Lower EPF dividend expected due to weak equities

An expert says the estimated dividend rate ranges between 5.5% and 5.9%


THE Employees Provident Fund (EPF) is expected to declare a lower dividend for 2019, with experts forecasting a distribution of between 5.5% and 6.15%, largely dragged by the poor performance of the local stock market.

The benchmark FTSE Bursa Malaysia KLCI dropped more than 6% last year, making it among the worst among modern markets as foreign funds dumped stocks worth more than RM10 billion.

The country’s largest pension fund derives about 55% of its income from investment in equities, which contributed RM29.28 billion or 57.6% of its total income in 2018.

Foreign translation gains with the weaker ringgit could cushion the fund from a larger fallout as the world’s seventh-largest pension administrator seeks to become a RM1 trillion fund in less than two years.

Rakuten Trade Sdn Bhd VP of research Vincent Lau said the estimated dividend rate ranges between 5.5% and 5.9%.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid is more optimistic with a forecast matching last year’s rate.

The EPF last year announced a dividend of 6.15% for its conventional portfolio, amounting to a total payout of RM43 billion.

It declared a 5.9% profit distribution for its Shariah-compliant portfolio with a total payout of RM4.32 billion — bringing the total payout from the fund with more than 14.3 million members to RM47.31 billion in 2018.

The Institute for Democracy and Economic Affairs research manager in economics and business, Lau Zheng Zhou, described a 6% dividend distribution as “healthy”, taking into consideration the challenges last year.

“Given (its) exposure to Malaysian assets, the return is likely to be aligned with the local stock market performance, (maybe) slightly better but not too much.”

“The EPF is obviously accountable to depositors at the end of the day, but this doesn’t mean it has to announce high dividends just to satisfy the people as that would be quite irresponsible.

“The EPF has to judge what is the best dividend rate, given its past year’s performance and market expectations moving forward. Sustainability is as important,” Lau told The Malaysian Reserve.

The EPF would need about the same figure to declare a 6% dividend. Its investment income for the first nine months of 2019 has been lower year-on-year, with an income of RM9.66 billion (for the first quarter of 2019 [1Q19]), RM12.32 billion (2Q19) and RM13.5 billion (3Q19), bringing the total to RM35.48 billion.

With its 4Q19 income expected to experience the same downward momentum, a 6% dividend seems a little harder to accomplish.

The fund is expected to declare its dividend rate later next month. Eleven of its past 14 annual dividend announcements have been made in February, with exceptions in 2008 and 2009 when the rate was announced in mid-March.

Permodalan Nasional Bhd (PNB) last month announced an income distribution of five sen a unit and a bonus of 0.5 sen for Amanah Saham Bumiputera (ASB) for 2019, the lowest in the fund’s history.

Global turmoil, weak market environment and the ongoing US-China trade tensions had punished emerging-market equities, with Malaysia being one of the worst hit. PNB paid RM9 billion to more than 10 million unit holders of ASB.

The Bursa benchmark index was hovering about 7.2% lower before the year-end buying erased part of the losses.

The market is also waiting for Lembaga Tabung Haji to announce its profit distribution after kitchen sinking its books in 2018 to allow the fund to pay profit.

Almost RM20 billion was injected in an asset and equity swap exercise with a specially created vehicle to regularise the pilgrim fund’s financials.