Berjaya Sports Toto - Dealt Another Blow
FULLY VALUED RM4.22 (Downgrade from Buy)
Price Target : 12- month RM 4.00 (Prev RM 4.80)
Reason for Report : Corporate Update
Potential Catalysts: Strong growth for 4D and lotto games; award of Vietnam NFO licence to associate
Pool betting duty raised to 8% from 6%, from Jun10
Higher gaming tax. The government has recently turned hawkish on the gaming sector, due to political pressure and urgent need to source for income to narrow the widening budget deficit (although impact to government’s coffers will be small). After last week’s retraction of sports-betting licence granted to Ascot Sports (supposed to be injected into related party Berjaya Corp with BST acting as distribution agent), pool betting duty for NFOs has been raised to 8% from 6% (on net gaming revenue) effective 1 Jun 2010. The last gaming tax hike was in 1998 (from 7% to 8% of gross revenue), while pool betting duty was standardized to 6% from 6-12% in 2003. Higher gaming tax could lead to less attractive prize payout which would encourage punters to switch to illegal operators. NFOs could end up with lower revenue and margin compression.
Downgrade to Fully Valued, TP cut to RM4.00. We estimate the pool betting hike will reduce BST’s FY11-13F earnings by 12-13% (yet to factor in potential lower payout and loss of market share to illegal operators). This will bring down our valuation (based on dividend discount model) by 14% to RM4.00. Least affected NFO will be Tanjong (2-4%) as gaming only contributes 21% of EBIT.
Potential bumper dividends could provide some support. BST may declare higher dividends (but on weaker earnings) to help parent Berjaya Land finance the repayment of RM711m convertible bonds due in Aug 2011. This will be supported by its new RM800m medium-term-notes program (expected to draw-down initial RM500m by end- 10 to refinance debts and for working capital). We have only assume 75% payout (based on BST’s dividend policy).
Analyst
Yee Mei Hui +603 2711 1332
meihui@hwangdbsvickers.com.my
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)
Price Target : 12- month RM 4.00 (Prev RM 4.80)
Reason for Report : Corporate Update
Potential Catalysts: Strong growth for 4D and lotto games; award of Vietnam NFO licence to associate
Pool betting duty raised to 8% from 6%, from Jun10
- 12-13% impact to FY11-13F earnings
- But potential support from bumper dividends
- Downgrade BST to Fully Valued (from Buy), TP cut to RM4.00 (from RM4.80)
Higher gaming tax. The government has recently turned hawkish on the gaming sector, due to political pressure and urgent need to source for income to narrow the widening budget deficit (although impact to government’s coffers will be small). After last week’s retraction of sports-betting licence granted to Ascot Sports (supposed to be injected into related party Berjaya Corp with BST acting as distribution agent), pool betting duty for NFOs has been raised to 8% from 6% (on net gaming revenue) effective 1 Jun 2010. The last gaming tax hike was in 1998 (from 7% to 8% of gross revenue), while pool betting duty was standardized to 6% from 6-12% in 2003. Higher gaming tax could lead to less attractive prize payout which would encourage punters to switch to illegal operators. NFOs could end up with lower revenue and margin compression.
Downgrade to Fully Valued, TP cut to RM4.00. We estimate the pool betting hike will reduce BST’s FY11-13F earnings by 12-13% (yet to factor in potential lower payout and loss of market share to illegal operators). This will bring down our valuation (based on dividend discount model) by 14% to RM4.00. Least affected NFO will be Tanjong (2-4%) as gaming only contributes 21% of EBIT.
Potential bumper dividends could provide some support. BST may declare higher dividends (but on weaker earnings) to help parent Berjaya Land finance the repayment of RM711m convertible bonds due in Aug 2011. This will be supported by its new RM800m medium-term-notes program (expected to draw-down initial RM500m by end- 10 to refinance debts and for working capital). We have only assume 75% payout (based on BST’s dividend policy).
Analyst
Yee Mei Hui +603 2711 1332
meihui@hwangdbsvickers.com.my
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)
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