PublicInvest Research

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


Berjaya Sports Toto Berhad - Flattish Earnings Growth

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Despite posting a 3% decline in revenue, Berjaya Sports Toto (BToto) reported a flattish net profit for 3QFY19 due to a 2ppts drop in effective tax rate. Motor dealership delivered stronger earnings due to higher profit margin but this was offset by lower contribution from gaming operations as a result of higher prize payout as well as lower lease rental income. Although 9MFY19 accounted for 84% of our full year estimate, we expect a weaker 4QFY19 results due to the impact of a 50% reduction in the number of special draws. The results were broadly in line with consensus. A lower third interim dividend of 3.5sen per share was declared, compared to 4sen in 3QFY18. Thus far, the total dividend distribution for FY19 represents a payout of about 75%, versus our full year forecast of 80%. We maintain our Neutral rating on BToto with an unchanged TP of RM2.15.

  • 3QFY19 revenue dropped 3% YoY but net profit was flat. The drop in revenue was due to lower contribution from HR Owen, the motor dealership business, and Philippine Gaming Management Corporation (PGMC). As for Malaysia’s gaming operation, revenue came in flat at -0.5%. However, pretax profit fell 4.4% due to higher prize payout for Malaysia Sports Toto. Also, the Philippines gaming operations posted lower profit on lower lease rental income. However, this was partly offset by higher profit contribution by HR Owen as it chalked higher profit margin for the new car sector. Net profit was flat as the impact of lower gaming profits was mitigated by a drop in effective tax rate from 38% to 36%.
  • Maintain NEUTRAL. Given the structural issues with persistent competition from non-mainstream gaming operators and that 4D games are becoming less popular among the younger generation, we are forecasting a muted earnings growth for BToto in the long run with our projected 3-year earnings CAGR at 2.8%. However, FY19F dividend yield remains attractive at c.6%. Hence, we maintain our Neutral recommendation with an unchanged TP of RM2.15.

Source: PublicInvest Research - 19 Mar 2019

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