Investment Highlights

• Maintain HOLD on Berjaya Sports Toto Bhd (BST) with a higher DCF-based fair value of RM2.42/share (vs. RM2.35/share previously) (WACC: 10%, terminal growth rate: 2.5%). We have raised BST’s FY19F net profit marginally to account for higher ticket sales per draw growth of 3% (vs. 2% previously).

• We believe that the abolishment of the GST (goods and services tax) would help improve ticket sales by boosting consumer sentiment and spending.

• The Ministry of Finance has announced that GST would be zero from 1 June 2018 onwards. However, there was no announcement on the reinstatement of the sales tax.

• Prior to the implementation of the GST on 1 April 2015, casino and lottery companies did not pay sales tax. Hence, we do not know if the sales tax would be imposed on casino and lottery companies going forward.

• There are two scenarios here. First if there is zero GST and zero sales tax. Second, if the GST of 6% is replaced with a sales tax of 6%.

• The additional earnings risk to BST is the potential loss of the exclusive rights to supply online systems in Luzon. We estimate that the Philippine operations account for 10% to 15% of BST’s operating profit. We have already imputed the loss of the exclusive rights in the Philippines in BST’s earnings forecast.

• Based on the first scenario, we estimate that BST’s FY19F net profit would improve by 12.2%. BST would reap almost a full-year impact of zero GST as its year-end is April.

• However, if the GST is replaced with the sales tax of an equal quantum, there is no change to BST’s bottom line.

• We have not imputed the impact of the zero GST in BST’s earnings forecast yet as the government could be making more announcements soon. Nevertheless, we believe that the abolishment of the GST is a step forward towards improving consumer sentiment in the country.

Source: AmInvest Research - 17 May 2018