Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 19 Nov 2019, 8:55 AM


Berjaya Sports Toto - Impairment Hits Bottomline; Cut To MP

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BJTOTO reported a shocking headline net loss of RM41.4m in its 5Q19 results which only consisted of 2-month period as it changed to a new FYE. The losses were mainly due to RM78.4m impairment after its equity stake in PGMC was reduced to just below 40% from wholly-owned status previously in July. Core NFO numbers were satisfactory. We revised our FY20-21 earnings downward by 7-8%. It is now a MP after a strong rally of 31% YTD, with a revised TP of RM2.80.

5Q19 headline losses on impairment. BJTOTO reported a shocking headline net loss of RM41.4m for its 5Q19 which only consisted of 2- month period for May-Jun in 2019 as it changed its financial year-end to Jun from Apr previously. The losses were mainly attributed to the impairment of goodwill and assets amounting to RM78.4m arising from the disposal of Philippine Gaming Management Corporation (PGMC) on 1st of July. Ex-EI, the 2-month period core profit was RM37.1m on the back of RM974.9m revenue. There is no comparable quarter to compare the results; 5Q19 average ticket sales per draw fell 4% to RM20.3m from RM21.0m in 4Q19 which is not alarming as it was still higher than 1Q19-3Q19 but luck factor was unfavourable at 64.4% in 5Q19 against 62.7% in 4Q19. Meanwhile, there was no dividend for 5Q19.

Impairment occurred as PGMC became an associate company. The impairment arose after its 88.3%-owned Berjaya Philippines Inc (BPI) disposed 1m share or 20% equity stake in PGMC to Jose A. Bernas (the corporate secretary of PGMC) for PHP117m on 01 July. Subsequently, on 03 July, PGMC issued additional 5m new shares, which was subscribed by Jose A. Bernas (1m shares) and Paulino S. Soo (the president of PGMC) (4m shares). This effectively reduced BPI’s stake in PGMC to 39.99% from 99.99% and PGMC ceased to be a subsidiary and become an associate company of BPL. As such, BJTOTO took this stake reduction to impair the goodwill and assets of PGMC. We understand that the lower equity stake held by BPI is to meet the bidding requirement of local participants for PCSO lottery system.

Hiccup in PCSO bidding. On 09 July, during the opening of submitted bids, only PGMC was declared eligible, subject to evaluation. However, subsequently PGMC was informed by PCSO that it failed the qualifications set. PGMC has filed an appeal, which is still pending resolution. We understand that a re-tender will be carried out, pending the resolutions of PGMC’s appeal, with timeline to carry out soon before the year-end. Based on this latest 2-month period result, PGMC contributed RM47.7m or 9% to BJTOTO’s operating profit. As such, PGMC, as a wholly-owned subsidiary, contributed c.RM40m to BJTOTO but with only c.RM16m based on an associate stake of 39.99%, assuming no change in new leasing rate.

Cut to MP on lower PGMC contribution. While keeping our NFO and HR Owen estimates, we reduced FY20-FY21 estimates by 7-8% to reflect PGMC’s status as an associate company, with no changes in leasing rate as mentioned above. This also prompted us to downgrade our call to MARKET PERFORM from OUTPERFORM as all near-term positives are already priced in after a strong rally of 31% YTD. Correspondingly, our target price is also cut to RM2.80/DCF share from RM3.00/DCF share to reflect the new shareholding in PGMC. Our new call is supported by an above average yield of 5-6%. Downside risks to our call include: (i) stronger-than-expected ticket sales, and (ii) lower-than-expected EPPR.

Source: Kenanga Research - 20 Aug 2019

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BJTOTO 2.56 +0.03 (1.19%) 730,900 

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speakup wah lau weh no limit down on big loss?
20/08/2019 9:21 AM


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