- We have a HOLD recommendation on Berjaya Sports Toto Bhd (BST) with a fair value of RM4.40/share.

- Although the proposed payment of special dividends is off due to the cancellation of the listing of STM Trust, we believe that BST’s annual dividend yields are still attractive.

- We forecast a gross DPS of 25 sen, which suggests a yield of 6.4% for FY14F. This is close to Magnum Bhd’s FY15F dividend yield of 6.8%.

- Recall that BST was supposed to pay special dividends of 12 sen-15 sen/share from the listing proceeds of STM Trust.

- BST’s 2QFY14 results were below our expectations and consensus estimates due to investment related expenses of RM19.3mil. Investment related expenses amounted to RM23.5mil in 1HFY14. We believe that these were in respect of investment banking fees for the listing of STM Trust.

- The group declared a gross DPS of 6 sen in 2QFY14. This brings total gross DPS to 10 sen in 1HFY14 versus 16 sen in 1HFY13.

- BST’s ticket sales inched down 5.5% YoY to RM1.6bil in 1HFY14. We reckon that this was due to a fall in consumer spending, competition from illegal operators and prizes, which did not snowball to exciting levels.

- On a per draw basis, ticket sales slid 4.4% YoY to RM16.8mil in 1HFY14. There were 88 draws in 1HFY14 versus 89 draws in 1HFY13.

- Operating profit of the lottery division declined by 13.4% YoY to RM212.1mil in 1HFY14 as prize payout ratio rose from 1QFY14 to 2QFY14.

- We estimate prize payout at 63.7% in 1HFY14 compared with 62.6% in 1HFY13.

- On a QoQ basis, ticket sales per draw eased 2.3% to RM16.6mil in 2QFY14. There were 44 draws each in 1QFY14 and 2QFY14.

- Operating profit of the division slid 13.8% QoQ to an estimated RM98.2mil in 2QFY14 underpinned by an increase in the prize payout ratio.

- We think that BToto recorded a prize payout of 64.5% in 2QFY14 versus 62.9% in 1QFY14.

Source: AmeSecurities