A number of companies listed on the Indonesia Stock Exchange (IDX) have already announced their dividend pay-out ratios for 2015. Ten companies set the pay-out ratio for 2015 below the pay-out ratio in the preceding year. It is assumed that these firms cut back on dividend payments to shareholders in order to have more working capital and room for capital expenditure and investment as the Indonesian economy is expected to accelerate in 2016 with a GDP growth pace of 5.3 percent (y/y). Amid this improving macroeconomic context, these firms prefer to invest for further business expansion.
Most likely cutting back on dividend payments in 2015 is decided upon by the management of these companies in order to increase the companies' working capital. As interest rates in Indonesia are on the decline (Bank Indonesia having cut the country's benchmark interest rate by a combined total of 75 basis points in the first three months of the year) these companies are more likely to finance investment on business expansion through a bond issuance or through a bank loan.
Lowering the dividend pay-out ratio does not come without risks. Investors prefer to receive a higher dividend payment and may feel tempted to sell the shares when the ratio is cut. However, depending on the sector and specific context of the company, investors' response will vary. For example, given the current environment it is a lot riskier for a coal mining company to lower dividend payments compared to a company engaged in the consumer goods sector as forecasts for coal mining remain weak, while household consumption in Indonesia is set to rise supported by improving purchasing power amid (expected) accelerating economic growth. As such, if a company in the consumer goods sector decides to cut back on dividend payments in order to have more funds for business expansion, this decision should impact positively on the share price on the medium term.
But taking into account the sector only is not enough. Adaro Energy, one of Indonesia's leading coal mining companies, drastically cut its dividend pay-out ratio for 2015. However, its shares may still be appealing to investors because the company is one of the operators of the USD $4 billion Batang plant in Central Java, a 2 GW coal-fired power plant that is scheduled to start operations in late 2019. Construction of this plant had been delayed for a long time due to land acquisition issues. Last month, however, Indonesia's Supreme Court ruled in favor of the operators hence paving the way for the start of construction.
Companies that Announced to Cut Dividend Pay-Outs in 2015:
per Share (IDR)
|Baramulti Suksessarana||$0,0019||2.37||$15 million||59.00||56.88|
|Bank Woori Saudara Indonesia 1906||8||0.64||40,578 billion||18.37||13.30|
|Bank Pembangunan Daerah
Jawa Barat dan Banten
|Bank Rakyat Indonesia||311,66||2.83||7.69 trillion||30||30|
|Millennium Pharmacon International||3||3.45||2.18 billion||-||18.34|
|Gowa Makassar Tourism Development||45||0.61||4.56 billion||5.41||3.84|
|Bank Negara Indonesia||122,53||2.43||2.26 trillion||25||25|
|Bank Yudha Bhakti||1.48||0.65||3.73 billion||-||15|
|Ciptadana Properti Ritel
|Adaro Energy||$0,0011||2.35||$35.2 million||42.4||19.5|
Source: Bisnis Indonesia