TH announced a competitive profit distribution of 3.1% for FY20, compared to 3.05% in 2019, to all its 9m depositors

by NUR HANANI AZMAN / pic by TMR FILE

LEMBAGA Tabung Haji (TH) is expected to declare a dividend of 3% or lower for 2021 as a declining fixed deposit rate during the year 2021 is likely to impact the quality of dividend announcement, says analyst. 

Putra Business School economic analyst Assoc Prof Dr Ahmed Razman Abdul Latiff said fixed deposits which make up 52% of TH’s investments could be affected due to the challenging environment that affected the Malaysian haj pilgrims fund board’s activities in various business portfolios such as real estate, plantation and oil palm and equities. 

“In addition, the declining performance of the equity market also caused TH to be more conservative in recording impairment on its assets subject to International Financial Reporting Standard or IFRS 9. 

“Although TH also has overseas investments that typically yield higher returns, the percentage of overseas investments TH is only around 5% which is not able to give a high boost to the overall performance of TH,” he told The Malaysian Reserve (TMR). 

TH announced a competitive profit distribution of 3.1% for the financial year ended Dec 31, 2020 (FY20), compared to 3.05% in 2019, to all its nine million depositors.

TH profit distribution rate is expected to be announced anytime in the first quarter this year.

TH depositors always had higher expectations on the dividend announcement as the group always maintained stronger payouts in the previous years.

Ahmed Razman forecasts TH to declare a profit distribution rate of around 3.1% for FY21 similar to FY20. 

TH may need about RM2.3 billion for that purpose (2021 payout). “If we look at the performance of TH’s profit distribution rate from 2007 to 2017, the percentage is always 5% and above it even reached 8.25% in 2014. 

But starting 2018, TH declared a profit distribution rate of only about 1.25% to 3.1% as a result of value depreciation and governance issues. 

“However, it hasn’t stopped depositors from hoping that TH’s profit distribution will return to the past years’ rates,” he said. 

Echoing the same sentiment, economic analyst Assoc Prof Dr Baharom Abdul Hamid said from returns of investment, the dividend is expected to range from 2.7% to 2.9%. 

“We have to look at it from three different angles, purely business, albeit sharing the profit that TH earned with depositors, from a socio-economic angle, looking through the background of depositors and considering the socio-economic impact, and finally looking from a political angle. 

“I believe TH’s portfolio has mixed results. TH did conduct restructuring of its investment portfolio, focusing more on domestic portfolios targeting government-linked companies,” he told TMR. 

While many depositors are aware of the pandemic impact on TH’s financial performance, others are arguing the haj fund management agency is capable of paying out higher dividends in view of the fact that it did not send pilgrims to Saudi Arabia in 2021. 

According to news reports, TH’s haj subsidies for pilgrims under-taking the haj pilgrimage usually amount to RM400 million each year. Will TH be able to declare a higher profit distribution rate this time around with the savings accrued from the cancellation of last year’s haj pilgrimages? 

“While some might look at it as savings, do not forget that it is also loss, in some form of ‘deposits’ and other sunk cost which is incurred by TH, actually it is left to be analysed which is bigger,” Baharom added. 

Ahmed Razman said although there are savings in pilgrimage subsidies of around RM400 million, but we must understand that the majority of TH’s investments are in the domestic market either in equity or real estate. 

“In 2021, the KLCI Index did not record positive growth and the real estate market is also still gloomy. So it inhibits the return on TH investment in 2021 and cannot afford to provide a higher rate even though TH does not need to cover high pilgrimage subsidies,” he said.