Saturday, 16 July 2016
Tycoon ups bet in number forecast operation
Tycoon Tan Sri Vincent Tan’s gaming business just got bigger.
Come Monday, the founder of multi-industry conglomerate Berjaya Corp Bhd (BCorp) will launch the first phase of his Vietnam lottery business, which is held under Berjaya Gia Thinh Investment (BGTI), in Ho Chi Minh City. The next five years will see the roll-out of even more lottery game terminals nationwide in Vietnam.
And over the week, Tan had entered into a RM108mil deal with a group associated with Sabah tycoon Tan Sri Yap Yong Seong – the former police officer turned businessman who is also popularly known as Duta Yap – that will soon give him full control of his Sarawak number-forecast operation (NFO) via Berjaya Assets Bhd (BAssets).
While upping his stake in the Sarawak NFO business is unlikely to give a significant boost to his wealth, the Vietnam venture will present a different story.
Experts reckon there is huge earnings potential in Vietnam, whose lottery market is estimated to worth at least US$3bil (RM12bil) per year.
Tan has an effective stake of 51% in the Vietnam lottery business through BCorp and Berjaya Sports Toto Bhd (BToto).
BCorp and BToto respectively have 49% and 10% interests in BGTI, while state-owned Vietnam Computerised Lottery One Member LLC (Vietlott) owns the remaining 49% stake in the company. The group was given the exclusive right to operate a nationwide computerised lottery in Vietnam for the next 18 years in January this year.
“We think that the fact that Tan has parked the bigger portion of the BGTI stake in the holding company, that is, Bcorp, in which he has direct interest, speaks volume of the potential he sees in the Vietnam venture,” an analyst with a local bank says.
“By keeping a smaller portion of the BGTI stake in the subsidiary level, he will be able to limit the dilution of the potential gains from the Vietnam venture,” he explains to StarBizWeek.
According to Maybank Investment Bank Bhd’s (MIB) estimation, Berjaya’s Vietnam lottery business could potentially rake in a net profit of RM522mil per annum during its steady state. This could translate into a net profit accretion of RM209mil for BCorp and RM52mil for BToto based on their effective stakes in BGTI.
“We are positive on this development but unsure as to when BGTI will reach steady state, and thus contribute materially to BToto,” MIB said in its recent report, noting that BToto’s 10% shareholding in BGTI will likely be recognised as an investment only.
“We opine that the larger beneficiary is BCorp due to its larger 41% shareholding in BGTI,” the brokerage argued.
The Vietnam venture is Tan’s second overseas lottery licence after getting one such licence in the Philippines in the mid-1990s. Among the products that will be offered by the Vietnamese operation are Lotto Games, Digit Games and Fast Draw Games. These will be distributed through various channels, such as computerised terminals, telephones and mobile phones, and the Internet.
“The risk for Berjaya group in Vietnam is the potential competition from the illegal gaming market,” an analyst says.
“But the fact that a Vietnamese government-linked company is the group’s partner in the business could send a positive signal that such risk could be contained,” he adds.
No game changer
Meanwhile, the increase in BAasset’s stake in the Sarawak NFO business is not expected to be a game changer for the group.
After all, the NFO market in Malaysia will likely remain sluggish over the medium term because of the prevailing weak consumer sentiment in the country.
Over the week, BAssets through its subsidiary Tropicfair Sdn Bhd (TSB) entered into a share sale agreement yesterday to acquire the remaining 50% stake, or 3.5 million shares, in Megaquest for a cash consideration of RM108mil, or RM30.81 per share, from Violet Circle Sdn Bhd (V-Circle).
The deal will enable BAssets to raise its effective stake in Natural Avenue Sdn Bhd (NASB) – the exclusive licensed agent for Sarawak Turf Club’s Special Cash Sweep Number Forecast Lotteries to conduct the 1+3D Big/Small and 3D Big games in Sarawak – from 65% to 100% upon completion of the proposed acquistion in the next six months.
The Megaquest group has a 70% stake in NASB, while the remaining 30% stake in NASB is directly held by three other wholly owned subsidiaries of BAssets.
Duta Yap and his son Yap Wee Sean are among the directors of Megaquest, which is a 50:50 JV between TSB and V-Circle. V-Circle, on the other hand, is jointly owned by Duta Yap’s wife Puan Sri Leong Li Nar and son Yap Wee Chun.
“The deal can help boost earnings for BAssets, but we do not think it will be significant mainly because NASB itself is already experiencing shrinking earnings amid a challenging market,” an analyst says.
“BAssets itself has conceded that the rampant illegal gaming in Sarawak is negatively impacting NASB’s earnings,” he adds.
In its filings with Bursa Malaysia, BAssets revealed that the Megaquest group posted a net profit of RM9.35mil and revenue of RM225.52mil for the financial year ended June 30, 2015.
This represented a decline of 31% from a net profit of RM13.53mil and 6% from revenue of RM239.8mil in the preceding financial year. In FY2013, the group’s net profit was RM14.13mil against revenue of RM236.86mil.
“The NFO market in Malaysia is rather saturated, with limited growth opportunities, so we don’t see much excitement with BAssets increasing its stake in NASB… it is certainly not a game changer for Berjaya group,” a market observer argues.
Be that as it may, Tan is still seen as putting his bets at the right places.
And as US presidential hopeful Donald Trump once said, “it’s good business being the house”.
Source by: The Star Online