Berjaya Sports Toto Bhd (Dec 17, RM4.20)
Maintain buy at RM4.21, target price RM5.30: On Dec 16, Berjaya Sports Toto (BToto) announced a sale of a RM12.67 million lottery system through its subsidiary International Lottery & Totalizor, Inc (ILTS) to Natural Avenue Sdn Bhd (NASB), a 65%-owned subsidiary of Berjaya Assets Bhd (BAssets).

ILTS, a leading supplier of computerised wagering systems for the online lottery and pari-mutuel racing industries, will sell the system comprising online lottery terminals, central systems hardware, software and project services to NASB.

Sarawak numbers forecasting operator NASB is acquiring the lottery system to replace its existing 14 year-old betting system which has limited capacity. It contributed about 68% of BAssets total revenue in FY09.

The proposed sale is expected to be completed by 2H10. The cash proceeds from the sale will be used by ILTS for working capital.

We are neutral on this development given the proposed sale is a related party transaction (RPT) since they share a common major shareholder in Berjaya Corporation Bhd.

Risks include intensifying competition from alternative jackpot games, higher than expected prize payout and lower than expected dividend payout ratio.

As we expect minimal changes to BToto’s earnings, we have maintained our earnings forecast. For 2010, we forecast adjusted net profit of RM429.2 million with price earnings of 13.3 times. — ECM Libra, Dec 17