PETALING JAYA: DiGi.Com Bhd, a company favoured for its attractive dividend payouts, is confident of maintaining its free cash flow levels despite tougher economic conditions and investments in broadband this year. Hence its ability to pay out dividends is virtually intact.

“We are committed to maintaining last year’s free cash flow levels of RM1.28 billion. We might (even) revise upwards our capital expenditure (capex) later in the year if we see the need to do so, but at the moment we don’t see the need to spend more than last year’s capex (RM892 million) this year. Cash flow is expected to be higher or equal to last year’s,” said its chief executive officer Johan Dennelind in an interview recently.

DiGi previously guided this year’s capital expenditure to be between RM1.1 billion and RM1.3 billion. But now the spending is expected to be between RM200 million and RM400 million less.

If DiGi succeeds in its attempt to maintain the same level of cash flow this year, it would be in the position to maintain its dividend payout in absolute terms.

DiGi’s dividend policy is to pay out at least 50% of its net profit, Dennelind said, but added that investors familiar with the company know that it has consistently been paying in excess of 90% of its profits in recent years.

DiGi paid 188 sen in dividends last year, translating to an 8.9% gross yield at its RM21.10 close yesterday.

Dennelind acknowledged the possibility of DiGi’s earnings being impacted by the slowing economy, specifically on the reduction in spending power in segments such as foreign workers, adding that its market share in this segment was above average.

However, he reiterated DiGi’s commitment to managing and maintaining its free cash flow levels via prudent cost management from better procurement as well as improved network planning.

Contrary to expectations, DiGi would not be spending aggressively to woo broadband customers this year, opting instead to leverage on its existing subscriber base of 7.1 million.

“This year will be more about establishing ourselves. Next year is about bringing in the numbers. So, don’t expect enormous uptakes (in subscribers) or revenue on broadband this year,” he said at its broadband launch yesterday. DiGi would also target existing ADSL (fixed line broadband) and mobile broadband users “who are looking for alternatives”.

Broadband would start contributing to its top-line by next year and would only be significant in 2011, Dennelind said.

“Our long-term ambition is to be a key player in the broadband space. We are looking at being among the top three broadband players within the next three to five years with a third of this market. You’d probably have to give us about five years to get there. We can probably achieve that earlier if we do this well,” he said.

At the moment, there are three established broadband players — Telekom Malaysia Bhd, Maxis Communications Bhd and Celcom (M) Bhd.

There are at least three other smaller players, including Green Packet’s Packet-One or P1.

He added the broadband market was estimated to be worth “several billions” of ringgit annually in the next three years, but expects competition to remain rational.

“There is huge pent-up demand. Broadband penetration was only about 21.2% last year. There is a lot of room for growth and exciting opportunities,” he said.

Saying that DiGi intends to compete on network quality and good service instead of pure pricing, Dennelind added that the telco is prepared to give the best value, meaning it is willing to lower prices should there be a need to do so.

DiGi it has invested “close to RM100 million” to attain its current coverage in Damansara, Petaling Jaya, Subang Jaya, Sunway and Bangsar. It plans to invest RM300 million to RM400 million annually over the next three years on its 3G broadband rollout, but Dennelind declined to say how many households it plans to cover.

“We are planning no more than one thousand zones by year-end, about 30% of which are in the Klang Valley. There is pent-up demand everywhere but we don’t want to rush. We want to control our eagerness to take on customers and concentrate on providing good service.

“We want satisfied customers to tell others they’re happy with our service. We will disclose our subscriber base in 2Q09 even if we only have 10 subscribers to report,” Dennelind said, adding it would roll out its 3G broadband services for mobile phones later this year.

This article appeared in The Edge Financial Daily, March 20, 2009.