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

• 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)

Today's Market Preview (30-06-2010)

Green Packet - WiMAX embedded Intel chip is here!

Green Packet (RM1.00; Buy; Price Target: RM1.75; GRPB MK)
WiMAX embedded Intel chip is here!

In a full-page advertisement in The Star newspaper today, Intel introduces the arrival (in Malaysia) of its WiMAX-embedded processor, the Intel Core i5. P1, the WiMAX subsidiary of
GRPB, is a partner while Acer, Asus, Dell, Lenovo, MSi and Toshiba are the manufacturers of WiMAX-embedded notebooks/netbooks (WENB).

A phrase in the ad says “Why just WiFi when you can also WiMAX?” clearly states that the WENB also come with WiFi capability. We foresee WiMAX as a standard feature in future notebooks/netbooks, much like the path that WiFi took years ago. We also understand that WENB sold in Malaysia would be set to P1’s WiMAX service by default, though users have
the choice to change WiMAX operators on their own. This is not only a strong endorsement for P1, but also helps to channel subscribers to P1. The timing of this announcement is within our expectation (of mid-2010), and is positive for P1 and GRPB.

Meanwhile, our sum-of-parts price target of RM1.75 for GRPB is under review pending the official announcement and further detail of GRPB’s and P1’s tie-up with SK Telecom (SKT).
As mentioned in our earlier comment a month ago, the price target for GRPB could be lowered to c. RM1.60 due to the dilutive effect of SKT’s acquisition of c. 25% stake in P1. Nevertheless, our BUY call is intact.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)