- Berjaya Sports Toto’s (BST) unit Philippine Gaming Management Corporation (PGMC) has entered into an agreement with the Philippine Charity Sweepstakes Office to extend its gaming concession agreement from 22 August 2015 until 21 August 2018 pending the resolution of the exclusivity of rights.

- BST owns 88.3% of Berjaya Philippines, which in turn owns PGMC.

- We view the extension positively as previously, we thought that the gaming concession would not be renewed upon expiry.

- Without the concession, we estimate that BST’s operating profit would fall by 10% to 15% annually.

- Although the gaming concession has been extended, we do not know if the terms of the renewed agreement are the same as the previous agreement. Hence, we are uncertain if the percentage of sales received is still the same.

- Also, there are other players in the lottery market although the gaming concession is supposed to be exclusive for PGMC in Luzon.

- Most of Berjaya Philippines’ earnings come from PGMC’s gaming concession with the Philippines Charity Sweepstakes Office. Berjaya Philippines receives a percentage of the sweepstakes’ sales.

- Apart from the gaming concession, Berjaya Philippines is the franchise holder for Mazda cars and Papa John Pizzas in the country. Berjaya Philippines also owns and operates the Berjaya Makati Hotel in Makati City.

- Maintain HOLD on BST with an unchanged fair value of RM3.40/share. BST is currently trading at FY16F PE of 14.0x and FY17F PE of 13.7x.

Source: AmeSecurities Research - 18 Aug 2015