Berjaya Sports Toto (BToto) reported a 61.6% YoY decline in 3QFY21 net profit to RM18.7m, largely due to the impact of MCO 2.0, higher prize payout and a write-off of inventories. For 9MFY21, core net profit stood at RM170.5m after adjusting for non operating items which includes inventories write-off amounting to RM21.2m. The results came in within our forecast but beat market expectation, accounting for 76% and 82% of full-year estimates respectively. The group declared a third interim dividend of 1.5 sen per share (3QFY20: nil). Given an attractive dividend yield of c.6%, we maintain our Outperform call on BToto.

• 3QFY21 revenue was down 15.8% YoY, mainly due to the implementation of the second movement control order (MCO 2.0) in all states in Malaysia (except for Sarawak) from 13 January to 18 February 2021. This resulted in loss of revenue due to closure of outlets. Although business resumed on 19 February 2021, sales recovery was slower while 3QFY20 benefitted from higher sales during the Chinese Lunar New Year celebration. The lower gaming revenue was offset by higher contribution from motor division, attributable to higher support fee income from franchises as well as business relief and grants received from the UK government.

• 3QFY21 headline net profit dropped 61.6% but core net profit was in line with our expectation. For the quarter, the group recognized an RM6.4m write-off of inventories due to accounting treatment for slow-moving car models. This is expected to be written back once the vehicles are sold when the lockdown eases and consumer sentiment improves. Apart from this provision, headline net profit was further dragged by lower revenue and higher prize payout.

• Outlook. We note that the recovery in sales post-MCO 2.0 was slower compared to MCO 1.0 and we believe this could be due to weaker consumer confidence as well as the drop in the number of foreign workers in the country. Meanwhile, illegal operations remain a threat due to more attractive payout and the convenience that they offer to customers. Nevertheless, earnings growth and free cashflow for BToto is expected to be stable. Hence, we believe the group can sustain a dividend payout of 70-75% over the next 3 years.

Source: PublicInvest Research - 21 May 2021