News - BT

KK · Guru

News - BT

KK · Guru

19-Apr-2007

More M'sian companies rewarding shareholders

Tenaga joins growing list of companies giving higher payouts

AT the close of trading on Monday, power utility Tenaga Nasional promised that from financial year 2007, it would adopt a policy of paying 40-60 per cent of its free cash flow back to shareholders. That means the utility could be paying out as much as RM0.40 and more a share from this year on. With the announcement, the state-owned utility joins a growing list of Malaysian companies which are aggressively managing their capital resources and pushing to reward shareholders through higher returns on equity. They are doing this through higher dividend policies, capital repayments and aggressive share buybacks and, in some cases, all of the above.

And they are doing it because they can. Corporate balance sheets have never been stronger, says Niklas Olausson, the research head of CLSA in Kuala Lumpur. And there has been a gradual decrease in gearing in recent years.

Higher payouts are a new trend in Malaysia with investors previously having to be satisfied with share price gains. Indeed, companies that did pay generous dividends were the foreign-controlled ones. Conglomerates like Nestle, Dutch Lady and British American-Tobacco routinely paid hefty dividends as a way to repatriate profits, a standard operating procedure that continues to this day. All this changed after the Asian financial crisis when many companies had to cut capital expenditure and debt.

The restructuring paid off and with a buoyant economy, the companies slowly began amassing cash hoards which, in the face of not many alternatives, they began paying out. More strikingly, other firms did so because of perceived corporate governance problems.

Consider Berjaya Sports Toto, a gaming company once dogged by negative publicity and now re-invented to become the bellwether of dividend policy on the Kuala Lumpur stock exchange. Indeed, the company's fortunes could epitomise the virtues of rewarding shareholders. Between 1998 and 2000, BToto lent RM1.1 billion (S$484 million) to its parent BLand but the information was only disclosed in late 2001. The loans initially were intended as a way for Malaysian tycoon Vincent Tan, who controls both companies through his Berjaya group holding company, to keep BLand afloat in the wake of the Asian crisis. But investors believed that the cash-flush BToto was acting as financier to Mr Tan's other units and sold down the stock so hastily that it dropped over 70 per cent to below RM3 apiece in 2003. Mr Tan has since promised to pay over 70 per cent of earnings to shareholders and pare debt. The latter would be a logical outcome of the former as BLand was the largest shareholder of BToto.

Over the last four years, BToto has paid out more to shareholders and the debt has been reduced by over 90 per cent. An institutional favourite, BToto has now become what's known as a defensive stock with relatively steady prices even during sell-downs. Indeed, with one of the highest yields on the local bourse (see chart), BToto may have become a metaphor for corporate rebirth.

For example, when news began swirling that Magnum, another cash rich gaming company that isn't a market favourite, would make a substantial capital repayment soon, brokers said that it might do a BToto. Stories like Magnum which issued a qualified denial on the subject though aren't unique.

By its own admission, Bursa Malaysia is mulling over a capital repayment, while telecom firm Digi.com and Public Bank are said to be considering bumper dividends this year.

Meanwhile, cement firm Ta Ann is sitting on large cash reserves with steady profitability and no capital expenditure requirements. This is another shoo-in for a big payout, according to analysts.

Companies like Tenaga are the new focus now. After three years of prodding, government linked companies are beginning to meet key performance indicators mandated for them by the administration of Prime Minister Abdullah Ahmad Badawi.

Given that a general election is likely next year, some analysts believe that GLCs like Maybank, Sime Darby and investment bank CIMB could raise their payouts so that the government can use the dividends in pump priming exercises calculated to be popular.

Cumulatively, the trend of aggressive capital management may have changed the perception of Kuala Lumpur's bourse forever. Now it's plugged as a defensive market and, at 6 plus per cent, it is fast becoming one of the better yield plays in the region.