News

BToto announced certain revisions to the proposed transfer of the entire shares in Sports Toto Malaysia (STM) to STMTrust of which 1) offer-for-sale portion of 540m units of STMTrust have been reduced to 190m units; 2) dilution of BToto’s ownership reduced from 20.46% to 13.46%.

On a separate announcement, the group proposed dividendin- specie of up to 2.81bn units in STM-Trust to shareholders on the basis of 21 STM-Trust units for every 10 ordinary shares in BToto.

Tentative timeline: 1) Primary listing on SGX is expected to be completed by end-Oct/ early-Nov; 2) Secondary listing on Bursa Malaysia is expected to be completed by 3QCY14.

Comments

The reduction in the offer-for-sale proportion will be replaced by BToto’s second proposal of declaring dividend-in-specie to shareholders with intention of rewarding shareholders a direct interest in STM-Trust.

Hence, shareholders would receive dividends in cash (12-15 sen/share) and units in STM-Trust, vs. initial proposal of only special dividend of 45 sen/share. We opined that the revised proposal would be better off, benefiting shareholders more with a larger distribution portion.

Post-secondary listing and dividend-in-specie, BToto will end up with only 28.36% ownership in STM-Trust with the assumption of full exercise of the Over-allotment option. As such, BToto’s EPS would be significantly diluted.

However, STM-Trust would remain a subsidiary to BToto despite the 28.36% ownership as it continues to have full control of STM-Trust.

We reckon that BToto will be looking for more diversification post-completion of all proposal, which includes its recent interest in UK-based company, H.R. Owen. H.R Owen operates as a franchised motor dealer in the UK.

All in all, with the recent share price weakness and the new proposal, we are turning more positive on the exercise as shareholders would now have a direct interest in the operating company, which is expected to have yield of 8%.

Risks

• Higher-than-expected prize payout ratio.
• Cannibalization from Magnum’s and PMP’s 4D Jackpot.
• Hike in pool betting duty/gaming tax.

Forecasts

Unchanged.

Rating

BUY

Positives – (1) 4D Jackpot shows signs of stabilization vs. decline in sales previously (2) Monopoly of lotto games; (3) Highest-yielding stock in the gaming sector.

Negatives – (1) Highly regulated industry; (2) Prize payout dependable on luck factor; and (3) listing of business trust dilutive to earnings and attracts holding company discount.

Valuation

We advise investors to take the opportunity in the recent price weakness, hence we are maintaining our BUY call with unchanged TP of RM4.64 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 20 Sep 2013