Digi is on track to complete its RM509m capital distributionplan in 1HFY12 but it may declare the amounts in tranches rather than the fullamount at one go. Going forward, Digi aims to declare a minimum of 17.5 sen DPSin FY12. The company's net cash stood at RM370m as of end FY11, way below its optimalcapital structure of 0.35x-0.45x net debt to equity ratio. Assuming Digi wereto gear up to 0.35x, it could potentially declare another 19.7 sen dividend.There is no change in our Digi FY12-FY14 forecasts for now. We are maintainingour Digi target price at RM4.15 with a MARKET PERFORM rating.  

RM509m (or6.55sen/share) capital distribution plan is on track to be completed in 1HFY12but may pay in tranches.  The companyhas announced that its redeemable preference shares (RPS) have been fullyredeemed by DigiTel on 7 March 2012. Upon completion of the redemption, Digiwill likely announce its book closure for the payment entitlement within weeksbut it may declare the amounts in tranches instead of the full amount at onego.              

Digi targets todeclare a minimum of 17.5 sen dividend in FY12.  A similar DPS amount was declared in theprevious financial year. We have earlier factored-in a 17.6 sen DPS in our FY12financial model, which translates to a dividend payout ratio and yield of 105%and 4.3%  respectively. Digi's net cash stood  at RM370m  as  of end  FY11,  which is  way  below its optimal capital structure of 0.35x-0.45x net debt to equity ratio. AssumingDigi were to gear up to 0.35x and reward shareholders accordingly, we expectthe group could potentially declare another 19.7 sen dividend. 

Maxis latest prepaidplan unlikely to trigger price war. Maxis has launched its all-in-oneprepaid plan, Hotlink Bagus, with five service categories namely voice calls,SMS, surfing, international direct dialling and roaming. The plan, which targets the IDD market, is unlikely tospark a price war in the industry given that the prepaid rates offered byMaxis' Hotlink Bagus are just to align it with the industry average rate.  

Network modernizationwill be the biggest challenge in 2012. Digi has started its network upgrading plan since December 2011 and thiswill continue throughout 2012. Management views its network upgrading plan asits biggest challenge for 2012 as the upgrade will result in users experiencingservice disruptions of up to 4 hours downtime per day over a period of 7 daysat areas where the upgrades will be taking place.  The company has 5k base stations in thenation and it targets to upgrade an average of 400 sites per month. Uponcompletion, all its network sites will be LTE-equipped and ready to deliverfibre-like speeds to support its upcoming LTE services. We understand that thecompany has already completed its network upgrades in certain areas of ShahAlam, Petaling Jaya, Klang and Kuala Langat in early March.

Source: Kenanga