JT International Bhd (JTI), the country's second largest cigarette maker, will consider paying out a special dividend this year if potential investments that it is looking at don't materialise.
JTI, which produces brands like Salem and Winston, has been exploring various business opportunities, its chairman Datuk Seri Mohd Nadzmi Mohd Salleh said, without elaborating.
Analysts said it may be looking for a domestic acquisition target to expand its market presence, but believe this move to be a risky venture for now given the high incidence of illicit cigarette trade in Malaysia.
"For the time being, we are exploring the possibility of investments - we can't disclose to you as yet but if we don't need the money, we will look into what are the best ways to give back in terms of dividends," Mohd Nadzmi told reporters after the company's annual general meeting yesterday.
He said this in response to intense speculation that JTI may declare a special dividend this year to help out its Japanese parent, which had been affected by the recent earthquake and tsunami.
JTI, which is 60.4 per cent-owned by the Japanese parent, has a cash pile of some RM189 million that is growing. The debt-free firm has a record of making generous payments.
"We believe JTI may play a role in assisting its Japanese parent company, either via short-term contract manufacturing or declaring a special dividend to plough some cash back to the parent company for repair and refurbishment works," OSK Research said in a report last month.
The research house believes JTI could potentially declare gross and special dividends of up to 110 sen per share this financial year, of which 80 sen could be in the form of a special dividend.
JTI, which does not have a dividend policy, paid out a gross dividend of 30 sen a share in each of the last two years, despite a 23.5 per cent increase in net profit to RM133.8 million last year.
Managing director Shigeyuki Nakano said this would be a tougher year for the industry, given growing illicit trade that was fueled by a tax hike last October.
Illicit trade now accounts for close to 40 per cent of the entire cigarette market.
Nakano said any future tax hikes should be "moderate and predictable" to prevent spikes in illicit trade.
An excise tax increase of RM10 per 1,000 sticks like that imposed by the government in 2009 is moderate, he said, as this would translate to a product price increase of 30 sen or 40 sen.
Last year, an increase of RM30 per 1,000 sticks led to a price hike of 70 sen for a 20-stick pack of cigarettes. - By Adeline Paul Raj of btimes.com.my
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