DIGI

It is piling up cash faster than it can return it to shareholders. The mobile operator has paid dividends exceeding annual net profit in the past five consecutive years. Even so, it is still flush with cash and remains far from its optimal capital structure.

Digi has previously indicated that it would like to have 35% to 45% net borrowings on its balance sheet, which is equivalent to gearing of roughly 54% to 81%. However, as at end 2011 it had gross cash totaling rm1.52 billion and net cash of rm439 million. As such, expect the company will continue to pay out all of its earnings, at least, for the foreseeable future.

Limited by the amount of retained earnings in its balance sheet for the payment of dividends, DIGI proposed a second capital management initiative in April 2012 that will seek to refund rm495 million to shareholders. This comes hot on the heels of the first capital management exercise to distribute rm509 million announced in Sept 2011. It is currently in the process of implementing the first capital repayment and expects to disburse the second, which is pending regulatory approvals, at the latest by 1QFY2013.

Its depreciation is estimated to total some rm500 million to rm550 million for the full year but will taper off to less than rm100 million in 2013. Once the assets are fully written off, net profit will spike sharply higher.