With average valuations for our broader market already on the high side to start, there is, unsurprisingly, limited room for error. The latest earnings results for 4Q10 too were, by and large, unexceptional and offered few surprises on the upside. Instead, there were more than a few cautious company guidance, driven primarily by concerns over the impact of rising costs for fuel and raw materials on future earnings growth.
Against the prevailing backdrop of increased global uncertainties, the local bourse has been charting greater volatility. The bellwether FBM KLCI has been swinging between double-digit point gains and losses from week to week. The roller coaster gyrations may present trading opportunities for some. But the decline in trading volume suggests that more are opting to stay on the sidelines, at least for now.
At this point, the stock market outlook for the rest of the year remains hazy. Bank deposit rates are still low. Bank Negara has held off on raising interest rates in view of the global economic uncertainties — although it is still expected to lift rates in the later part of the year, especially if inflation continues to pick up pace. Nevertheless, now may not be a bad time for investors to pick up some less risky stocks with high yields.
BJToto maintains high dividend payout
Following the recent pullback, Berjaya Sports Toto shares (RM4.10) are now hovering near the lower end of its trading range. The gaming company reported improved earnings in its latest results for the third quarter ending January 2011.
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The company is expected to maintain its high payout policy. Dividends totalled 18 sen per share for the first nine months of the current financial year, equivalent to a profit payout of 99%. The stock will trade ex-entitlement for its third interim single-tier dividend of six sen per share on April 21.
Assuming a similar payout in the final quarter, there would be another dividend of 6-7 sen per share, bringing total dividends to about 25 sen per share for FY11. And based on our earnings forecast, dividends should rise to roughly 27 sen per share for FY12. That would translate into net yield of about 6.6% at the current share price. The stock is trading at roughly 15.6 times our annualised earnings estimate for 2011.
Rising earnings support higher dividends for White Horse
White Horse shares have outperformed the benchmark FBM KLCI over the past 12-month period, underpinned by the company’s improving earnings. Demand is expected to remain fairly robust over the next year or two, at least, given the property boom, which started end-2009.
The company, which was established in 1992 is today one of the largest manufacturers of ceramic and homogenous tiles in the country. Continuous research and development efforts keep its product range closely in tune with changing consumer preferences.
The company is putting in additional production capacity in 1H11 to support expectations of rising demand.
White Horse’s sales grew 10% in 2010 to RM530.3 million while profits expanded by an outsized 14% to RM69.1 million, boosted also by better margins. Stronger earnings have, in turn, translated into higher dividends for shareholders.
The company has proposed a final tax-exempt dividend of five sen per share, bringing total dividend for 2010 to 12 sen per share, or roughly 40% of its net profit for the year. This is up from seven and 10 sen per share for 2008 and 2009 respectively, in line with its earnings growth. The entitlement date for the final dividend is yet to be fixed.
Based on a similar payout ratio, dividends for the current year is estimated to total 13 sen per share, which would give investors a net yield of 6.9% at the prevailing price of RM1.89.
In addition to higher than market average yields, the stock also has room for capital gains. Its valuations are attractive at P/E of just about 5.8 times our estimated earnings. The stock is trading below assets per share of RM2.71.
Special dividend payout from Panamy?
Another stock that has done well over the past one-year period is Panasonic Manufacturing Malaysia (Panamy) — its shares far outperforming the headline index for the local bourse.
As with White Horse, Panamy has been faring well, earnings-wise. Sales for the first nine months of the current financial year ending March 2011 grew 16.2% from the previous corresponding period to RM611 million. Net profit rose an even stronger 37.4% to RM68 million over the same period.
The improved performance was attributed to higher export sales as well as the transfer of manufacture and sales of certain food processor and juicer models from Japan. Exports accounted for roughly half of the company’s total sales in FY10.
Panamy distributed some 84% of net earnings for FY10. Assuming a similar payout level, gross dividends are estimated to total RM1.50 per share for the current financial year. It has already paid interim dividend of 15 sen per share. That would earn shareholders a net yield of 5.6% at the current share price of RM20.
In view of the massive damage from the Japan earthquake-tsunami, Panamy may raise its dividends to shareholders this year. It could certainly afford to do so based on the company’s strong balance sheet. Net cash and equivalents totalled RM486.4 million at end-2010 or RM8 per share.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
Written by Insider Asia
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