News

Yesterday, together with Berjaya Corporation Bhd (BJCORP, NOT RATED), BJTOTO announced that the Investment Registration Certificate was issued to BJCORP and Vietnam Computerized Lottery One Member Limited Liability Company (Vietlott), a wholly-owned subsidiary of the Ministry of Finance, Vietnam, from the Hanoi Department of Planning and Investment, pursuant to the Business Cooperation Contract, certifying that they have been awarded an exclusive 18-year contract to invest in and operate a nationwide computerised lottery in Vietnam.

This is a follow-up to an announcement dated 12 May 2014 when BJCORP was selected as the most suitable party to undertake the computerised lottery with Vietlott. To recap, 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

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 only 10.2%. Nevertheless, with the saturated NFO market locally, this venture could help to improve its earnings base in the future.

Under the contract, the lottery business will include Lotto Games, Digit Games and Fast Draw Games, which will be distributed through various channels such as computerised terminals, telephones and mobile phones and the internet for the entire territory of Vietnam.

Berjaya GTI expects to launch its first game, a Lotto Jackpot game by mid-2016, followed by a Digit game thereafter, with initially launching in Ho Chi Minh City and a nationwide coverage within the next five years with 10,000 terminals. Total cost of this business is estimated at USD210.6m or c.RM919.2m over the exclusive period of 18 years.

Outlook

With a population size triple that of Malaysia at 90m, the interest and demand for lottery gaming in Vietnam is expected to be significant. With the 18 year exclusive contract, Berjaya GTI will be the sole lottery operator there.

Forecast

No changes to FY16-FY17E estimates. Impact from this venture will only be felt in FY17 if any.

Rating

Maintain OUTPERFORM

Valuation

Price target maintain at RM3.56/DCF share. It offers an attractive dividend yield of 7%-8%.

Risks to our Call

(i) Lower-than-expected ticket sales, (ii) Higherthan- expected EPPR, and (iii) Unexpected losses at BPI/HRO

Source: Kenanga Research - 21 Jan 2016