The Asian universe of income stocks is witnessing a wave of positive dividend surprises in 2013. The market has generally reacted favourably to this theme and we expect the trend to continue as dividend per share growth has lagged earnings per share revisions since 2011. With capital expenditure intensity falling for the Asian universe and corporate balance sheets in the region remaining strong, we believe the environment is ripe for further positive dividend surprises.
Source: Datastream, CLSA Asia-Pacific Markets, March 2013. Data rebased to 100.
Investments in this region continue to benefit from positive share price reactions, driven by rising dividend payout ratios and continuing strong operational trends. We also believe that valuations for dividend growth companies remain at appealing levels. Two examples of stocks that have provided dividend surprises are property developer Wharf Holdings and technology firm Asustek Computer.
Wharf Holdings focuses on property and infrastructure development and investment in Hong Kong and mainland China. The company’s 2012 fiscal year (FY) results revealed a 55.7% dividend per share increase, year-on-year, which was significantly above consensus estimates. At an operational level, strong retail sales are continuing to drive the Hong Kong business and in China contract sales are expected to increase by up to 33% in 2013. Despite a rise of 85% in the price of the stock over the last 12 months, we believe the valuation is still attractive as it trades at a significant discount to its net asset value and on a price to book ratio below one.
Asustek is a leading technology company in Taiwan that designs and develops electronic-based products including PC components, such as motherboards, notebook computers and smartphones. FY 2012 dividends per share increased by an impressive 31% to 19 New Taiwan (NT) dollars, when many of its technology sector peers do not pay a dividend. Meanwhile, the company recently raised NT$4.66bn (US$158m) from the part sale of its shareholding in Pegatron, its former motherboard and graphics card subsidiary. The firm was spun-off in 2010 to increase Asustek’s competition with the likes of Dell, Hewlett Packard and Intel. The proceeds from the disposal, which takes Asustek’s stake in Pegatron to below 20%, could be returned to shareholders in the form of dividends.