BToto has proposed to transfer its Malaysian NFO business,
which was valued at RM6.0b, to form a Business Trust and list it in Singapore.
Although shareholders are expected to receive a special dividend (c.49sen) in
the near term, we view the deal negatively as BToto could face dividend cut and
a de-rating, where its valuation will fall from RM4.52/DCF share to RM4.25/SOP
share. We see a floor value of RM3.87/share, which implies a 10% holding
company discount to its SOP. In addition, the unit prices of most of Business
Trust companies listed on SGX-ST had performed poorly since their listing.
Thus, to spin off the NFO and to list it as a Business Trust may not be a good
idea. As such, we are downgrading BToto to an UNDERPERFORM with a new TP of RM3.87/share.
SWITCH to MPHB (OP; TP: RM3.72).
To spin off jewel
business. Yesterday, Berjaya Sports Toto Bhd (BToto) announced a
proposal to spin
off its core
business, namely Sports
Toto Malaysia Sdn Bhd (STM), to
form a business trust known as Sports Toto Malaysia Trust (STMTrust), for
RM6.0b, and will be listed on the Main
board of the Singapore Exchange Securities Trading Ltd (SGX-ST) by mid-Nov this year. Upon listing, it will raise c.RM1.24b
from the exercise and BToto’s effective stake in the NFO business will fall to
79.5% (in STM-Trust) from 100% (in STM) previously.
Valuation on NFO
business is fair. While the unit price for STM-Trust has yet to be
determined (via a bookbuilding exercise), the RM6.0b price tag for STM is fair
and well within our estimated DCF value of RM5.8b. Under the proposal, the
RM6.0b consideration will be satisfied via 1) the issuance of 4.43b units of
STM-Trust to BToto’s indirect wholly-owned Berjaya Sports Toto (Cayman)
Ltd (BToto Cayman) for a total value of SGD2.21b (c.RM5.47b) at an issue
price of SGD0.50 and 2) the balance SGD213.4m (c.RM527.4m) by way of a
promissory note or bill of exchange to BToto.
To raise RM1.24b from
listing exercise. The proposed
listing will involve 1) the issuance of up to 460.0m new STM-Trust units and 2)
an offer for sale/placement by BToto Cayman of up to 540.0m STM-Trust units.
That said, based on the indicative issue/offer price of SGD0.50/unit, BToto
would raise c.RM667.4m from the offer for sale/placement that could be
distributed as a special dividend
(c.49sen/share) to shareholders while the new issuance units, which would
raised c.RM568.5m, would be utilised for payment to STM (to discharge the
promissory note or bill of exchange), listing expenses and working capital
purposes.
Short term gain, long
term pain! We view the deal negatively as the valuation of BToto is poised
for a de-rating under such a proposal. While a c.49sen special dividend is
probable in the near term, the valuation of BToto will immediately fall to RM4.25/SOP
share from RM4.52/DCF share. Post-corporate exercise, BToto’s valuation
will decline to
RM3.38/share on a
10% discount to
SOP for being
an investment holding company, assuming the value of STM-Trust remains
at RM6.0b. In addition, data from Bloomberg showed that most Business Trust
companies listed on SGX-ST had performed poorly. Thus, to spin off
STM and list
it as Business
Trust in Singapore may not be value-accretive to BToto, in our view.
Cut to UNDERPERFORM.
BToto’s FY13-FY14 EPS and GDPS are set to fall by c.9% and c.20% respectively
as its effective stake in the NFO business falls to 79.5%. We now value BToto
at a floor value of RM3.87/share (a 10% holding company discount to its SOP
valuation plus a potential 49 sen special dividend) from RM4.52/DCF share previously.
At RM3.87/share, the stock is valued at
CY13 12.8x PER, which is still higher than that of 11.7x of Multi-purpose Holdings Bhd (“MPHB”, OP; TP: RM3.72).
As such, we are downgrading BToto to an UNDERPERFORM from a MARKET PERFORM.
SWITCH to MPHB.
Source: Kenanga
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