For me, it's damn impressive.
There is a slight concern on what the CEO said yesterday.
Posted on Star
- Monday December 1, 2008
DiGi weighs funding needs
By B.K. SIDHU
It is to part finance capex of RM1.3bil next year
DIGI.COM BHD will need to go to the debt market next year to get some funding for its capital expenditure of up to RM1.3bil next year, says chief executive officer Johan Dennelind.
“We could do with some debt but we are still evaluating the type of borrowing we need. It would be a small part of the total funding requirement for 2009. Our guidance for our next year’s capex is RM1.1bil to RM1.3bil,” Dennelind said in an interview.
“From a capital management point of view, we can afford some leverage but we do not want to take on too much debt and put our balance sheet at risk, so that is why the portion would be small,” he said.
Dennelind said DiGi’s cashflow was still strong and that it was better to use it than sit on it. Its cash reserves at end-September was RM512mil while debts stood at RM200mil.
DiGi also has an existing RM700mil credit facility that it has not drawn down.
This year, the company’s capex is RM930mil.
DiGi needs funds to roll out its 3G-based services so that it can offer a whole gamut of new voice, video and data-based services.
The cellular operator is a latecomer to 3G offerings but Dennelind believes the company’s 3G offerings are “worth waiting for,” promising user experience which will be totally different from current offerings.
Expansion may be on the cards but analysts are concerned about the sustainability of DiGi’s aggressive dividend payments as growth in the telecommunications industry slows in tandem with the economic slowdown.
DiGi has dished out annual dividends and three special dividends, which totalled RM4bil over the past 3½ years.
“We think this pace of dividends may not be sustainable in the long term. For one, 25% of the dividends are paid out of existing cash balances. At the current cash burn rate, DiGi will turn negative net cash in the first half of 2009 and reach 40% debt-to-assests by the first half of 2010,” an analyst said.
Dennelind could not say if another special dividend was in the offing, but gave an indication of what was to come.
“We have over-delivered on our dividend policy. We are heading for an optimal structure and not going to leverage up. We will find a good balance by managing risk, our cashflow and shareholder value,” he said.
The economic slowdown has already resulted in lower voice traffic even though data traffic is on an uptrend.
And while additional revenues from data traffic can offset the fall in voice traffic, margins will be under pressure.
Nevertheless, Dennelind remains bullish that DiGi can grow its market share even in a slowdown. To him, DiGi provides good value even during tough times.
“The slowdown has not impacted us in the third quarter and we are generally on track for our fourth-quarter estimates. Otherwise, we will issue a profit warning,” Dennelind said.
For the third quarter ended September, DiGi saw its net profit sliding to RM269.94mil from RM273.28mil a year earlier, despite posting a higher revenue of RM1.22bil.
The lower net profit was due to higher traffic costs, advertising and promotional activities.
ps: DiGi reports its earnings this month.
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