Monday, March 17, 2008

Riding on Gamblers When Times Are Uncertain

Let's do a simple research. First, think of family members or friends who gamble on 4-digits. Next, ask them whether are there any chances that they will consider cutting down on their stakes when US is experiencing sub-prime crisis or when 6 out of 10 economists are predicting that the US is heading towards recession.

Blink... blink... They probably stare at you blankly, not even attempting to figure out what sub-marine opps, sub-prime crisis is. Not to mention that they do not even know what economists do. Betting on 4-digits have been a lifestyle for most Malaysians. There are 1001 reasons that 4-digits gamblers rely on in making their bets. Dreams, car accidents, birth dates, car number plates, house nos, telephone nos, identification card nos, nos provided by mediums and not forgetting Flower Horn, to name a few. Once betting becomes a hardcore lifestyle, it's difficult to cut down even when the bad economy condition is hitting the gamblers. My mum once said, when times are bad, the more the gamblers need to bet to earn some money as there are no other sources of income. If you are wondering, yes, my mum is a 4-digits gambler herself.

From this simple observation, 4-digits gambling industry becomes a defensive haven when times are uncertain. In this regard, there are a few stocks that we can look at - Magnum, Berjaya Toto and Tanjong. My good friend, PLing has also recently highlighted to me the consistent dividend that Berjaya Toto provides 4 times per year. This stock has always been under my radar of research and based on the following catalysts, Hengdai Equity Fund has invested 600 units of Berjaya Toto at RM4.82 per share today:

(a) Market share continues to rise

Revenue expanded by 11.7% in 3rd quarter, representing year to date growth of 9.3%. The good result is partially driven by the introduction of 6/52 Mega Jackpot in June 2007 and saliva-inducing jackpot of RM19.6 million during the period. As compared to its competitors, the company has market share of more than 40%.

(b) Share buyback

When a company buys back its share from the stock market, it means that the company is of the view that its stock is worth more than what the market is willing to pay for. The company had made the following share buybacks during the past few months:

June 2007 : 14,000,000 units at RM5.23

July 2007: 500,000 units at RM5.31

August 2007: 5,000,000 units at RM4.74

January 2008: 3,000,000 units at RM5.05

March 2008: 2,030,072units betwen RM4.82 to RM5.10

The average cost per share that the company bought back was roughly at RM5.09. If the share price goes down further, the company may most likely continue with its share buy back programme. Our purchase price of RM4.82 is 5.6% below the average share buy back price.

(c) Good dividend

At share price of RM4.82, dividend yield is expected to be good, may be hitting a double digit return if company maintains its dividend payout ratio. This is also a good reason to hold the shares, notwithstanding the price volalitily during uncertain times as the dividend yield is much better than fixed deposit rate.

(d) Management buy in

The Managing Director/Chief Executive Officer, namely Tan Sri Dato' Seri Vincent Tan Chee Yioun has also been buying shares. A quick summary of his recent purchase is as follows:

Our purhase price of RM4.82 is approximately 12.1% below Tan Sri Dato' Seri Vincent Tan's recent purchase price.

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