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Due to their sensitivity to travel demands, we note that the
aviation and retail sectors are likely to be two of the sectors
first affected by the coronavirus outbreak.
Payouts from APAC airlines are expected to decrease by around
21% to USD 1.4bn in 2020.
We see limited impact on the dividends from the cosmetics
companies, supported by various factors such as diversified revenue
base and conservative dividend guidance.
The global spread of the coronavirus has disrupted supply
chains, travel plans and prompted governments to trim their
economic growth expectations. While some companies signal that it
is still too early to determine the impact of the epidemic, we are
noting that aviation and retail are likely to be two of the sectors
first affected by the outbreak.
Over the past two months, countries have discouraged
non-essential traveling to hotspots and imposed travel restrictions
to and from certain regions. Dark clouds hang over retailers as the
lack of tourists is likely to cause shops to struggle, exacerbated
by the increased number of people staying indoors as a
precautionary measure. Retailers that are reliant on Chinese
tourists have felt the pinch; we note that some companies have
reported a slump in sales during the Chinese New Year period.
Dividends from airlines set to fall for another
year
The softening demand for travel in the wake of the coronavirus
outbreak has prompted many airlines to either suspend or cut their
flights to Mainland China. It is reported that the International
Air Transport Association is expecting air travel to fall for the
first time in recent years and the epidemic could result in a loss
of USD 30bn in revenue for airlines in Asia. Indeed, airlines have
announced pay cuts and are requesting that employees to go on
unpaid leave, underscoring the challenges faced by the industry
amid the contagion. The precarious outlook is exacerbated by
airlines engaging in price wars as they attempt to maintain their
market share.
Given that airlines typically adhere to performance-linked
dividend policies, we expect the stark earnings prospects over the
short term to translate to either flat or lower dividends for most
of the flag carriers under our coverage. We expect aggregate
payouts from airlines in APAC to decrease by 20.7% to USD 1.4bn
this year. This is mostly attributed to the dividend suspension
from Cathay Pacific Airways and the expected slash in dividends by
Singapore Airlines as they are among the big payers and therefore,
have an influence on the dividend trajectory.
Limited impact on cosmetics players
Cosmetics is the first in the retail sector to feel the hit from
reduced inflow of Chinese tourists and resellers in South Korea and
Japan. In addition to the sales made from subsidiaries located in
China, the purchase made by Chinese tourists and resellers across
various offline channels such as duty-free shops and flagship
stores in Japan and South Korea are estimated to account for a
significant portion of their revenue. It is reported that 70 to 80%
of Chinese visitors to Japan purchase cosmetics and foreign
visitors account for 10-20% of Japanese cosmetic makers' domestic
sales. In the same vein, 95% of Chinese visitors to South Korea
purchase cosmetics and cosmetics took up 61.3% of FY19 H1 combined
sales of duty-free stores in South Korea.
Amidst growing uncertainties on the performance outlook of
cosmetics players, we are seeing limited impact on dividends at
this point. Indeed, some companies have indicated that it is too
early to quantify the financial impact on their businesses, as we
are only at the quarter mark of FY20 and majority of them
distribute dividend only in mid or end of year. Elsewhere, we also
note that the cosmetic makers are employing various strategies such
as leveraging their diversified product lines and reinforcing
online sales channels to mitigate the impact of reduced inflow of
Chinese consumers.
This is reflected by the upbeat sentiment maintained in FY20
earnings outlook. While changes in the projected earnings over the
past month (late Jan-Feb), which signals the market sentiment on
the potential impact of coronavirus on their earnings, are mostly
negative, the overall FY20 earnings outlook of major Korean and
Japanese cosmetic makers remains largely optimistic with
double-digit growth ahead.
To access the report, please contact
dividendsupport@ihsmarkit.com
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