Berjaya Sports Toto Bhd
(Aug 18, RM3.09)
Maintain hold with an unchanged fair value of RM3.40: Berjaya Sports Toto Bhd (BToto) unit Philippine Gaming Management Corp (PGMC) has entered into an agreement with the Philippine Charity Sweepstakes Office to extend its gaming concession agreement from Aug 22, 2015, until Aug 21, 2018, pending the resolution of the exclusivity of rights.

BToto owns 88.3% of Berjaya Philippines, which in turn owns PGMC.

We view the extension positively as we had previously thought that the gaming concession would not be renewed upon expiry. Without the concession, we estimate that BToto’s operating profit would fall by 10% to 15% annually.

Although the gaming concession has been extended, we do not know if the terms of the renewed agreement are the same as in the previous agreement. Hence, we are uncertain if the percentage of sales received is still the same.

Also, there are other players in the lottery market although the gaming concession is supposed to be exclusive for PGMC in Luzon.

Most of Berjaya Philippines’ earnings come from PGMC’s gaming concession with the Philippine Charity Sweepstakes Office.

Berjaya Philippines receives a percentage of the sweepstake sales. Apart from the gaming concession, Berjaya Philippines is the franchise holder for Mazda cars and Papa John’s Pizza in the country.  It also owns and operates the Berjaya Makati Hotel in Makati City.

We maintain “hold” on BToto with an unchanged fair value of RM3.40 per share.

BToto is currently trading at financial year 2016 forecast (FY16F)price-earnings ratio (PER) of 14 times and FY17F PER of 13.7 times — AmResearch, Aug 18

This article first appeared in digitaledge Daily, on August 19, 2015.