BJCORP ... May10

Recent Developments

 BCorp has proposed a non-renounceable restricted offer for sale (ROS) of up to 2.46 bln Cosway Corporation Ltd (00288, HKD1.12, Not Ranked) ICULS on the basis of one ICULS for every two BCorp shares held at 9.0 sen per ICULS. It has also proposed a special single tier dividend of 4.5 sen per share, where shareholders may utilize their special dividend entitlements to exchange for the ICULS or retain the entitlement as dividend. The special dividend, however, is conditional upon the regulatory approval for the proposed ROS.

 We view the proposals positively as it will allow BCorp shareholders to directly own Cosway shares without having to invest additional cash, as the ICULS are in the money and can be immediately converted into new Cosway shares with no further cost. The ICULS also carries a coupon rate of 1.0% per year for the first two years and 3.5% per year for the remaining eight years until its maturity in 2019.

Earnings Outlook

 BCorp’s earnings will continue to be underpinned by 50.7%-owned Berjaya Sports Toto’s (BST MK, MYR4.49, Hold) resilient and defensive gaming income. Cosway’s earnings are expected to grow strongly on its expansion plans into new markets within the next 12 months, while its property, financial services and food business should post stronger earnings growth, in line with the recovering economy.

 Our FY10 and FY11 earnings estimates are unchanged as the above proposals will not have any impact on its earnings.

S & P Recommendation & Investment Risks

 We maintain both our Strong Buy recommendation and 12-month target price of MYR2.20.

 Our target price is derived from an unchanged 20% discount to BCorp’s FD RNAV of MYR2.54 (from MYR2.80), plus the implied value of the Cosway ICULS to be sold to its shareholders (previously net DPS estimate of 2.5 sen). The discount is applied for its holding company status that falls within the 20%-30% discount range applied
to conglomerates in our coverage. We derive our FD RNAV by valuing its landbank at market prices, while its BST and Cosway stakes are marked to market. Cosway’s ICULS are also marked to market at a lower effective stake of 59% (from 82.5%) after imputing the maximum take-up rate of 2.46 bln ICULS. Its waste disposal and motor divisions are valued at 10x PER (unchanged) their respective forecast FY10
earnings and P/Bs of 1.5x (unchanged) to its financial services units.

 Our Strong Buy call is maintained for BCorp’s improving earnings outlook that is backed by BST and Cosway earnings. We also believe there is further share price upside from plans to unlock the value of its assets, which includes the IPOs of its retail and food units in FY11; its bid for a gaming venture in Vietnam could also boost its forward earnings. Its prospective FY10 and FY11 P/Bs of 1.1x respectively are also undemanding vs. the 1.6x-1.8x valuation range of its peers.

 Risks to our recommendation and target price include: (i) a slower recovery in regional economies affecting its property and consumer product units, and (ii) weaker lottery ticket sales, regulatory changes and higher prize payout affecting its gaming division.