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Government approves more lottery games
By RACHAEL KAM


Move will curb rise in illegal gaming operators

PETALING JAYA: All three number forecast operators (NFOs) in the country will benefit in the longer term as the government tries to curb a rise in illegal gaming by increasing the number of legal lottery games, although Berjaya Sports Toto Bhd (BToto) may face some initial pressure from new games awarded to its rivals, analysts said.

Multi-Purpose Holdings Bhd’s 51% subsidiary, Magnum Corp Sdn Bhd, has received approval for a new 4-digit (4D) game which will incorporate a jackpot element, slated to be launched at end-2009, Multi-Purpose told Bursa last Friday.

The move will certainly reduce the market share of illegal operators, and hence benefit all the NFOs in the long run, said OSK Research.

The illegal numbers market is estimated at 1-to-1.5 times that of the legal NFO market, which was valued at about RM8bil as at end-2008, according to OSK Research.

“Given that Magnum has the single largest market share in the 4D game and that the game is known to be the most popular in the illegal NFO market, we expect this move to give a significant boost to Magnum’s revenue growth,” the brokerage told clients in a research note.

The research house said the government had always resisted the move to increase gaming taxes as it would only give leeway for illegal operators to gain market share at the expense of the legal operators.

“The latest move to offer a jackpot element in the 4D game is a signal that the government remains serious in reducing the leakages to illegal operators,” OSK said, noting that illegal operators were unable to offer jackpots where the roll-over sum was typically too high for an illegal operator to match.

Gaming and corporate taxes are estimated to amount to more than RM1.5bil per annum.

OSK said although the approval of the new 4D game for Magnum might result in BToto facing a marginal slip in its market share, especially for its 4D games, it was unlikely to cause a drastic drop in BToto’s revenue growth.

“BToto’s non-4D games have a significantly higher matrix and hence the tendency for a higher jackpot roll-over element, which is the main contributor of the group’s super-normal growth rates,” the brokerage noted.

Currently, BToto’s 4D games contribute about 70% to 75% of its total NFO revenue.

OSK reckons that Tanjong Plc, which runs its gaming operations via Pan Malaysian Pools Sdn Bhd, may get a share of the action.

“We believe that the government may also offer a jackpot element in Tanjong’s 3D and potentially, 4D games, so as to be seen as providing a more level playing field for NFO operators,” it said.

OSK has maintained its “overweight” rating on the sector, and recommended a “buy” call on Tanjong with a target price of RM18.60.

It pegged BToto at a target price of RM5.60 and expected the company to remain a defensive, high-dividend yield play.

HwangDBS Vickers Research agrees that the policy makers’ initiatives to introduce more measures in the NFO industry is crucial to help players regain lost ground due to the rise in illegal gaming activities.

“As such, it is likely that Tanjong (rated ‘buy’) may also receive approval for a new game for its gaming operation,” the research house said in a note.

“We believe that the potential impact on the new games would be minimal on Tanjong’s bottom line, especially in the first one to two years of the operation,” HwangDBS said.

The brokerage believes investors should continue to focus on Tanjong’s strong fundamentals with resilient earnings from both its NFO and power generation businesses, and an attractive net yield of 5%.

It has maintained a “buy” call on Tanjong with a target price of RM19.25.