UOB Kay Hian: Petronas-listed firms can help govt

PETALING JAYA: Petroliam Nasional Bhd (Petronas)-listed companies are best positioned to significantly raise dividends that will help the Government to fund the Rm250bil Prihatin stimulus package, according to UOB Kay Hian Research.

The brokerage’s argument is based on its screening process, which looks at government-linked companies (GLCS) with relatively more resilient cash flow, manageable capital expenditure requirements and solid balance sheets.

“In this respect, notable GLCS with capacity to raise dividends in the current environment are Petronas Chemicals Group Bhd (Petchem), Petronas Dagangan Bhd (Petdag), MISC Bhd, Petronas Gas Bhd, Tenaga Nasional Bhd (TNB) and RHB Bank Bhd,” UOB Kay Hian wrote in its report yesterday.

It noted that among the Petronas group of companies, Petchem and Petdag had the largest capital management potential, as its analysis indicated that both companies would still have a fairly substantial net cash balances even when it stressed their cash flows.

An analyst from a local brokerage concurred, saying the sheer scale of the national oil and gas company meant Petronas group would be able to weather the current economic turmoil better than others, despite the low oil prices, which would likely be a temporary phenomenon.

“Petronas is a reliable help (to the Government) in times of (financial) trouble. The group has the financial strength and capability to pull through the downturn; it is clearly the best avenue to generate the needed funds for the Government to finance its recently announced stimulus package,”the analyst, who requested anonymity, told Starbiz.

However, a fund manager stressed the sudden crash of global oil prices would limit Petronas’ ability to generate dividends to help fund the Government’s expenditure. Hence, he noted, a lot of “belt-tightening” efforts by the Government would be necessary so that the limited resources could be channeled to where funds were needed.

The Government faced the challenge of controlling its budget deficit despite the enormous need to fiscal stimulate amid the Covid-19 economic fallout.

UOB Kay Hian said low oil prices and weak petrochemical demand might dampen Petchem’s future cash flow (FCF) generation but the company had high cash levels and its future capex was expected to be smaller on the tail-end of Pengerang.

The brokerage noted although Petdag’s FCF would be weak due to the impact of low oil prices and Covid-19 economic fallout, the company still had high cash levels to service another round of high dividend payments.

UOB Kay Hian said Petdag could afford more than 100% payout (above its 50% policy).

As for other GLCS such as TNB, UOB Kay Hian said the energy giant company had scope for further capital management, given its cash pile of Rm12bil against working capital requirement of only Rm3bil.

Among GLC banks, RHB had the most potential to raise dividends, with its Tier 1 capital of 16.3% being significantly higher than Malayan Banking Bhd’s 14.6% and CIMB Group Holdings Bhd’s 13.0%.

“If RHB were to raise its dividend payout ratio to 70% from the current 50%, this would raise current yields from 6.0% to 7.9%,” UOB Kay Hian said.