INVESTORS could be in for some pleasant surprises if public listed companies keep up with the present trend of rewarding shareholders with more generous dividends, a JP Morgan Malaysia report said.
In a preview of the current reporting season, the firm's head of research, Melvyn Boey, noted that the majority of companies that had just announced results for the third quarter of 2004 had surprised the market with high dividends although their reported earnings had mostly been in line with expectations.
This trend, he said, indicated that the managements of these companies were cognisant of the need to reward shareholders through increased dividend. He said Tenaga Nasional Bhd and Public Bank Bhd had declared special dividends while Malakoff Bhd had raised its dividend by 12%, roughly in line with the increase in net profit. Unisem, too, had surprised investors with an interim dividend of 8 sen. We foresee upside surprises to our full-year dividend per share of 10 sen,'' he said in a research note.
Boey said although Malaysia's projected gross dividend yield of 3.8% for 2005 was already higher than the 3.5% for Asia Pacific ex-Japan, we believe there is still scope for Malaysian companies to increase dividends beyond our current dividend payout ratio assumption of 52% for 2005.
We also see upside earnings surprises to our 2005 earnings per share growth of 9.7%, especially if government-linked companies start to deliver on their reforms and restructuring'' he added.
We believe improving capital management is one of the key catalysts to drive the KL Composite Index to 1,000 over the next 12 months. The top 10 companies which have increased their dividend payout ratio over the past 12 months have seen a 28% appreciation in share prices, outperforming the KL Composite Index by 10%,'' he said
Boey expects to see continued improvement in capital management among Malaysian companies in the coming weeks.
Hence, we believe our current gross dividend payout ratio assumptions of 52% for 2004 and 2005 have upside surprises,'' he said, naming Telekom as offering upside potential should its cost-cutting programme commence sooner than expected.
The same was expected of Proton, should the GEN.2 drive earnings beyond market expectation, he added.
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