BERJAYA SPORTS TOTO BHD

By UOBKayHian Buy Target price: RM3.15

UOBKAYHIAN said that despite minority investors’ general disapproval for companies to make forays into non-core businesses or related-company investments, Berjaya Sports Toto (BToto) continued to do so via its Philippine subsidiary Berjaya Philippines (BP), with its latest investment in 7-Eleven.

It said BP’s average acquisition price for 7-Eleven is RM1.37 per share, which is 10% higher than Tuesday’s closing price of RM1.24. Following the latest acquisition, BP owns 1.02% of 7-Eleven.

To recap on BP’s earlier investments, BP acquired seven million shares in Berjaya Assets for RM6.8mil in end-2016 and 3.9 million shares in 7-Eleven for RM5.4mil in June.

It also bought an additional 26% stake in UK automobile distributor H.R. Owen for RM83mil in end-2016. Prior to these investments, BP also invested in a hotel in Makati, Philippines, although the acquisition was deemed cheap and strategic

“Separately, we note that 7-Eleven’s major shareholder, US-based Franklin Resources, sold 512,500 shares in the past one week, according to the company’s filings with Bursa Malaysia,” said UOBKayHian.

“Nevertheless, BToto’s dividends are not impacted, having never been dependent on BP’s cash flows. We understand that BToto has never repatriated BP’s retained earnings as that would have incurred repatriation taxes, but instead, prefers to reinvest BP’s cash.”

The research house also said ticket sales in certain states have seen improvement in the past two months, reflecting the state authorities’ efforts in curbing illegal bookies.

“This, coupled with operating cost and luck normalisation, could lead to modest earnings improvement in the first quarter of 2018.”