Highlights

• We attended Berjaya Gia Thinh Investment Technology Joint Stock Company (BGTI)'s launching of its first ever selfselected online lottery game (Mega 6/45) in Vietnam with a minimum payout of VND 12bn at ticket price of just VND 10,000. Today is the first drawing day of the lottery game.

• BGTI is targeting 800 terminals to be up in the 1st month of launching and reaching 3,600 terminals in the 1st year, 5400 terminals in the 2nd year and 10,000 terminals in 5 years time.

• Management is trying to capture the new market segment in Lotto before rolling out the rest of the games (Digit and Fast Draw Game).

• There is minimal restriction in terms of the channel as punters could eventually place play the games via computerized terminals, telephones and mobile phones and the internet, which is easier to reach out to punters.

• Here, the terminals are placed in a convenient store, shopping complex, dedicated outlets and can also be placed in a coffee shop, cafe with minimal restriction.

• We understand that illegal operators view this venture is a game changer to the entire number forecast business in Vietnam and it will definitely cannibalize the market share of illegal market given the huge jackpot payout of Mega 6/45.

• In terms of potential income, we expect lower margin (single digit) but stable income to BGTI compared to Malaysia operation (circa 16%) as BGTI gets a cut from the lottery sales and is not exposed to risk of payout/luck. Corporate tax of this venture is at 20%.

• For BTOTO, the management does not expect significant income to Btoto in FY16 & FY17, and is it will be recognized as an investment given the effective stake, whereas it is likely to be incorporated into Berjaya Corp due to having management control over BGTI.

Risks

• Higher-than-expected prize payout ratio.

• Cannibalization from Magnum’s and PMP’s 4D Jackpot.

• Hike in pool betting duty/gaming tax.

Forecasts

• At this juncture, we are not factoring any contribution from this venture.

Rating

Maintain HOLD pending more details on the Vietnam venture with minimal contribution estimated.

• Positives – (1) Monopoly of lotto games; and (2) Highestyielding stock in the gaming sector.

• Negatives – (1) Highly regulated industry; (2) Luck factor; (3) Higher cost environment; and (4) Illegal NFO

Valuation

• Target price remained unchanged at RM3.10 based on DCF valuations.

Source: Hong Leong Investment Bank Research - 20 Jul 2016