Covid-19 weighs on dividends of Asian companies

Singapore

THE ongoing battle against the economic fallout of the outbreak of Covid-19 has cast greater uncertainty over dividend payouts by companies in the Asia-Pacific.

With the pandemic having far-reaching impact across sectors, some industries have been harder hit than others.

IHS Markit said in a report on Thursday that the oil-and-gas sector is shouldering the highest level of dividend uncertainty across the Asia-Pacific.

It said: "Soft oil demand and price volatility have significantly weakened the earnings of refineries in Australia, China, Hong Kong and South Korea, and shaken companies' confidence in distributing profits."

In Australia, IHS Markit has expressed low confidence that 57 per cent of dividends will be paid out by companies in the oil-and-gas industry.

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Within the sector, oil-and-gas exploration and development company Oil Search Limited, for example, is likely to suspend dividends, as consensus earnings estimates point to rock-bottom earnings per share for this company, said IHS Markit.

South Korea's refineries are also expected to suspend their dividends amid weak downstream demand dragged by the ongoing virus outbreak; IHS Markit has forecast zero final dividend for petroleum-refining company SK Innovation.

But oil majors on the Hang Seng Index are expected to buck the trend. They include PetroChina, Sinopec and China National Offshore Oil Corporation, which are likely to retain dividends due to their state-owned nature and strong cash position, said Ye Maojun, principal analyst at IHS Markit.

Meanwhile, the financial sector in several markets has also not been spared.

In Australia, IHS has expressed low confidence that 78 per cent of dividends will be paid out by the banks, which had, in the first half deferred or slashed dividends, in line with the Australian Prudential Regulation Authority's guidance in April.

"Even with the recent softened stance from the Australian regulator no longer requiring banks and insurers to defer capital distributions, we still see a high level of uncertainty for the upcoming dividends from banks," said IHS Markit analyst Ralph Chen.

"It remains to be seen how the lenders would put the new guidance into practice," he added.

IHS Markit also expects dividends to be suspended for several Malaysian companies in the financial sector. These include Hong Leong Bank, Hong Leong Financial Group and Malayan Banking, on the back of "suppressed net interest margins, weakened debt-servicing capacity and lower lending volume".

In South Korea, credit card companies are the ones feeling the heat; those with higher than 30 per cent historical payout ratios were excluded from the recent easing of leverage ratio limit.

Against this backdrop, credit card company Samsung Card could face the ire of shareholders when it comes to adjusting the payout ratio, given that it has maintained a dividend payout ratio in the 50-per-cent range since FY15, said IHS Markit.

Among the eight major markets in the Asia-Pacific, companies in Australia, Malaysia and China have the highest level of uncertainties in dividend payments over the next six months

Elsewhere, a "limited level of near-term dividend risks" is observed in the rest of the Asia-Pacific markets, especially in Japan, where companies typically guide the dividend amount in advance.

But Japan may face some headwinds in its basic resources, retail and telecommunications sectors.

IHS Markit's Mr Chen said that in Singapore, dividend payouts are led by the banking sector, and that dividends have "exhibited greater resilience" than in other Asia-Pacific markets.

But IHS Markit expects large downside risks in the travel and leisure sector, due to the prolonged travel restrictions, he said.

Genting Singapore, for instance, did not declare an interim dividend for H1, a move most analysts did not see coming. Singapore Airlines is also not expected to resume payouts anytime soon.

Separately, IHS Markit also flagged low confidence for the amount estimated for Singtel's dividends, in view of the "stark financial metrics and absence of guidance".