News  Yesterday, Berjaya Sports Toto Bhd (BJTOTO) announced that the Board of the company has decided not to proceed with the listing of its STM-BT on SGX-ST and a secondary listing on Bursa Malaysia, given that the current challenging market conditions and the poor performances of listed yield stocks such as REIT and Business Trusts in Singapore.

 To recap, BJTOTO announced in Jun-12 that it will transfer its Malaysian NFO business, which was valued at RM6.0b, to form a Business Trust and list it on SGX-ST. Later in Sep-13, it announced a revised proposed with a secondary listing on the Bursa Malaysia.

Comments

 We are positive on this turn of event as the STM-BT listing could be earnings and valuation dilutive to BJTOTO, although the shareholders were expected to receive one-off 12-15sen special dividend and STM-BT shares distribution (refer to our report dated 20 Sep-13).

 To recap, BJTOTO will only own c.87% of the Business Trust upon the listing of STM-BT in Singapore and it will further reduce to c.29% upon the share distribution after the secondary listing.

Outlook  The forward NFO ticket sales remain resilient with c.3% annual growth. Unlike MAGNUM which faces volatile in luck factor, BJTOTOís prize payout ratio is less-volatile over the quarter given its well spread of lotto games and 4D games.

Forecast  Raise FY14 estimates by 4.3% as we were previously expected the earnings dilution arising from the 13.46% free float of STM-BT listing effective Oct-13.

 Upgrade FY15-FY16 forecast by 12.1% with the full-year impact from the previous expectation of earnings dilution.

Rating Maintain OUTPERFORM

Valuation  We remove the 10% discount to its DCF valuation to derive new price target of RM4.42/share from RM4.31/share. We have revised our WACC assumption to 6.6% from 6.1% previously given its current risk profile.

Risks to Our Call (i) Lower than expected ticket sales

 (ii) Higher than expected EPPR.

Source: Kenanga