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? BCorp explains on sports betting... Berjaya Corp held an analyst briefing to explain in more detail the circumstances surrounding the abortion of the sports betting deal. Tan Sri Dato’ Seri Vincent Tan Chee Yioun (TSVT), who chaired the meeting, continued to stress that the Government had backtracked on its decision to issue the licence despite having granted its approval for the reissuance. This appeared to be backed up by a letter issued by the Ministry of Finance dated 13 Jan 2010. Besides this letter, the original letter from the MOF dated 5 June 1990 which stated that Ascot Sports would have the first right of refusal should the Government change its mind about legalising sports betting in the country again was also sighted.
? …and on other developments. Now that the sports betting deal is aborted, TSVT was asked about his plans for BCorp. TSVT mentioned the
retail division (under the soon-to-be-listed Berjaya Retail) and the food division (which has been submitted for listing) as the divisions which will see exciting developments in the medium term, while the gaming division could also see new developments in Vietnam (under BToto) and Jeju Island in Korea (under Berjaya Land) in the longer term.
? Flattening of BToto ownership structure imminent? One surprising revelation made by TSVT was his intention to bring BToto closer to BCorp,
which we understand to mean flattening the structure by getting rid of the Berjaya Land layer. Currently, we note that BLand owns 43.5% of BToto, BCorp owns 53.8% of BLand and TSVT directly owns a 7.24% and 4.57% stake in B-Land and BToto, respectively. When asked about a possible privatisation of BToto, TSVT said that this was not an option, considering the large amount of funds required for a privatisation. However, TSVT mentioned that BCorp is now studying the various options available to achieve this objective. Whichever way this is done, impact to BToto is likely to be neutral, as it would only be a change of major shareholder.
? Possible higher dividend payout for BToto “very likely”. When asked about the possibility of higher dividend payouts from BToto in future, TSVT said that this would be “very likely”, although he would leave that up the BToto’s board to decide. Note that BToto already raised its dividend payout for FY10 to 93.3% (from initial guidance of 75%). In our projections, we have assumed BToto’s net dividend payout at a more conservative 80-85% for FY11-12, which would already yield a respectable 6-7% p.a..
? Risks. Main risks for BToto include: 1) Poor luck factor causing high prize payout ratios; 2) Regulatory changes for NFO industry to discourage gambling in the country or to allow competitors more outlets and more game variations; and 3) Hike in gaming taxes.
? Forecasts and Investment case. Our forecasts and Outperform call with DCF-based fair value of RM5.05 (WACC 9.8%) are unchanged.
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