KUALA LUMPUR: The Armed Forces Fund Board (LTAT) has the capacity to continue dishing out the current level of dividend to more than 123,000 members in the coming years, said economists.
This could happen with the possible divestment of LTAT's assets, such as its stake in Affin Bank Bhd, buildings and land in prime locations.
They said the 5.0 per cent dividend announced for financial year 2023 was decent given the fund's recent challenges.
Tradeview Capital fund manager Neoh Jia Man said the dividend rate was not a surprise as LTAT reported a 24 per cent year-on-year increase in net profit for 2023.
"We view this as a positive move, as sustaining the dividend yield despite significant profit growth is prudent. This decision helps replenish the fund's reserves, which remained negative as of the end of 2022."
Neoh said since LTAT heavily relied on dividends from subsidiary companies, the payout would depend on the performance of those companies.
He believes LTAT has the capacity to sustain the current level of payout in the coming years if it divests some investments, such as its stake in Affin Bank.
Neoh said for LTAT to continue providing higher dividends, it should restructure key assets, particularly companies under Boustead Holdings Bhd.
"The ongoing privatisation of Boustead and Boustead Plantations Bhd presents opportunities for the fund to revamp these businesses. However, successful execution remains crucial, especially given the recent high-profile exits at LTAT that could delay the implementation," he said.
Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan said LTAT's dividend announcement was a pleasant surprise.
"I believe the nearly half-a-billion ringgit payout, which is more than the previous year, is good news for the new team at LTAT as well as for Defence Minister Datuk Seri Mohamed Khaled Nordin.
"It appears to be very good news, especially when compared to the dividend payouts of other funds such as the Employees Provident Fund."
Azmi also believes that LTAT can offer higher payouts in the coming years.
He noted that the fund's profit increased by 24 per cent and income rose 13 per cent compared to financial year 2022.
This indicates that despite the news about its problematic investments, LTAT can still secure a healthy profit.
"In order for LTAT to surpass its 2023 performance, it needs to divest its investments, ensuring they are not concentrated in one sector. Therefore, they need to diversify their investments.
"I believe the sale of Affin Bank will go through, which will increase its income and profit this year. I have full confidence in the new management's ability to restructure because I believe LTAT needs restructuring, especially in its investment portfolio," he added.
LTAT announced a total payout of RM485.08 million for last year compared to RM476.45 million previously.
For the year under review, LTAT recorded an improved year-on-year performance for the key financial indicators.
Total income rose 13 per cent to RM738.02 million, mainly attributed to contributions from public equity and private equity investments, and was represented by all-cash income.
Net profit jumped 24 per cent to RM537.8 million from RM432.47 million in financial year 2022.
LTAT also recorded RM756.81 million in retained earnings (post dividend) for the year under review, which marks a significant increase of 52 per cent compared to RM498.65 million in the preceding year.
Khaled said LTAT had undergone a significant transformation to enhance its performance and image.
He said this included strengthening governance, restoring and improving investment returns and enhancing the quality of services to contributors.
"LTAT's dividend rate began to recover to five per cent in 2022 compared to its lowest historical rate of two per cent in 2018. The latest dividend announcement reflects LTAT's strong financial position. The overall combination of LTAT's reserves records consistently positive financial standing.
"Additionally, LTAT always ensures that its book solvency ratio is not less than 100 per cent when declaring its annual dividend to contributors to guarantee LTAT's ability to always fulfil its financial obligations," he added.
Looking ahead, Khaled said LTAT was committed to practising prudent cash flow management.
He said the fund would focus on restructuring its business models and shareholdings in strategic companies.