The Edge Daily

Berjaya Sports Toto Bhd (Dec 21, RM4.20)
Maintain sell at RM4.20, target price at RM4.05: BToto is acquiring 20% of Berjaya Lottery Vietnam Limited (BVietnam) for US$2,000 cash (RM6,880) from Berjaya Corporation (BCorp), BToto’s controlling shareholder.

BCorp will retain 80% of BVietnam, which is currently dormant. The US$2,000 amount may be small, but the timing is poor given Vietnam's recent macroeconomic travails. Also, the rationale for BToto to take up this small stake was inadequately explained.

We would have been at least neutral, and perhaps even enthusiastic had this transaction been announced early last year. Vietnam then was perceived as a land of opportunity. However, the situation has reversed. While we believe in the long-term prospects of Vietnam, the current environment is difficult.

The deal structure also raises questions. BCorp will continue to dominate BVietnam with an 80% stake. Also, BToto's role in the joint venture beyond taking this 20% stake was not explained in its statement to Bursa Malaysia. Concerns that BToto will be saddled with the bulk of the funding needs of BVietnam will certainly be raised.

BCorp had applied in May 2008 for a nationwide Vietnam lottery licence. Optimists may suggest that this transaction indicates the application is near success. We caution that there will almost certainly be a gestation period. Neither the amount of capital investment required, nor returns expected, have been disclosed. Heavy investment could also mean that BToto's minimum 75% dividend payout policy may be altered.

In the meantime, BToto is losing market share on home ground. BToto was the only number forecast operator (NFO) to report revenue contraction in the latest result season. Both Magnum and Tanjong saw revenue growth. The uncertainties associated with BVietnam only serve to reinforce our sell call. We prefer Tanjong, which is trading at a cheaper price earnings (PE) and appears most likely to benefit from any further regulatory liberalisation. — Maybank Investment Bank, Dec 21