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Singapore's telecom, travel and leisure sectors face dividend uncertainty: IHS Markit

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Singapore's telecommunication, and travel and leisure sectors are expected to face dividend uncertainty in the second half of 2020.

SINGAPORE’S telecommunication, and travel and leisure sectors are expected to face dividend uncertainty in the second half of 2020.

This comes as the long-drawn Covid-19 pandemic has inflicted damage to all sectors in varying degrees, with some countries in the Asia-Pacific (APAC) region still grappling with the resurgence of the virus, said IHS Markit analysts on Thursday in a report on dividend risk. 

IHS Markit had flagged dividends to be paid out from the telecommunications sector in Singapore with low confidence. Singtel in particular had experienced a lacklustre year in FY2020, with underlying profit dropping by 13 per cent from FY2019.

Against this backdrop, Singtel's board had proposed a final ordinary dividend of 5.45 Singapore cents per share, almost half the 10.7 cents per share a year ago, bringing the total dividend per share for the year to 12.25 cents, from 17.5 cents a year earlier.

IHS Markit said that the slash in dividend came in a bid to "conserve financial headroom to fund investment in 5G and to cope with the challenging operating environment". 

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In addition, Singtel's move to not provide guidance in financial performance and dividends in the next financial year is a “break with tradition”.

"In view of the stark financial metrics and absence of guidance, we flagged a low confidence for the amount estimate," said IHS Markit. 

In the travel and leisure sector, IHS Markit said that Genting Singapore's upcoming dividend is uncertain given that its ex-date for interim dividends had “exhibited volatile pattern for the past few years”. In FY2017, the ex-date was end August while in FY2018, it was in early September. 

Genting Singapore did not declare an interim dividend for H1, a turnaround from the 1.5 Singapore cents per share payout a year ago.

OCBC Investment Research said last Friday that the absence of an interim dividend from Genting Singapore was a “disappointment”. 

“While this is a rational business decision, it is likely a disappointment to the market. With Covid cases re-emerging around the globe along with economies reopening, business normalisation might take longer than expected,” said OCBC. 

The research house therefore expects Genting Singapore to resume dividend payouts only when there is more visibility of a recovery, which might not be until early next year. 

To be sure, Singapore is among APAC markets with “limited level of near-term dividend risks”, according to IHS Markit. 

Meanwhile, firms in Australia, Malaysia and China have the highest level of uncertainties in dividend payments over the next six months.

In Australia, IHS flagged 78 per cent of dividends to be paid out from the banks with low confidence as banks had in the first half deferred or slashed dividends in line with the Australian Prudential Regulation Authority’s (APRA) guidance in April.

In addition, Australia’s oil and gas sector was flagged by IHS Markit as a "danger zone" for dividends. The sector also exhibits the highest level of dividend uncertainty across the APAC region.

“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,” said IHS Markit. 

Oil majors within the Hang Seng Index, however, are expected to buck the trend. This includes PetroChina, Sinopec and China National Offshore Oil Corporation, which are unlikely to suspend dividends due to their state-owned nature and strong cash position, according to Ye Maojun, principal analyst at IHS Markit.

Malaysia, on the other hand, face a high level of risk in dividends from the financial sector. IHS Markit is expecting potential dividend suspension of Hong Leong Bank Bhd, Hong Leong Financial Group and Malayan Banking Bhd on the back of "suppressed net interest margins, weakened debt-servicing capacity and lower lending volume".

Its food and beverage sector is also expected to face some risk due to a drop in sales amid the movement control order.

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