- Maintain HOLD on Berjaya Sports Toto Bhd (BST) with a lower fair value of RM4.20/share to account for weaker ticket sales growth in BST’s discounted cash flow model.

- BST has declared a final cash dividend of 7 sen/share in 4QFY14. Including the share dividend of 9.5 sen declared in 3QFY14, BST’s gross DPS was 26.5 sen for FY14. The gross DPS of 26.5 sen implies a yield of 7%.

- BST’s FY15F gross DPS is forecasted at 26.5 sen, same as FY14. BST’s net gearing stood at 39.5% in FY14. Free cash flow was 26.6 sen/share in FY14 (FY13: 29.1 sen/share).

- BST’s FY14 results were in line with consensus estimates and our forecast. We believe that consensus had excluded the RM34.9mil investment related expense from their net profit forecasts. BST’s net profit fell by 17.2% to RM323.9mil in FY14 as turnover expanded 19.6%.

- BST’s top line was driven by HR Owen, the motor dealership in UK. HR Owen recorded revenue of RM786.1mil and operating profit of RM14.9mil in FY14. BST started recognising HR Owen’s contribution from 3QFY14 onwards.

- Ticket sales shrank by 3.7% to RM3.27bil in FY14 as consumers reduced spending and illegal operators gained more business. On a per draw basis, ticket sales slipped by 3.7% from RM17.5mil in FY13 to RM16.8mil in FY14.

- Gaming profits contracted by 15.4% to RM373.8mil in FY14 due to an increase in prize payout and a donation expense that occurred in 4QFY14. We do not know the amount of the donation or the name of the organisation, which received the donation. We estimate prize payout at 65.5% in FY14 versus 63.4% in FY13.

- In May 2014, BST announced that its unit, co-owned with Berjaya Corporation Bhd, has won a contract to install and operate computerised lottery system in Vietnam.

- We do not expect significant earnings contribution from this as BST’s effective stake in the venture is only 10.2%.

- Nevertheless, the venture in Vietnam would help mitigate any fall in earnings from Berjaya Philippines if the latter is not able to renew its gaming concession in Luzon.

- Berjaya Philippines’ gaming concession is expected to expire in August 2015. Berjaya Philippines accounts for about 13% of BST’s operating profit currently. Most of the unit’s earnings are from the gaming concession. Apart from the gaming concession, Berjaya Philippines is also the franchise holder for Mazda cars and Papa John pizzas in the country. 

Source: AmeSecurities