Investment Moats

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

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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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What does a potential $1bil Manchester United SGX IPO means to MUFC fans

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Well I wasn’t expecting that SGX was able to attract one of the biggest football club in the world, Manchester United to list on the Singapore Stock Exchange.

They key thing to note is that we do not have much information

  1. Talks seems to be in an advanced stage.
  2. We still do not know how much of the club will be listed. The portion touted around is that it will be in the region of 25% to 30%
  3. SGD 1 bil will translate to roughly 500 mil pounds. The amount of debts currently on balance sheet stands at around 500 mil pounds. Raising this amount and clearing the debts could potentially put the club on a solid footing.
  4. We blog about Manchester United’s financial footing in the past (analysis here). We mentioned that annual revenue comes to 300mil but majority were sucked away by 57 mil in interest payment. Clearing this annual interest payment goes in a long way to ensuring the club have cash flow to invest in long term growth.
  5. Glazers were said to be looking to sell United for 1.6 bil pounds. 25% of this is around 400 mil pounds. Now this ipo may be 20% over what is already an overvalued price.
  6. Essentially this will keep the Glazers as the majority shareholders yet still suck the company dry.
  7. For fans this may be the near term way to ensure some sensible survivability for their soccer club.

We have to see more details before we can make some concrete analysis. But my initial thoughts is that this IPO is preying on the club’s popularity in Asia to suck money for the Glazers at tremendously overvalued prices.

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My good luck in Hutchinson Port Holdings (HPH) IPO Balloting Results

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I blogged about the possibility of applying for this IPO some time ago on Investment Moats. And I did applied.

I am aware that the sentiments are lukewarm about this IPO at that time and they even tried to spread a rumor that it is so popular that it will close one day earlier.

But never in my wildest dreams would I expect the result. Here is the balloting results:

Basically, what this means is that EVERYONE that subscribes gets it.

Drizzt subscribed 11 lots. Drizzt got 8 lots!

Now you might think that is darn good. This is after-all the biggest IPO since Singtel IPO. But I have a very bad feeling about this. Since when did you have an IPO where you get almost 80% of what you subscribed!

It is beyond my belief and really I was expecting that I get only 1-2 lots. now I have 6 more.

This HPH will be listed on 18th of March 2011 at 2:00 PM as HPH Trust US$.

So what do you guys think? Should I pared down at a loss?

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Should you go for Hutchison Port Holdings (HPH Trust) IPO?

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Its really to pop this question especially for an IPO that we read about, but for me evaluating an IPO is more:

  1. The climate the IPO is being issued at
  2. How well known is this IPO

Last year we have Global Logistic Trust and a lot of people got some great coffee money.

This issue will be no different. The climate is conducive for IPO and this issue is from the parent Hutchison Whampoa. That to me is even more reputable than Temasek.

This deal could possibly raised USD 3 billion which will make this the largest ever public offering in Singapore.

Predictable Income from Infrastructure Assets

Ports are assets that are defensive in nature. Income from ports tend to be predictable and therefore suitable for business trust.

We already have one listed that have a port as an infrastructure trust which is MIIF.

The question is whether they would issue dividends. This is probably important for Passive Income investors looking for Dividend Income.

Another question to ask is how leverage this will be eventually. Do note that the Achilles heel of MIIF and Babcock and Brown (currently Global Investment) was that although they seem to be debt free, the underlying assets were bought over with huge amounts of debt.

When the debt crisis hits they cannot refinance the debt or the cost of refinance get so high that it is a question if the can get it refinance.

As a summary good ipo, but we still do not know if you  will be a carrot head to hold this long term.