Financial Times

JKH total payout for financial year ’05 tops Rs 1 bln
John Keells Holdings Limited last week announced a scrip issue and final dividend on the increased capital that sent its total gross payout for the financial year ended 31 March 2005 to over a billion rupees.

JKH chairman Vivendra Lintotawela said the Board of Directors has recommended to shareholders a scrip issue of one ordinary share for every five existing ordinary shares. It has also recommend to shareholders the payment of a final dividend of 10 percent on the increased, post-scrip issue, capital.

Following the scrip issue, the issued capital of JKH will increase to about 398 million shares. "With the final dividend of 10 percent on the increased capital, the total gross payout for the financial year ended 31 March 2005 will be approximately Rs. 1,060 million," Lintotawela said in a statement.

This is an increase of 33 percent from the payout of Rs. 795 million in the previous year. The conglomerate's share price has risen sharply in recent weeks owning to speculation about the bonus and following Sri Lanka's inclusion in CalPERS' permissible market list.

Asia Research said that despite reporting only three percent year-on-year growth in its 3Q05 net profit on 25 February 2005, the JKH share has risen 15.7 percent since then to Rs 160, amidst strong local buying. Foreigners have however been significant net sellers during this period, the brokers noted.

They said in a report the day before the bonus announcement that JKH has a good track record of scrip issues, giving three share bonuses since mid-2000. "It also possesses ample capital reserves for further issues, with capital reserves amounting to Rs 6 billion and other reserves Rs 3.8 billion as at December 2004."

JKH has sufficient reserves even for a one for one bonus but its recent "excellent" share price has reduced any necessity for an overly generous bonus, Asia Research said. "It is our opinion that foreign institutional shareholders, who have been largely sellers of JKH during the past month amidst premium valuations and likely unexciting short term earnings growth, are in fact likely to reduce exposure further in the event of likely share price appreciation following any generous bonus."

The JKH board is expected to favour retaining the bulk of its reserves to support the share price during times of unjustified price weakness or unwelcome predators, Asia Research said.

"Short term investors may perceive any bonus announcement as an opportunity to reduce exposure, as JKH's FY05E and 1H06E earnings are likely to fall short of market expectations due to a likely sharp slowdown in the contribution from its resort hotels and possible easing of growth momentum in its transportation sector."

While several of JKH's smaller sectors such as F&B, financial services and IT have all disappointed over the past year, enhanced contributions from the Monarch apartment complex in FY06E should enable stronger longer-term earnings growth, they said.

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