Tuesday, December 14, 2010

Cheng family poised to clinch Pan Malaysia Pools

Another party keen to bid for PMP before Olympia's announcement on 13 Dec 2010.

The Cheng family is believed to be close to clinching the gaming arm of Tanjong plc for a price of not more than RM2 billion.

It is learnt that Datuk Douglas Cheng had met T Ananda Krishnan’s right-hand man, Ralph Marshall, in recent weeks to firm up the details. The last discussion is understood to have taken place over the phone late last week.

“The deal is on the table. Douglas is expected to put in a bid soon. It’s just that Tanjong is not able to sign anything until its privatisation exercise is completed,” says a source familiar with the transaction.

Tanjong’s privatisation is expected to be wrapped up around Nov 24 and the agreement is likely to be signed after that.

Industry observers point out that it wouldn’t be surprising for the Chengs to land the purchase of Pan Malaysia Pools Sdn Bhd (PMP). “It makes sense ... after all, they are already in gaming,” he observes. The Chengs are involved in the gaming slot machine business in the Klang Valley.

PMP has been up for sale for some time and has no lack of suitors. It is the country’s smallest number forecast operator (NFO), but the gaming business is attractive as it provides steady cash flow.

Parties said to be eyeing PMP include Datuk Yap Yong Seong, better known as Duta Yap, Tan Sri Tiong Hiew King’s investment vehicle Rimbunan Hijau, and Filipino tycoon Roberto Bobby Ongpin.

Last week, online news portal The Malaysian Insider had speculated that the MCA could be interested in bidding for Tanjong’s gaming arm, but this was flatly denied by party president Datuk Seri Dr Chua Soi Lek. It was reported that opinion within the MCA on this matter was divided. According to the news portal, the MCA’s investment panel chief Tan Sri Dr Fong Chan Onn had met officials close to Ananda Krishnan. It is believed that Fong, with advice from a key corporate figure, had been keen on the acquisition of PMP.

The MCA had appointed Fong and Chua’s son, Tee Yong, in May to assist in managing the party’s assets, estimated to be worth over RM2 billion.
However, the possibility of the MCA going into gaming was quickly squashed by Chua, who said the MCA was open to making investments but had no intention of going into gaming.

Be that as it may, it is not difficult to fathom why Tanjong’s gaming arm has attracted attention.

According to AmResearch, cash from its NFO division is used to pay almost 75% to 85% of Tanjong’s dividends every year. From 2006 to 2010, Tanjong had been dishing out net dividend per share of 51.5 to 75 sen. Its dividend payout ratio for that period ranged between 59.6% and 78.3%.
While Tanjong’s gaming business generates a lot of cash, it had expected to face challenges, in particular in its racing totalisator (RTO) segment.

Totalisator expenditure has been escalating while the profit margins of the group’s NFO operations are expected to be compressed because of the increase in pool betting duty from 6% to 8% for NFO operators.

The RTO business, which has been in the red for the past 10 years, has been a drag on the overall profit of Tanjong’s gaming segment. The RTO segment first slipped into an operational loss during Tanjong’s financial year ended Jan 31, 2000.

Its latest audited operational loss of RM65.8 million for FY2010 was RM38.9 million more than the RM26.9 million loss recorded in the previous year.

This was due primarily to escalating totalisator expenditures incurred and charged by the turf clubs. The gaming segment’s operating profit for FY2010 fell by RM41 million to RM169 million from RM210 million previously.

Gaming analysts, however, point out that the NFO business commands a premium because licences are scarce.

“The RM2 billion price is on the steep side, given that the RTO arm is bleeding. The price of RM2 billion, for a profit after tax for FY2011 of, say, RM82 million would result in a PER of 25 times … that is steep. But, the potential is there. Also, there are no more NFO licences available, so from that point of view, Tanjong’s gaming arm is attractive,” says ECM Libra Research’s gaming analyst Yin Shao Yang.

“In terms of prospects, there is the possibility of new games. Revenue collection from Tanjong’s NFO has been stagnant for a long time. The trick is to bring in the new games. From Pan Malaysia’s perspective, it is the only one without a jackpot game, so there is potential there. The normal 4D payout is 65.5%, but for jackpot it is 55%. Obviously, the margin is higher for jackpot games,” he notes.

He also notes that if there is a reduction in gaming duty, “the gaming business could see an addition of RM30 million to net profit per annum and that would translate the RM2 billion price tag into a PER of 18 times”.

PMP is estimated to have a market share of 24% in NFO among the country’s three players. Tan Sri Vincent Tan’s Berjaya Sports Toto Bhd has 40% of the market, while Magnum Corp Bhd has 36%.

According to Tanjong’s FY2010 annual report, the RTO business plans to increase the number of simulcast races from abroad, such as Australia, South Africa, Japan, Hong Kong and Macau.

For FY2010, Tanjong’s NFO locked in an operating profit of RM234.9 million — a stark contrast to the RTO’s operating loss of RM65.8 million.

Tanjong’s Ebitda for its NFO business was between RM173 million and RM244 million from 2006 to 2010. As at Jan 31, the Ebitda of its NFO segment stood at RM241 million. - by Joyce Goh   


This article appeared in Corporate page, The Edge Malaysia, Issue 832, Nov 15-21, 2010

1 comment:

  1. Genting won the bid.
    http://in.reuters.com/article/2011/04/01/genting-panmalaysianpools-idINL3E7DG09620110401

    announced on 1st April 2011.
    Its not an April fool's Joke.

    ReplyDelete

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