Published October 30, 2009

Digi surges on special dividend

By S JAYASANKARAN
IN KUALA LUMPUR

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SHARES of Malaysian mobile phone services provider Digi.com jumped over one per cent to RM21.72 on news that the firm planned a special dividend of 75 sen a share after it posted respectable earnings for its third quarter.

Digi is Malaysia's third largest cellular operator - after Maxis and Celcom - but it is no slouch when it comes to growth or rewarding shareholders.

Over the last two years, Digi's dividend payout ratios have been in excess of 100 per cent. This year, it could reach 122 per cent which isn't unexpected given that its largest shareholder is Norway's Telenor Group with a 49 per cent interest. At current prices that translates to a yield of 8 per cent.

The higher than expected dividend payout mirrors a trend that first began in the early 2000s when listed Malaysian companies began returning cash back to shareholders.

Previously, Malaysian corporates, with the exception of foreign owned ones, were notorious for miserly dividends. Today, the Malaysian bourse ranks among some of the highest dividend payouts in the region.

The telecommunications firm can maintain these payout rates quite comfortably. It has free cash flows of RM1.2 billion (S$489 million) while its gearing is 13 per cent, way below its local peers.

On Wednesday, the firm reported earnings of RM244 million for the third quarter of 2009, 4 per cent higher than the previous quarter. That brought its nine-month figure to RM754 million, a decline of 12 per cent year-on-year but not really unexpected given the economic slowdown. Even so, its subscriber base grew 9 per cent over the previous year to 7.4 million. That included some 200,000 3G service subscribers and 25,000 mobile broadband users.

Moreover, the firm launched its broadband services only in March. Analysts have described the Malaysian market as near saturated but Digi's performance in this regard would seem to contradict this.

Digi's ability to attract new users would also seem to buttress what Sandip Das, the chief executive of Maxis, said on Wednesday during the launch of Maxis's prospectus for its initial public offer. Mr Das said that the new pillars of growth were three fold - new young users owing to demographics, data services and mobile broadband services.