Journey to Wealth
Pacific & Orient - The more the merrier'
News Pacific & Orient (P&O) has announced an interim dividend of 2 sen less 25% tax, with the ex-date on 1st of August and payment on 23rd of August.
YTD, P&O had already earlier declared four interim dividends to shareholders, these included net dividend of 0.6sen (in Jan 2012), 1.73sen (March), 0.98sen (May) and the latest 0.015 sen in July.
P&O has achieved a payout ratio of 35%, which is above our forecast payout ratio of 25% for FY12.
Comments We believe the higher than expected dividend payout clearly indicates that the group is likely to have a better earnings outlook in 2H12 and we do not discount a possible major turnaround in its upcoming 3Q12 result announcement in August 2012.
As we argued in our initiation note, P&O is improving the efficiency of its capital structure and leveraging on its clean balance sheet. The higher than expected payout proves that management is confident in the company's capital position.
Outlook The ability of the group to achieve a payout ratio of 35% clearly reflects the strong balance sheet that the group has. The strong balance sheet will allow the group to move further with future equity & debt investments as well as market share expansion in motorcycle insurance.
Its strong capital will also be able to support the group's business growth and deliver excess returns to shareholders.
The group offers one of the best dividend yields of around 5.5% (gross) YTD, with a total of 6.4 sen gross dividends declared for the YTD.
Increased profitability is seen from the high dividend payouts, which will likely see the group's ROE increasing in tandem.
We believe the group is outperforming its peers' ROE at above 16-27% for FY12-FY13. The ROE enhancement will further lift up the valuations for P&O's share price.
Forecast We are in a midst of reviewing our dividend payout forecast pending a meeting with management, which could see us raising our target price as well.
Rating Maintain OUTPERFORM
The current share price still offers a 14% upside potential to our TP of RM1.30.
Valuation Maintaining our target price of RM1.30 at an undemanding FY13 PER of 5.0x and 1.9x FY13 PBV.
Risks Unexpected catastrophic events could erode underwriting margins.
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