Wednesday, 5 December 2012

Analysts say DiGi exploring a business trust structure

PETALING JAYA: Although detailed rules on business trusts in Malaysia are not out yet, DiGi.Com Bhd has already signalled that it is considering setting up such a structure, according to analysts who attended a luncheon briefing by DiGi on Monday.

“Management also does not rule out the possibility of exploring a business trust structure in the future although the details on such business trust structure has yet to be unveiled by the authorities at this juncture,” Kenanga Investment Bank Bhd analyst Cheow Ming Liang said in a report.

RHB Research Institute Sdn Bhd analyst Lim Tee Yang said DiGi might use a business trust as a means of paying more dividends and was currently studying it.

In general, a business trust is created when the company spins off its assets and places them under the responsibility of one party appointed as the trustee-manager. The trustee-manager will have legal ownership of the trust assets, and its role is to manage those assets for the benefit of the investors or unit holders.

A business trust could pay out distributions without being constrained by accounting profits, and, therefore, was able to distribute quicker returns.

Berjaya Sports Toto Bhd’s (BToto) had in June announced that it would spin off its subsidiary, Sports Toto Malaysia (STM), into a business trust and list it on the Singapore Exchange.

Alliance Investment Bank Bhd analyst Toh Woo Kim said DiGi highlighted that roughly RM750mil sitting under its payables was actually three years’ worth of Universal Service Provider payments that had not been collected by the regulator.

The telco’s payables also include a withholding sum that will be released to its vendors once certain key performance indicators for its network modernisation programme are met.

“Even adjusting for the payables, DiGi reckons that its balance sheet remains under-leveraged relative to peers. We understand that DiGi is currently studying the potential of business trust listing, although there is no firm decision on this matter yet,” said Toh.

Among other issues highlighted at the briefing are DiGi’s capital management, earnings, data revenue growth in 2013 as well as spectrum.

Cheow of Kenanga said DiGi had ruled out any active capital management moves in the near term. “While the handsome cash buffer has led to some market observers to speculate on a potential capital management exercise on the stock, DiGi’s management said it is unlikely to conduct any active capital management moves in the near term as it has to reserve 52% of its cash balance above (or RM750mil) to pay MCMC for the accrued liability of the USP fund.”

Lim of RHB said there were no new updates on the expected allocation of the long-term evolution (LTE) spectrum. It said the revenue opportunities from potential new services from having the LTE spectrum might be limited at first given that the industry was predominantly prepaid, instead of postpaid users willing to pay for data.

Toh said DiGi did not have any imminent merger and acquisition targets in the domestic market, although it seemed to be keen on getting more spectrums for network planning.

The company is not keen on WiMax given little support for the wireless technology globally. However, it is keen if the 2.3GHz spectrum (currently used for WiMax) could be re-farmed to be used for backhaul or even for LTE.

Cheow said DiGi indicated that its upcoming fourth-quarter results could still potentially suffer from the “lost revenue opportunities” due to the effect of its current ongoing network modernisation.

Nevertheless, Kenanga said management was still reiterating its earnings guidance for the financial year ending Dec 31, 2012 (FY12), which was targeted to record a mid to high single-digit revenue growth with a 46% earnings before interest, tax, depreciation and amortisation (EBITDA) margin.

“For FY13, the group’s ambition is to continue to outgrow its industry peers in terms of revenue growth. DiGi believes that the industry’s revenue growth will still be at around 5% and the group can deliver a higher growth of 5%-7% with a sustainable EBITDA margin similar to that of FY12.”

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