AmResearch is maintaining an Overweight stance on the gaming sector and it has a BUY recommendation on GENTING BHD [] for casino exposure to Malaysia, Singapore, Britain and the US.
It said on Wednesday, Oct 6 that recently, there were reports that international private equity firms and a consortium led by the Cheng family are eyeing Tanjong plc’s gaming business.
CVC Capital Partners Ltd owns 49% of Magnum Corporation Bhd and talk of CVC exiting its investment in Magnum via an IPO has been around for some time.
AmResearch said Tanjong’s NFO division is the smallest among the three listed number forecasting operators in the country. It only has 347 outlets versus BERJAYA SPORTS TOTO BHD []’s 681 outlets and Magnum Corporation’s 485 branches.
Despite this, Tanjong’s NFO business is a consistent cash-generating division. Cash from the NFO division is used to pay almost 75% to 85% of Tanjong’s dividends every year.
“We value Tanjong’s NFO business at a DCF-based value of RM2.6 billion. The division recorded EBIT of RM235mil to RM237mil annually from FYE1/08-FYE1/10,” it said.
However, the thorn in Tanjong’s gaming business is the RTO (racing totalisator) division. The division has been loss-making since FYE1/00. Losses at the RTO division widened considerably from RM27mil in FYE1/09 to RM66 million in FYE1/10 due to mounting expenses.
Previously, Tanjong said that it is discussing with the turf clubs and Ministry of Finance to restructure the division.
“It is not known if Tanjong would decide to sell just the NFO division or the entire gaming business in totality. We believe that if Tanjong wants to concentrate on building its power portfolio, then the group would be interested to sell low-yielding assets like RTO or Tropical Islands Resort. Another non-power asset, which Tanjong owns, is the TGV cinemas,” it said.
AmResearch said cashflows from the disposal of the non-power assets can be used to acquire more power assets overseas.
"A reason why Tanjong’s acquisition of overseas power assets has been slow is because of the difficulty in raising funds due to the credit crunch in 2008," it said.
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