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Author: PublicInvest   |   Latest post: Fri, 6 Dec 2019, 9:18 AM

 

Berjaya Sports Toto Berhad - Boosted By Lower Prize Payout

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Berjaya Sports Toto (BToto) reported a 16.9% increase in 1QFY19 net profit to RM86.9m, mainly due to higher contribution from Malaysia’s number forecasting operations on lower prize payout ratio. The results accounted for 31% of our and consensus full-year estimates. However, we are retaining our earnings forecasts as we expect the prize payout ratio to fluctuate from quarter to quarter. Btoto declared a first interim dividend of 4sen per share, which represents about 62% of its 1QFY19 earnings (1QFY18: 4sen per share). We maintain our Neutral rating with an unchanged TP of RM2.62. We note that there is downside risk to our earnings and TP due to the potential reduction in special draw should the new government implement its proposal come 2019.

  • 1QFY19 revenue up marginally but net profit rose 16.9% YoY due to higher earnings contribution from Sports Toto as well as HR Owen. Sports Toto’s revenue was flattish but as a result of lower prize payout and operating expenses, pretax profit rose 14% YoY. Meanwhile, HR Owen, the motor dealership business, registered a 4.2% increase in revenue but pretax profit jumped 35.4% to RM20.9m due to improved margin (3% versus 2.3% in 1QFY18) on higher new vehicle sales during the quarter. Nevertheless, HR Owen only contributed 15% of group’s profit. Gaming operations remain the largest contributor, accounting for 84% of total profit. On a QoQ comparison, net profit was 147% lower mainly due to impairment in value for available-for sale investments and goodwill for leasing of lottery equipment business in the Philippines in 4QFY18.
  • Maintain Neutral. Given the structural issue of persistent competition from non-mainstream gaming operators, we believe earnings growth will remain subdued for Btoto in the long run. Also, it is still unclear whether the new government would implement its proposal to reduce special draws by the NFOs beginning 2019. Based on our estimates, Btoto’s FY19F earnings will be reduced by 0.7% for every 1 special draw reduction. In view of these uncertainties that could potentially affect its future prospect while dividend yield is still attractive at 7%, we maintain our Neutral rating on Btoto.

Source: PublicInvest Research - 20 Sept 2018

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