News

Berjaya Corp (BC) have been selected as the winning bid to undertake the investment, procurement, installation of equipment and operation of a computerized lottery system for the whole of Vietnam. BC will enter into negotiations for a Business Cooperation Contract with Vietnam Lottery Company, Vietlott.

BC will undertake the Vietnam Lottery Business via Berjaya Gia Thinh Investment Technology Company Limited (Berjaya GTI), a company incorporated in Vietnam. Berjaya GTI is 51% owned by Berjaya Lottery Vietnam Limited (BVL), of which 80% is owned by BC and 20% owned by Berjaya Sports Toto (BToto).

Highlights 

We are positively surprised with the announcement given that we have not expected BToto to enter into the lottery market in Vietnam.

However, we believe it is natural and relevant for BC to collaborate with BToto to make such move given that the latter has similar expertise from Berjaya Philippines Inc (BPI).

According to Vietlott’s website, total revenue of Vietnam lottery market in 2013 reached VND58.7trn (US$2.93bn), showing a yoy growth of 7.13%.

However, BToto would only have an effective stake of 10.2% in Berjaya GTI, this would result in an insignificant earnings contribution to BToto’s overall profit.

Nevertheless, we believe this could still be an advantage to BToto given the large lottery market in Vietnam coupled with better growth prospect in the industry as compared to the lottery industry in Malaysia with only low single-digit growth expectations.

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, pending further information to be obtained.

Rating

BUY

Positives

• 4D Jackpot shows signs of stabilization vs. decline in sales previously;
• Monopoly of lotto games;
• Highest-yielding stock in the gaming sector.

Negatives

• Highly regulated industry;
• Prize payout dependable on luck factor.

Valuation

We are keeping our target price unchanged at RM4.15 based on DCF valuations. BUY recommendation is maintained given its high dividend yield of 5.8% based on current price.

Source: Hong Leong Investment Bank Research - 14 May 2014