Wednesday, June 6, 2012

BJToto divesting Sports Toto into a trust in Singapore - My view

Do you see something coming when Ananda Krishnan divested his Tanjong's gaming business? Quite interestingly, rumour has it that it was his son (who is a Buddhist monk) who advised him to sell, as owning a gaming business is against his Buddhism practice. Perhaps, but my question is would he sell the business when it was enjoying good growth. At least that one went the right way towards education. I actually liked it.

This BJToto deal on the other hand goes in the name of unlocking value as apparently the stock is being avoided by Shariah compliant funds. By going to Singapore it will be able to attract more funds - really? More funds yes but not necessarily better valuation. The fact of the matter is that gaming business in Malaysia is not enjoying growth anymore.

In fact as seen above, the last 3 years revenue growth stagnated while profit dropped. BJToto for the Berjaya family is still great. It is literally a money printing machine (in fact better) as their costs are just the paper and printers where the numbers are being printed from. No more marketing, no more mind boggling ideas on how to grow the business. At the end of the year, they still earn in excess of RM5 million salaries and tonnes of dividends. Who would want to let go business like this?

For other shareholders though, what used to be a great investment, the holding of BJToto has become purely a dividend share for the last few years with no capital appreciation. No doubt to some, it is still decent though as the yield is more than your FD now. However, do you know that Berjaya is squeezing more money from debt to pay you?

By reaching out to Singapore, do you think they will be able to expand the gaming business. Expand yes, but competition is also much greater. The fact of the matter is that gaming business globally has become more open and competitive. Tell me which government will provide Berjaya Group gaming license, like the one given by Malaysian government 20 years ago where it was a monopoly for lotto and just 2 other competitors for the 4 digit gaming business. Seriously, what was once ideal later became a business - it was supposed to provide funding for Malaysian sports, hence the name.

Another example of gaming gets tougher - Just look at the mess Genting is getting into in New York now.

The writer feels that gaming actually is more than a political lobbying business.


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