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Author: PublicInvest   |   Latest post: Wed, 11 Dec 2019, 9:46 AM

 

BERJAYA SPORTS TOTO BERHAD - Lower Gaming Profit Offset By Higher Investment Income

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Berjaya Sports Toto (BToto) reported a net profit of RM68m in 1QFY20. Due to the change in its financial year end to June 30, numbers for previous year’s corresponding period was not made available. However, based on our simple average calculation, 1QFY20 earnings dropped marginally by 3% as the decline in gaming profit was partially mitigated by higher investment related income. The results were in line with our and market expectations, accounting for 25% and 26% of full-year estimates respectively. We make no changes to our earnings forecasts. Since our downgrade in August 2019, BToto’s share price has fallen by 7%. We maintain our DCF-based TP of RM2.30 as well as our full-year dividend forecast of 16sen. As such, we raise our rating on BToto to Neutral from Underperform. A first interim dividend of 4 sen was declared, in line with our estimates.

  • 1QFY20 earnings dragged by lower gaming profit. The group reported a flattish revenue of RM1.4bn in 1QFY20. However, due to fewer draws (number of draws dropped by 4, particularly special draws) and perhaps higher prize payout ratio, gaming profit was estimated to have fallen by about 16% YoY. However, this impact was offset by higher investment related income. Sequentially, earnings improved due to losses reported in the previous quarter as a result of goodwill impairment on the disposal of leasing of lottery equipment business in the Philippines.
  • Minimal impact on fewer special draws. During the tabling of Budget 2020, the government announced a further reduction in special draw of about 30% from the current 11 draws a year. Previously in Budget 2019, the NFO sector was hit by a 50% reduction in special draws. We estimate that BToto’s FY20- 21F earnings will be reduced marginally by <2% once the reduction to 8 draws a year is implemented in 2020. Although the imposition of higher penalties and jail terms should deter the proliferation of illegal gambling activities, we believe enforcement remains key in ensuring the effectiveness of this measure

Source: PublicInvest Research - 20 Nov 2019

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