JTI declared a RM0.21 per share special dividend last night, which translates into a dividend yield of 3.4%. This will be the second special dividend in the past 10 months, possibly to partially fund its parent company, Japan Tobacco’s, share buybacks. We are cutting our FY13 and FY14 forecasts by 13.3% and 6.1% on expectations of persistent weakness in its VFM segment. Maintain NEUTRAL, with RM6.64 FV.

2nd special dividend in 10 months. The RM0.21 per share tax-exempt special dividend JTI announced last night will be its second special dividend in less than 10 months. Last year, the company paid out the special net dividend of RM0.56 per share it declared in May together with the release of its 1QFY12 results. The RM0.21 just declared will represent a dividend yield of 3.4% (excluding annual recurring dividends) and lift the company’s FY13 potential dividend yield to 7.0%, including the recurring payouts.

A smaller giveaway. The RM0.21 dividend, which will involve a cash outflow of RM54.9m, will pare down JTI’s existing RM149.9m in cash to RM95.0m. This will be the lowest amount of cash the company will have held since 3QFY09. Meanwhile, the decision to pay another special dividend within such a short span of time was a surprise somewhat. Previously, in the past two rounds of making special payouts to shareholders, JTI had distributed special dividends only when its cash balance breached RM250m. It paid out its first special dividend of RM0.75 as share capital repayment in July 2008 when its cash balance rose to RM265.1m, and dished out the RM0.56 per share special dividend when its cash pile stood at RM294.3m.

Japan government cuts stake in Japan Tobacco. In a move to support the Japanese government’s bid to raise funds for its fiscal spending programme, Japan’s Finance Ministry recently decided to reduce its stake in JTI’s parent company, Japan Tobacco, from 50.0% to 33.3%.

Source: RHB Research - 06 Mar 2013