Business

Thursday October 29, 2009

DiGi to pay 80% of earnings as dividends compared to 50% currently

By RISEN JAYASEELAN


SHAH ALAM: In a move read by some as a reaction to Maxis Bhd’s impending listing, DiGi.Com Bhd said it will pay out at least 80% of its net earnings as dividends from next year onwards. This brings its dividends payout policy – from 50% currently – closer to Maxis’ 75% of net profits.

If special dividends and capital repayments are included, both telecommunication companies have typically surpassed paying out more than 100% of net earnings, making them both high dividend yielding stocks.

Johan Dennelind... 'We want to be able to ramp up investments.'

DiGi also announced a 75 sen special dividend per share, bringing its total payout for the year to RM1.24 per share, giving it a yield of 5.9% at current prices. (This excludes any final dividend payment, which would raise its dividend yield further.)

Recently, StarBiz reported that Maxis will likely pay out more than 85% of net earnings (above its stated policy of 75%) once it is listed, as it will have sufficient cash flows to do so.

DiGi also said it will raise more debt to “better work its balance sheet.” Such funds will be used for capital expenditure and repayments to shareholders.

“We are committed to improving capital management all the time and to reach an optimal balance sheet position. DiGi is still charting growth with a strong operational cash flow and balance sheet. Returning excess cash is part of our effort to provide sustainable long-term yields to our shareholders,” DiGi chief executive Johan Dennelind told StarBiz.

DiGi’s operational cash flow amounted to RM321mil for its third quarter ended Sept 30.

DiGi has a net debt position of RM200mil, which is small compared with its huge annual cash flows. Its net debt to earnings before interest, income tax, depreciation and amortisation (ebitda) ratio is only 0.12 times.

Maxis on the other hand, plans to raise RM5bil in debt, which will give it a net debt to editda ratio of around 2 times. Even that is not high, as it is considered to be at an optimal level for a company like Maxis.

Considering that DiGi’s operations are very similar to that of Maxis, this gives DiGi ample room to raise more debt.

Dennelind, however, declined to specify a target debt ratio for DiGi. “This gives us some flexibility as we don’t want to be tied down by a number. We want to be able to ramp up investments in our business if opportunities arise,” he said.

DiGi chief financial officer Stefan Carlsson added that the company would be “moderately geared. We will not gear up aggressively.”

Dennelind added that DiGi’s investment strategy had not changed. “We want investors looking for strong yields from a company that has a track record of execution in the mobile market. We also see growth in this market in all segments,” he said.

DiGi estimates it will spend around RM700mil in capital expenditure this year, with the bulk of this on its 3G network. Carlsson said the capex for next year would be around the same.

DiGi’s third quarter net income rose 4% to RM244.1mil quarter-on-quarter, although it was a drop of 9.6% from a year earlier.

DiGi said that competition in 2010 would intensify and that there would be further pressure on its ebitda margins, DiGi reported that its ebitda margins had been slightly affected by rising bad debts from customers and costs involved in expanding its 3G business.

However, it was confident the margin pressures would be partly offset by an ongoing cost efficiency programme that includes targeted advertising, reduced travel and other staff costs. To date, DiGi has achieved gross savings to the tune of RM110mil.

DiGi also added 163,000 new customers in the quarter and still enjoyed a healthy ebitda margin of 43%.


DIGI : [Stock Watch] [News]

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