Berjaya Sports Toto, Raising debt = bumper dividends?
Berjaya Sports Toto (BST) has received the approval from Securities Commission to undertake a medium-term note (MTN) programme of up to RM800m (tenure may range between >1 to 10 years). The initial drawdown will likely be around RM500m, which proceeds will be used to refinance its remaining RM450m debt and for working capital.
BST’s net gearing has improved from 174% in 1QFY10 to 43% in 4QFY10. Its last debt raising exercise was mainly to finance bumper dividends declared in 4QFY09 (final dividend of 11 sen + advance FY10 interim dividend of 19 sen), in preparation for potential exercise of a put option for early redemption by parent Berjaya Land’s bondholders. BST has just declared a 8 sen second interim dividend in 4QFY10, which works out to ~RM107m. We do not discount the possibility of surprise bumper dividends as Berjaya Land’s RM711m convertible bonds will be due in Aug 2011.
On a worst case scenario, the initial RM500m MTN drawdown will increase net gearing to 155% and interest expense by RM25m (assuming 5% interest rate) or 5% of FY11 net profit. But the actual impact should be much lower as some existing debt will be refinanced, while repayment should be fairly quick given BST’s strong operating cashflows of RM400-500m p.a.
Maintain Buy on BST, and our TP of RM4.80, based on dividend discount model.
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)
BST’s net gearing has improved from 174% in 1QFY10 to 43% in 4QFY10. Its last debt raising exercise was mainly to finance bumper dividends declared in 4QFY09 (final dividend of 11 sen + advance FY10 interim dividend of 19 sen), in preparation for potential exercise of a put option for early redemption by parent Berjaya Land’s bondholders. BST has just declared a 8 sen second interim dividend in 4QFY10, which works out to ~RM107m. We do not discount the possibility of surprise bumper dividends as Berjaya Land’s RM711m convertible bonds will be due in Aug 2011.
On a worst case scenario, the initial RM500m MTN drawdown will increase net gearing to 155% and interest expense by RM25m (assuming 5% interest rate) or 5% of FY11 net profit. But the actual impact should be much lower as some existing debt will be refinanced, while repayment should be fairly quick given BST’s strong operating cashflows of RM400-500m p.a.
Maintain Buy on BST, and our TP of RM4.80, based on dividend discount model.
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)
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