Maintain HOLD on Berjaya Sports Toto Bhd (BST) with a lower DCF-based fair value of RM2.85/share vs. RM3.20/share previously.
We have reduced BST's FY18F net profit by 11.8% to account for a higher prize payout of 66% vs. 64% originally and a weaker growth in ticket sales of 1% against 2% previously.
We have forecast BST's gross cash DPS to be 15 sen for FY18F, which translates into a yield of 5.8%. BST has declared a final gross DPS of 3 sen for 4QFY17, which brings total gross DPS to 14 sen for FY17. This implies a yield of 5.4%.
BST’s FY17 results were above our expectation but below consensus estimates. The better-than-expected results were underpinned by earnings from HR Owen in UK, which were 73.7% above our forecast. Nevertheless, we do not expect this to sustain as the motor dealership's earnings are expected to be affected by the depreciation of the GBP against the MYR.
After a weak 3QFY17, which was affected by additional GST adjustment of RM15.6mil, BST's 4QFY17 net profit rebounded by 51.2% on the back of a turnaround in the associates, a lower effective tax rate and higher earnings from HR Owen. BST recorded an effective tax rate of 25.8% in 4QFY17 vs. 42.6% in 3QFY17 due to recognition of deferred tax assets. Also, recall that BST's 3QFY17 results were affected by an additional GST expense of RM15.6mil.
BST's associates include a 20% stake in Berjaya Lottery Vietnam and 25.5% shareholding in Berjaya Auto Philippines.
Operationally, gross ticket sales per draw improved by 1.8% QoQ in 4QFY17 while prize payout was relatively unchanged at about 66%. There were 44 draws in 4QFY17 against 47 draws in 3QFY17.
Comparing FY17 against FY16, BST's net profit contracted by 21.8% to RM241.3mil. Apart from the additional GST expense of RM15.6mil, BST was affected by a forex loss of RM6.3mil and loss on dilution of shareholding in Bermaz Auto Philippines of RM8.6mil in FY17.
BST's revenue improved by 3.1% to RM5.7bil in FY17 due to an 8% increase in the sales of HR Owen. HR Owen accounted for 41% of revenue and 6.3% of group EBIT (before unallocated corporate expenses) in FY17.
Industry ticket sales are still weak. This is reflected in the fall in BST's ticket sales per draw since FY13. On a per draw basis, gross ticket sales slid by 1.2% in FY17 vs. an 1.8% decline in FY16. There were 179 draws in FY17, which were the same as FY16.
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