KUALA LUMPUR: Market observers believe Lembaga Tabung Haji’s (TH) assurance of paying lower dividends (hibah) for 2018 to its 9.3 million depositors was due to the underperforming stock market last year.
Inter-Pacific Research head of research Pong Teng Siew said TH’s investment in small cap had not gone the way the pilgrimage fund had hoped.
"Hence, TH is likely to sell their small cap stocks mostly to help paring down their overall investment in stocks. However, it may lead TH’s special trading programme to carry out this in phases,” he told NST Business.
On Wednesday, the pilgrimage fund's group managing director and chief executive officer Datuk Seri Zukri Samat said TH’s dividends payout for 2018 likely to reduce but still in accordance with regulations.
Zukri said a dividend payout would still possible after TH restoring its financial account following the transfers of stakes in 106 underperfoming listed companies as well as other assets including a land to special purpose vehicle (SPV) Urusharta Jamaah Sdn Bhd.
Pong said TH could be prepared to start selling its investments in small cap, which in turn would create a “caution” vibe among investors locally.
“It will caution investors in the market and trigger unwillingness for investors to plough into small cap, which has been performing quite well since two to three years ago. But, we don’t know when TH will start to sell,” he added.
Pong said TH capable to fork out its income for the dividends payout for 2018, leveraging on the ‘profit-taking’ activity in the local stock market.
“TH could sell stocks that were profitable. TH has many stocks that had made money for them. There is possibility to sell the stocks to realise the profit investments in stock market,” he said, adding that TH can realise the profit to pay dividends.
Zukri said depositors should not expect a high dividend as the pilgrim fund was in the midst of turning around.
He said TH have restored the balance sheet, putting in a position to pay hibah (dividend) for 2018. However, the amount will depend on our financial performance.
"Do not expect too much,” he told reporters at a media briefing on the progress of TH’s turnaround plan recently.
TH declared a dividend of 4.5 per cent and a bonus dividend of 1.75 per cent in 2017.
TH had also today announced it would focus more on its role to administer the Haj, while reinstating its involvement more in fixed income, rather than equities market.
Pong said investments in fixed income pay more and provide steady and stable returns compared to equities investment.
“Investment in fixed income is sustainable for TH because it is more predictable and it pays on average between five and six per cent annually,” he said.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said focusing on fixed income securities would be an ideal choice as market uncertainties have heightened.
“Under the current market condition, preserving capital or principle of the TH depositors would be the key priorities. Therefore, asset allocation has to commensurate with their risk appetite,” he said.
Putra Business School senior lecturer Dr. Ahmed Razman Abdul Latiff said the positive income would be made possible partly through the transfer of assets to SPV under the Ministry of Finance.
He said TH’s annual Hibah and Hajj Hibah would be 3.5 per cent and two per cent, respectively.
“It’s a prudent move by TH to focus more on fixed income. But, TH needs to ensure they manage their depositors profile so that there would not be a ‘bank run’, once these depositors realised that the return on their investment will not be high as before,” he said.
Dr. Ahmed Razman said fixed income is more sustainable in a long run, citing that their depositors profile also need to match this investment strategy.
TH had also disposed its Tun Razak Exchange (TRX) land back to the government at a premium, including 28 properties and lands were transferred to the SPV. Of which 18 has zero income and mainly vacant lands.
Dr. Ahmed Razman said the disposal would affect TH’s future financial performance, while noting that restructuring is necessary for its long-term business sustainability.
“TH also needs to rationalise its subsidy programme for the pilgrims because the hajj subsidy probably costs around RM300 million annually and will keep increasing.
“Pilgrims have to accept the fact that the Muasasah cost of RM9,990 will not be fixed like that forever,” he said.
He said TH also need to review the limit of deposit guarantee by the government as well as the limit of withdrawal by depositors to ensure liquidity of TH is not impacted.