the stock price, and thereby increase the value of the parent’s stake in the listed entity — even as more cash is withdrawn from the company”, he explained.
He said it is not uncommon for large and matured companies to gear up and pay more dividends.
“In general, provided that their gearing is low, it optimises the use of their balance sheets and debt-to-equity levels to maintain dividend yields.”
He said yield plays such as British American Tobacco (M) Bhd (BAT) had been issuing bonds from as far back as 10 years ago for this purpose.
Among the banks, he also noted Public Bank Bhd decided on a more optimum capital structure many years back and decided to return surplus capital to shareholders. This made the stock both a growth and yield play.
To recap, GAB on Dec 12 announced a special interim dividend of 60 sen per share, which exceeded its total dividend of 54 sen in FY11 (ended June).
The special dividend, amounting to RM181.26 million, came after its Nov 25 proposal to raise debt by implementing a commercial papers (CP) and medium-term notes (MTN) programme of up to RM500 million. The CP and MTN programme will have a tenor of seven years from the date of its first issue.
As at end-September, GAB was in a net cash position of RM164 million with no borrowings. Assuming that it issues RM500 million of debt, it will have a gross and net gearing of 0.87 and 0.59 times respectively.
Like Guinness, many MNCs, such as JT International Bhd, Dutch Lady Milk Industries Bhd, Ajinomoto (M) Bhd and Panasonic Manufacturing (M) Bhd (Panamy), were in a net cash position with no debt, as of end-September.
BAT, as a result of its RM650 million MTNs, had a relatively high gross and net gearing of 1.53 and 0.78 times respectively, while Carlsberg Brewery (M) Bhd and DiGi.Com Bhd had a gross gearing of 0.16 and 0.56 times respectively.
Incidentally, these are three of the better performing all-weather stocks on Bursa Malaysia, particularly DiGi.Com, as investors look for string management and yields in a volatile market environment.
The Edge Financial Daily takes a hypothetical look at some of the MNCs trading on Bursa Malaysia and the potential bumper dividends they could pay out if they decide to gear up, assuming a 35% net gearing ratio.
As of Sept 30, Carlsberg Malaysia had cash reserves of RM82.72 million and short-term loans of RM94.21 million, translating into a net debt position of RM11.49 million.
It had a gross and net gearing of 0.16 and 0.02 times respectively, based on its shareholders’ funds of RM603.33 million as of end-September.
Assuming that it raises debt equivalent to 35% of its shareholders’ funds, it could potentially borrow up to RM211.17 million.
Given its existing marginal net debt position, it could pay out as much as RM199.68 million, or 65 sen per share.
This amount is equivalent to 7.7% of its share price, representing some 3.4 times its annual dividends.
For FY10, Carlsberg paid net dividends of 19 sen (a 99.2% payout ratio), representing a net yield of 2.3% based on its closing price of RM8.40 yesterday.
JTI had cash reserves of RM189.94 million with no borrowings, as at end-September.
With shareholders’ funds of RM436.45 million, the company could borrow up to RM152.76 million to target a 35% gearing ratio.
Combining its net cash as of end-September with the debt proceeds, it could potentially pay up to RM342.70 million over the next few years.
On a per share basis, this comes to RM1.31 per share, representing 19% of its closing price of RM6.88 yesterday as well as 5.8 times its dividends last year.
For FY10, JTI paid net dividends amounting to 22.5 sen per share, translating into a dividend yield of 3.3% based on its closing price yesterday.
With a net earnings per share (EPS) of 51.2 sen in 2010, its payout ratio was 44%.
Panamy’s cash pile stood at RM446.55 million with no borrowings as at end-September.
Raising gearing to 35% of its shareholders’ funds of RM627.28 million could provide it with RM219.55 million in debt proceeds.
On this assumption, Panamy will be able to pay up to RM666.09 million in dividends or RM10.96 per share, representing a hefty 54.7% of its closing price of RM20.02 yesterday.
This is also equivalent to about ten times last year’s dividends.
For FY11, Panamay paid net dividends of RM66.06 million or RM1.09 per share, equivalent to 80% of its net profit in that year. Its net yield was 5.4% based on its last traded price.
Ajinomoto had cash and bank balances of RM66.75 million with zero borrowings as at end-September.
With shareholders’ funds of RM233.61 million, implementing a gross gearing of 35% would suggest the company could take on RM81.76 million in debt.
This would allow it to pay dividends of up to RM148.51 million or RM2.44 per share, equivalent to a sizable 61.5% of its closing price of RM3.97 yesterday.
Put it in another way, these potential bumper dividends could be as much as 14 times its annual historical payout.
For FY11 ended March, it paid net dividends of 17.25 sen per share or RM 10.45 million, amounting to 40.5% of its net profit. This translated into a net yield 4.35% based its last traded price.
As of end-September, Dutch Lady had a cash pile of RM145.77 million and no debt. Its shareholders’ funds stood at RM254.78 million.
Assuming that it employs a 35% gross gearing, it will raise RM89.17 million in debt and will be able to pay out cash of up to RM234.95 million or RM3.67 per share.
That would represent 15.7% of the current share price and five times last year’s dividend payout.
For FY10, Dutch Lady paid net dividends amounting to 72.5 sen or RM46.4 million, amounting to about 73% of its net profit.
With a closing price of RM23.42 yesterday, its FY10 net dividends represented a yield of 3.1%.
DiGi is one of the MNCs seen raising debt to increase its dividends. That strategy has paid off well, with a spectacular share price performance and a stock valued for its dividend yield and innovative management.
It had a cash pile of RM987.15 million and total borrowings of RM726.68 million as of end-September. Its net cash stood at RM260.47 million, while its gross gearing was 0.56 times based on its shareholders’ funds of RM1.305 billion.
If DiGi issues 35% of its shareholders’ funds as debt, it can potentially raise debt of RM456.71 million. Its total borrowings (including those at end-September) will increase to RM1.184 billion, increasing its end-September gross gearing to 0.91 from 0.56 times.
But with the debt proceeds and its end-September net cash, DiGi could potentially pay out cash of up to RM717.17 million, or 9 sen per share.
That is equivalent to 2.4% of the share price of RM3.68, after undergoing a 1-into-10 share split.
Incidentally, DiGi already appears to have a plan to reward its shareholders with more dividends.
In early September, the company announced that its wholly-owned subsidiary, DiGi Telecommunications Sdn Bhd (DiGiTel) was proposing to undertake a capital management initiative whereby DiGiTel would undertake a capital distribution of approximately RM509 million to DiGi.Com.
The proposed capital distribution entailed the issuance of redeemable preference shares from DiGiTel to DiGi.Com which upon redemption would result in a cash payment of approximately RM509 million to DiGi.Com.
DiGi.Com said it intended to distribute the excess proceeds from the capital distribution to all its shareholders by the first half of FY12.
This article appeared in The Edge Financial Daily, December 22, 2011.
