Berjaya Sports Toto Berhad (BJTOTO, 1562, RM4.70)

Berjaya Sports Toto Berhad, BJTOTO, is one of the 3 NFOs in the country, owned by tycoon Vincent TCY which has businesses ranging from property development, trading, leisure, stock broking, insurance and manufacturing. BJTOTO having a sole, concentrated and excellent business model currently leads the NFO industry in the country in terms of sales and profitability compared to its peers. In the past, the corporate governance within the Berjaya Group of Companies are rather questionable. Intercompanies loans within the VTCY stable has cause the price of BJTOTO languishing at the RM3.xx for a good couple of years despite BJTOTO being the fastest growing NFO with generous dividends and capital repayments. Previously, BJTOTO has borrowed a staggering amount of more than RM1 billion to BJLAND a couple years ago which has recently been pared down. To date, the borrowings by BJLAND has been reduced to a more acceptable amount of RM93 million which has to be settled by 4 August 2007 unless any further extension granted to it. These shows than the transparency has very much improved. Upon repayment of the final tranche of borrowings, minorities should expect another capital repayment equivalent to RM0.30 - 0.35.

Ever since the repayments by BJLAND, BJTOTO has carried out 2 capital repayments of RM0.50 each which has been strongly supported and cheered upon by the minorities. To finance the capital repayments, BJTOTO has made some bank borrowings but however, this should not be seen as a problem repaying them as BJTOTO is a high cash generating business. With this rate as shown in the tabulation above, BJTOTO will manage to repay all its debt by first quarter of 2008 and can continue to replenish its piggy bank.

Here comes the big question, can one company sustain a dividend of RM0.50 annually while only making an EPS of RM0.30? An additional of RM0.20 pay out will be equivalent to approximately RM260 million which has to be forked out from its piggy bank or hopefully not through bank borrowings. The concern would be the capability of BJTOTO to continue to finance its high dividend policy with its much depleted cash reserves. However, looking at the first two quarters of 2007, the dividend paid out is similar to the previous year and in the following next two quarters, I would hope to see the dividend pay out to normalise.

Some would say that VTCY is sucking the company dry with its high dividend and capital repayments. In fact, it is because of the nature of the business where not much capital expenditure is required thus, most of the profits are returned to shareholders. Then again, how would one judge companies like MAGNUM which has nett cash reserves of more than RM700 million but only manage to disperse a diminutive dividend of RM0.10 - 0.15 annually? Will its minorities ever see or feel the huge stash of cash in future? In my opinion, money in VTCY pocket is similar to putting back money into your pockets. Just as long as the financial health & transparency of the company is in good shape, with negligible debts and continue to generate good profits, I would not mind at all.