BJToto was sold down quite significantly over the past few days due to the increase in the gaming duties from 6% to 8% w.e.f. July 1. The increased duties will affect pure gaming operator such as BJToto- an impact of 6-8% according to Kenanga Investment Bank.

However, BJToto is in the process of raising RM800 million via a medium term note programme (MTN). It explained that the proceed would be used to refinance existing bank borrowings and for working capital. BJToto has a net gearing of 0.4 time as per its accounts for QE31/4/2010 (total borrowings of RM450 million less cash & bank balances of RM257 million). Assuming that it refinanced the entire amount of its bank borrowings of RM450 million, the balance of the MTN programme of RM350 million is still available for "working capital". An on-going gaming operator is hardly the kind of business that requires such a large sum of money for working capital. In fact, its existing operation generated cash flow of RM451 million for FY2010 & RM489 million for FY2009. Why is BJToto raising such a large sum of money?

There are two possible reasons for this fund-raising activities:
1. To finance the start-up capital for its 20%-owned associate, Berjaya Lottery Vietnam Ltd; or
2. To effect a large special dividend payout to its shareholders. In FY2010 & FY2009, BJToto paid dividend totaling RM433 million & RM241 million, respectively.

I believe the second scenario is a more likely reason for the MTN programme. This is because its parent company, Berjaya Land Bhd ('BJLand') has a large convertible bond due for redemption in August 2011. The outstanding sum is about RM711 million. BJLand, which owned 51% of BJToto, must be counting on a larger dividend payout from BJToto to ease its cash flow requirement. With the possible available fund of RM350 million from the MTN programme, BJToto could announce a special dividend of 25 sen on top of its normal dividend payout of about 30 sen. If this materialized, BJLand may receive RM379 million dividend from BJToto. Minority shareholders could possibly receive dividend totaling 55 sen for the next financial year.

Technical Outlook

From the chart below, we can see that BJToto is in a long-term uptrend line (SS), with support at RM3.95-4.00. Its medium-term downtrend line (RR) would cap the share at RM4.70-75.


Chart: BJToto's daily chart as at July 2, 2010 (Source: Tradesignum)

Based on good technical outlook & a possible bumper dividend ahead, BJToto could be a good buy for a medium-term investment.