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Gambling Stock Sports TOTO Malaysia Trust (STM-TRUST) to IPO in Singapore: A Good Buy?

Want to own a ToTo business? Your chance may be here! But is it worth it?

Malaysia’s BTOTO would like to spin off their subsidiary Sports ToTo Malaysia SDN BHD into a business trust to be constituted  and registered in Singapore to be known as Sports TOTO Malaysia Trust (STM-TRUST)

STM is principally engaged in the business of operating Toto pool betting under
Section 5 of the Pool Betting Act, 1967.

STM is licensed to operate its Number Forecast Operation (“NFO”) nationwide.
It currently offers seven (7) games which are drawn  three (3) days in a week, namely Toto 4D,  Toto 4D Jackpot,  Toto 5D, Toto 6D, Mega Toto 6/52, Power Toto 6/55 and Supreme Toto 6/58. STM also offers the most number of games in Malaysia and has the largest domestic network of 680 outlets in Malaysia.

This sounds great.

The reasons for IPO

This IPO serves as a way for initial investors into this venture to exit the investments by way of special dividends.

I believe that this move will effectively dilute the new shareholders, since money is removed from the trust to pay a special group of investors.

It should be seen that the majority shareholders would want to maintain control of the company that they list it as a business trust to continue to earn management fees

Valuation: PE of 17 times and EV/EBITDA of 12 times

STM-Trust did a competitive analysis on listed gambling businesses and came to the conclusion to list it at a PE of 17 times and EV/EBITDA of 12 times.

Compare them against the other REITs and Business Trust listed on my Dividend Stock Tracker.

Then against the other listed gambling establishments in the world.

The revenue and profit are very consistent although they have shown signs of tapering down. However, we do not know what are the non-cash items within the profit.

It would be best to see the EBITDA before making any judgment.

Debt Levels

Unlisted, the current debt to asset is 56%. After listing, the debt to asset will fall to 25%. That looks conservative. Certainly not as bad as MIIF.

The debt looks a large amount but compared against the most recent profit after tax of 345 mil it looks very safe. Like Singtel, Starhub safe.

Earnings and Potential Dividend Yield

A PE of 17 times translate to a 5.88% earnings yield. STM-Trust intends to pay out 100% surplus operating cash flow as dividends annually. As said we do not have the operating cash flow figures, so we are not sure how conservative this is.

As this should be listed at 1 times PTB, 5.88% yield looks average compare to the REITs. Remember, most of the REITs listed on SGX are either geared 30% to 40% on average and trading below book value.

Peer Comparisons

The closest to compare to is CapitaRetailChina, CapitaMall Trust, Frasers Centerpoint, Cache Log Trust, Ascendas REIT, Sabana REIT.

All these are trading almost at 1.0 times book value and having a 25% to 30% gearing.

Except for Cache and Sabana, this trust may not yield as much as them, unless their free cash flow is much higher than that.

EV/EBITDA is very low compare to this selected group which may indicate undervalue (or that these REITs as a whole are overvalued)

Typically, I would buy an investment with a EV/EBITDA close to 10 times and PE of 12 times. This looks tad expensive, but not as expensive then this selected group of REITs.

Business Risk: Tangible assets versus the lack of it

Now the difference between this business trust and the REITs is that REITs you have tangible assets.

What does STM Trust have? Not really much tangible assets. I believe the major asset to amortize is the limited right to operate lottery in the country.

  • How long is this right? Is it limited?
  • How much will STM Trust need to pay to renew it?
  • About our dividend payout, do  they pay out after amortizing the rights over the duration? Amortizing it is a more sustainable model ( Think of this as industrial REITs have 30 or 60 year land lease that you need to renew)

A Good Buy?

Honestly I do not have enough information to make a decision.

My original thoughts were:

  • If this lottery, which we all say is a damn good business, why the heck would they want to spin it off?
  • Is it due to the falling profitability?
  • If it is so cash generative, why take on those debts?
  • IPO’s are never cheap
  • My last business trust IPO (HPH Trust) really stung me

As I invest in more of these assets, I began to look at the clues off balance sheet:

  • 17 times PE puts future earnings close to that of Ascendas REIT, Capitamall Trust and Frasers Centerpoint trust. These trust have a certain premium to their price, either due to strong sponsors, good track record and lower propensity to collapse. What does STM Trust have that matches close to it?
  • The section on business risk is a main consideration. It tells us the sustainability of the business trust itself. Valuing a perpetual or potentially perpetual asset versus one that have a limited lifespan is different.
  • It would be good to see the performance of this in 2007-2008 period. Hell if they have data in 2001 to 2003 it will be great as well

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Sunday 10th of June 2012

I am more inclined towards Berjaya Sports Toto instead of Sports Toto Malaysia Trust as a result of how the deal has been structured.

In divesting 20.5% interest at PE of 17, Berjaya has pretty much reaped all the future dividend in present value. Growth is rather tepid as a result of the strict regulation and mature market in Malaysia. Area for growth will only be when the Malaysia's government allows them to venture into Sport betting which has been rejected in 2010 or that there is a tighter grip on illegal bookie.

One positive fact is that the current PE 17 is based on one of the weaker FY. If you look at their 9M 2012 results, it is a net profit of RM 315.7m already as comapred to RM 250m in 9M 2011.

The expected dividend yield from the trust is likely to be in the range of 5-6%. Berjaya sports toto will also be distributing its dividend earning received from STM-T as Berjaya Land seemed to require quite some bit of capital for its property development


Sunday 10th of June 2012

thanks shanrui, i saw your report. i really like the consistent cash flow. and i wonder how much yield we are looking at.

with that in mind the question is always: with the almost similar PE and yield to AREIT, Frasers CEnterpoint, which would u put your money into?


Sunday 10th of June 2012

my mistake, PGMC does not own the 15.93%m, its by BSTC. PGMC leases out on-line lottery equipment in Philippine


Sunday 10th of June 2012

I have done an analysis of the financial statement. Basically, more than 95% of Berjaya Sports Toto's revenue comes from Sports Toto Malaysia and its subsidiary BERJAYA PHILIPPINES INC. The only remaining asset should be Philippine Gaming Management Corp which owns 15.93% of BPI and enjoy management fee for managing BPI.


Sunday 10th of June 2012

I wait for SingaporePools IPO. This one I will hoot tua tua as I am of its die-hard customers. LOL

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