JTI Revisit – still an attractive Dividend Stock

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Apr 29 2008
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During difficult time it’s hard, though not impossible, to place your bet on stocks. It’s even harder to trade short time, let alone day-trade or scalp, if the stocks are not volatile enough. Obviously it’s easier to make money (and lose money) in Wall Street from stocks such as Apple Inc. or Baidu.com, Inc. due to intraday volatility than from Kuala Lumpur Stock Exchange. The fact that you are not allowed the flexibility to short the stocks compare to long it makes the KLSE a boring place to spend your time. Isn’t it amusing that authorities are trying to find reasons for the low transaction volume when the writing was already on the wall? And talk about Bursa Malaysia Berhad’s (KLSE: BURSA, stock-code 1818) market capitalization being halved in five-months from its peak of RM16 to RM8 a share.

JT International stock chartDepending on your strategy and approach, you might find some comforts from dividend-paying stocks. One of my favorites is JT International (KLSE: JTINTER, stock-code 2615). Since my last article in Aug 2007, the stock did not manage to climbs above the resistance of RM3.96 a share. This is a typical good dividend stock of which the “gross dividend” yield is more than 10 percent, easily beats the conventional single-digit fixed-deposit interest rate. But the good time of getting nice dividend-check at your doorstep will not goes without any challenges as acknowledged by JT International (JTI) management.

JT International RevenueJT International Net ProfitMalaysian government is expected to start with its normal routine in putting up barricades to the tobacco industry especially after the general election. The government raised tax on cigarette sold in Malaysia by 25% per stick in July 2007, the highest since 2004, but didn’t punish the players during the budget presentation for obvious reason. Already the tobacco industry is fighting an uphill and losing battle against illegal cigarettes smuggled into the country. With an estimated 25 percent of the cigarettes sold are illegal products, not to mention cheap, it’s no-brainer why JTl’s earnings were on the downtrend since 2006 and the trend is expected to continue.

JT International Gross DividendJT International Net DividendWith tougher anti-tobacco laws to be introduced by the government from now onwards, JTI which derived about 90% of its sales from the domestic market needs to increase exports to stay alive – most likely post AFTA (Asean Free Trade Agreement). The authorities will not be able to tackle illegal cigarettes smuggling problem regardless whether they’re actually clueless or simply overwhelmingly outnumbered by corruption.

Investors might see JTI as an unattractive stock due to gloomy earnings but should the dividend yield continue with the downtrend, the stock price is expected to goes down in tandem with it as well. Therefore the stock is still attractive but I’m interested to see if the stock could be whacked to the RM3.60 again.

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There was activity because the board have decided on a capital repayment exercise of RM0.50. The MD let it slip on 28/4 after the AGM.

A few merchant banks have been approached by them for fee quotation for cap repayment exercise.

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