Berjaya Sports Toto Bhd (BToto, RM4.50) appears to be back in investors good graces. The stock price had climbed steadily, gaining some 17% over the past three months and 36% from a year ago. Indeed, we are seeing more positive analyst reports on the company of late. The most recent being excitement over its approval for a new betting game, called the I Perm.

This is surely a far cry from the beating the stock took midway through 2004, when questions were raised over its perceived lack of corporate governance. The company then made a big investment write down that included it absorbing past losses in a venture previously attributed to Berjaya Group. Long outstanding loans to its controlling shareholder company, Berjaya Land Bhd, were another issue for investors.

Inter-company loans close to resolution
But the latter, at least, seems close to resolution (although the deadline is now being extended for another year to August 2006) and is largely credited for the current revival in interest in it. To recap, Berjaya Land still owes the company some RM663.5 million.

It has proposed to dispose of some 350 million shares in BToto to raise funds for the repayment. The bulk of this is to be sold to another related company, Intan Utilities (at RM3.60 apiece excluding a 50 sen per share capital distribution). Berjaya Land will further dispose of more of its BToto shares to settle any outstanding balance before the deadline.
The market has responded positively to BToto’s plans to distribute much of the monies received back to shareholders. The shares will trade ex-entitlement for the first capital distribution of 50 sen per share Sept 14. A second round of capital repayment proposed — also about 50 sen apiece — should be implemented by early 2006.

High yield at attractive valuation
High-yielding stocks are currently in favour, due to the prevailing uncertain market outlook. So, the timing for BToto’s planned payout is good. In addition to the RM1 per share capital distribution, the company pays generous regular dividends. Its dividend policy promises a minimum 75% payout on annual net profits. In the past two years, actual dividends paid have far exceeded this ratio.

Prospect for the domestic-oriented gaming sector has remained positive. BToto delivered a solid set of results for the financial year ended April 2005. Turnover rose some 8%, boosted by ticket sales from four additional draws. Profits were also lifted by slightly lower prize payout ratio. Most expect the company will continue to do well in the current year.

We reckon earnings should grow to, at least 30 sen per share, which means the stock will trade at under 12 times multiple (after adjusting for the two capital repayments). That’s still an attractive valuation, especially taking into account its yield. Assuming the minimal 75% payout, shareholders should receive some 31 sen per share gross dividend. That translates into a yield of well over 8%.

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.