Berjaya Sports Toto - Making an acquisition? Hold

- Trading in shares in Berjaya Sports Toto Bhd (BST) has been suspended from 9.00 am to 5.00 pm, on 5 June 2012. 

- According to the Bursa Announcement, BST intends to make an announcement on a transaction, which would result in certain percentage ratios stipulated under paragraph 10.02 (g) of the Main Market Listing requirements of Bursa Malaysia, exceeding 25%.

- Amongst many others, paragraph 10.02 (g) of Bursa Malaysia’s listing requirements relates to a transaction, which has a figure of 25% resulting from (1) value of the assets in the transaction relative to the net assets of the issuer, (2) aggregate value of the purchase or disposal consideration relative to the company’s net assets and (3) aggregate value of the purchase or disposal consideration relative to the company’s market capitalisation. 

- Based on these, we believe that BST would be making an acquisition. We wonder if BST would be making an acquisition in Philippines or in another country. According to a previous news report, BST was rumoured to be acquiring Philippines Charity Sweepstakes Office.

- Apart from the NFO assets in Malaysia, BST has a 90.2% stake in Berjaya Philippines Inc and a subsidiary in U.S.A, which supplies lottery systems. 

- We wonder if BST would be privatising Berjaya Philippines Inc. We estimate that the privatisation exercise would cost RM153mil based on Berjaya Philippines’ closing price of Peso25.00/share. BST’s gross cash stood at RM451mil as at end-April 2011.

- Currently, BST’s operations in Philippines account  for only 4% of the group’s revenue. However due to its high margin, Berjaya Philippines accounts for 15% of BST’s profits. 

- We estimate that 100% ownership of Berjaya Philippines would increase its contribution to BST’s net profit by only one to two percentage points.    

- We maintain a HOLD on BST. The group’s dividend yield is decent, forecast at 7.3% for FY13F.  

Source: AmeSecurities