BToto’s dividend yield remains attractive
Business & Markets 2014
Written by PublicInvest Research
Thursday, 17 April 2014 10:14
Berjaya Sports Toto Bhd
(April 16, RM3.83)
Maintain neutral with target price of RM4.12: We met up with the management of BToto for updates recently. With inflationary pressures eroding individual spending power, the local number forecasting operator (NFO) industry’s outlook remains challenging.
We are also unexcited by the prospects of Berjaya Philippines’ (BPI) recent acquisitions of HR Owen and RBW Holdings in the United Kingdom, as we do not see significant value accretion to the group by either company.
We understand from management that the group, together with other gaming companies, is still in negotiations with the government over the implementation of the GST in April 2015.
It has been proposed that the GST implementation be accompanied by a reduction in the gaming tax or betting duties, similar to the replacement of the sales and services tax. In the event of an unfavourable outcome (partial or no reduction of other taxes), the group will likely need to pass on the additional cost to punters, which will not help in the struggle to gain market share from illegal operators.
Due to the ongoing arbitration against the Philippines Charity Sweepstake Office (PCSO) for breaching its exclusivity clause to BPI’s wholly-owned subsidiary Philippine Gaming Management Corp (PGMC) in the Luzon area, installation of new terminals has been temporarily suspended.
On the bright side however, its rival Pacific Online has also stopped expanding in Luzon, maintaining a 16% market share in the area.
To recap, BPI acquired a 51% stake in London-based property company RBW Holdings for a cash consideration of £50,001 (RM272,552) in March. BPI also subscribed to loan stocks amounting to £300,000. We understand that RBW Holdings is currently a dormant company, and there are no clear plans for it in the near term.
TOTO
As for HR Owen, the group plans to take a more active role in managing the company, but the focus will continue to be in the existing UK market for now.
While dividend yield remains attractive at current price levels (around 6%), we maintain “neutral” on BToto with unchanged target price of RM4.12 based on dividend discount model valuations, as we believe there is a lack of catalysts amid the challenging outlook for the local NFO industry and the group’s overseas ventures. — PublicInvest Research, April 16