Sports betting legalised
• Privately-held Ascot, controlled by Vincent Tan, confirmed it has been awarded Malaysia sports betting licence. Berjaya Corp (BCorp) has proposed to acquire 70% of Ascot Sports for RM525m cash, and Vincent Tan is offering a cumulative profit guarantee of RM375m in Ascot’s first three years of operations. BCorp will withhold RM125m cash upon Ascot’s achievement of profits. Ascot projects pre-tax profits of RM40m, RM175m
and RM284m in its first three years of operation respectively.
• BCorp (RM1.54/NOT RATED) is the key beneficiary. BCorp’s implied price tag for Ascot works out to be only 5.7x and 3.5x of Ascot’s projected year-2 and year-3 earnings. This is cheap. BCorp has also proposed to issue an 8% 10-year ICULS on the basis of 1-for-8 BCorp shares, potentially raising RM500m for the proposed acquisition.
• Berjaya Sports Toto (RM4.64/BUY) is only a modest beneficiary. Momentum investors may consider taking profit on BToto, which may rise further on the confirmation of the legalisation of sports betting, as the earnings enhancement is only modest. The potential enhancement to BToto’s net profit would only be RM11.3m (lifting FY12 net profit by 3.2%), taking into account Ascot’s year-2 projected revenue of almost
RM4b, and assuming that 50% of football betting is channelled through BToto, and BToto shares its 1% agency commission with the BToto outlet owners on a 75:25 basis. Nevertheless, maintain BUY in anticipation of significant capital management by end-FY11, about an 11-month wait.
• Ascot expects legalised football betting to reach RM4b within three years. Ascot expects to commence operations in about three months’ time, starting with football betting operations, and expects the legalised football betting market to reach RM4b by its third year of operation, taking a modest slice of the estimated illegal sports betting of RM20b. It will initially offer simple football betting variants (e.g. Asian handicap) via selected 220 BToto outlets and telephone betting. Ascot will operate a call centre with operator-assisted betting. The initial stage requires bets to be placed 90 minutes before matches, and live betting would be allowed at later stages.
• We assume BToto outlets would only receive half of the bets (with Ascot-operated call centre receiving the other half) due to a somewhat impulsive (last minute) nature of sports betting and the timing of European and South American football matches (typically start in late nights or early mornings).
above: Ascort Sport Betting Operation : click for larger view