News  On Monday, together with Berjaya Corporation Bhd

(BJCORP, NOT RATED), BJTOTO announced that BJCORP has been selected as the most suitable party to undertake the establishment of a computerized lottery system in Vietnam with Vietnam Lottery Company (Vietlott), a wholly-owned subsidiary of the Ministry of Finance, Vietnam.

 BJCORP is one of the six international companies, which submitted their proposals to Vietlott, which has formally invited BJCORP to enter into negotiations for a Business Cooperation Contract.

 BJCORP will undertake the Vietnam Lottery Business via Berjaya Gia Thinh Investment Technology Company Limited (Berjaya GTI).

Berjaya GTI is 51% owned by Berjaya Lottery Vietnam Limited (BLV), a company incorporated in Labuan. BLV is in turn 80% owned by BJCORP and 20% owned by BJTOTO.

Comments  We are not entirely surprised with this latest development as it was first reported in The Edge back in early 2010. While we are positive on this venture which is a new source of income, earnings impact to BJTOTO could be small given its effective equity stake of 10.2%.

 At this juncture, management is unable to confirm details of the new venture as BJCORP has yet to enter into the Business Cooperation Contract with Vietlott.

Outlook  While we expect insignificant earnings impact from this Vietnamese venture in near-term, the forward local NFO ticket sales remain resilient with c.3% annual growth. Unlike MAGNUM which is facing volatile luck factor, BJTOTO’s prize payout ratio is less volatile over the quarters given its wider spread of lotto games and 4D games.

Forecast  No changes to our FY14-FY16 estimates for now.

Rating Maintain OUTPERFORM

Valuation  Our DCF-derived price target retained at RM4.31/share.

Risks to our Call (i) Lower-than-expected ticket sales

 (ii) Higher-than-expected EPPR.

 (iii) Unexpected losses at BPI/HRO

Source: Kenanga