Investment Highlights

• We met up with Berjaya Sports Toto’s (BST) management recently. We believe that the outlook for the number forecasting industry in Malaysia is improving.

• BST’s gross ticket sales per draw growth is envisaged to be mid to high single-digit percentage in FY20F (FY19: +5.6%). This would be one of the highest increases in BST’s gross ticket sales per draw since FY10. From FY10 to FY18, BST’s average sales growth per draw was about - 2.0% per year.

• The positive growth in gross ticket sales per draw in the past two financial quarters was mainly due to the clampdown on illegal operators by the authorities. It is estimated that the size of the illegal market is at least as big as the legal market of RM7.6bil.

• For industry ticket sales to sustain its growth in the long term, we understand that there should be a two-pronged approach.

• First, the clampdown on the illegal operators has to continue. Illegal operators are sophisticated in their marketing and distribution network. Second, there should be stricter laws for illegal operators. Currently, illegal gambling and NFOs face fines and jail terms under the Lotteries Act 1952, Common Gaming Houses Act 1953, Betting Act 1953 and Pool Betting Act 1967.

• BST plans to renovate its 20 lottery outlets, which are located in the major cities in Malaysia. Following this, the group is hopeful that the other outlets, which are owned by third parties, would follow suit. The group would carry out the renovation in the 20 outlets progressively so that its cash flows would not be significantly affected.

• We understand that the response to BST’s 4D Zodiac game has been encouraging. Unlike Da Ma Cai, whose Zodiac game is tied to 6 digits, BST’s game is tied to 4 digits. Punters are said to be more partial towards 4 digits. The 4D Zodiac game, which was introduced in late June 2019, is expected to support BST’s ticket sales growth in FY20F.

• BST’s 88.3%-owned Berjaya Philippines reduced its stake in Philippine Gaming Management Corp (PGMC) to 39.99% from 99.99% recently. Hence excluding the one-off loss on disposal of RM30mil or Peso372.5mil, BST’s exposure to the Philippines gaming unit would be minimal going forward. As such even if the gaming concession is not renewed, BST would not be significantly affected.

• PGMC will be bidding to extend its gaming concession in Luzon City. The Philippines gaming unit accounts for about 10% of BST’s pre-tax profit. The division receives a percentage of sales from the lottery terminals in Luzon City. The gaming concession is expected to expire in August 2019/2020.

Source: AmInvest Research - 10 Jul 2019