BERJAYA SPORTS TOTO ---BUY

FROM ECM LIBRA
Supplies lottery system to related party GAMING
· News
Berjaya Sports Toto Bhd (BToto) yesterday announced that International
Lottery & Totalizator, Inc (ILTS), an indirect subsidiary, entered into a
Purchase Agreement with Natural Avenue Sdn Bhd (NASB), a 65%-
owned subsidiary of Berjaya Assets Bhd (BAssets).
Under the agreement, ILTS will sell a lottery system comprising on-line
lottery terminals, central systems hardware, software and project services
for a total cash consideration of US$3.2m (RM12.67m). ILTS is a leading
supplier of computerized wagering systems for the online lottery and parimutuel
racing industries.
NASB is acquiring the lottery system to replace its existing 14-year old
betting system which has limited capacity.
The proposed sale is expected to be completed by 2H10. The cash
proceeds from the sale will be used by ILTS for working capital. (Bursa)
· Comments
We are neutral on this development given that while the proposed sale is
a related party transaction (RPT) since they share a common major
shareholder in Berjaya Corporation Bhd, the amount involved is relatively
small.
We note that BAssets has a gaming operation via NASB, which runs a
number forecasting operation in Sarawak. NASB’s gaming operations
contributed about 68% of BAssets total revenue in FY09.
As we expect minimal to BToto’s earnings, we have maintained our
earnings forecast. We reiterate our BUY call on BToto with a DCF-derived
(WACC: 7.5%, g: 2%) target price of RM5.30. Risks include (1)
intensifying competition from alternative jackpot games (2) higher than
expected prize payout and (3) lower than expected dividend payout ratio.