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Wednesday, December 14, 2016

Brokers Report: Berjaya Sports Toto - Proposed Acquisition Shares of H.R. Owen



Retain HOLD with unchanged target price (TP) of RM3.16






News

  • Berjaya Sports Toto Berhad (BToto), through its 88.26%- owned subsidiary Berjaya Philippines Inc. (BPI) has proposed to acquire 6,589,934 shares (26.31% of the total outstanding shares) of H.R. Owen Plc (HR Owen) from Bentley Motors Limited (Bentley) for a total purchase price of �14.83m (~RM 83.82m) or �2.25 (~RM12.72) per share.
  • Completion of the share purchase is to take place within six months, or no later than 8 June 2017. Following the completion of the acquisition of the shares, BPI will own 98.34% of the total outstanding shares of HR Owen.
  • Recall that back in 2013, in H.R. Owen was acquired by BPI with a total stake of 72.03% after a mandatory takeover offer. Bentley remained as the second largest shareholders with 26.31% stake and the remaining 1.66% shares were with minority shareholders. H.R. Owen was then de-listed on the London Stock Exchange on 15 April 2014.

Comments

  • We are neutral on this acquisition given that the EBIT contribution is only 4.24% of FY16 total EBIT, due to the low margin of less than 1% from HR Owen's operation.
  • The quoted price is at 32.4% higher at 225 pence compared to 170 pence during the unconditional offer by BPI to acquire the remaining stake of HR Owen back in 2013.
  • It would not be an issue for Btoto to fund such acquisition given the comfortable level of cash of RM506m and net gearing of ~34% as disclosed in the last available quarter financial results.
  • Potential impact to income statement is rather insignificant only at the level of MI (circa 3% of our FY17 forecasted PAT), given that the results of BPI is consolidated into Btoto.

Risks

  • Higher-than-expected prize payout ratio.
  • Cannibalization from Magnum and PMP.
  • Hike in pool betting duty/gaming tax.

Forecasts

  • No change to our forecast at current juncture given that the impact is rather minimal.

Rating

HOLD 
  • In view of the saturated NFO business in a challenging operating environment and rampant illegal gaming activities as well as uncertainty in H.R. Owen.

Valuation

  • Unchanged target price at RM3.16 based on DCF valuations with WACC of 9.18%.


Source: Hong Leong Investment Bank Research - 14 December 2016

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