- Maintain HOLD on Berjaya Sports Toto Bhd (BST) with a lower DCF-based fair value of RM3.45/share versus RM3.90/share previously. We have reduced BST’s FY16F EPS by 14.6% to account for the impact of the GST (Goods and Services Tax).

- Risk to BST’s profitability in FY16F is the expiry of its Philippines gaming concession in August 2015. The gaming concession accounts for the bulk of Berjaya Philippines’ earnings. Berjaya Philippines accounts for 13% of BST’s operating profits.

- BST’s earnings were within our forecast and consensus estimates. BST’s 3QFY15 results were boosted by an RM18.0mil stamp duty refund in respect of the aborted listing of STM Trust in Singapore. The group has declared a gross DPS of 5 sen in 3QFY15, bringing total gross DPS to 16.5 sen for 9MFY15 (9MFY14: 19.5 sen). We are forecasting a lower gross DPS of 21 sen for FY15F compared with 26.5 sen in FY14.

- BST’s turnover climbed by 28.3% YoY to RM3.8bil in 9MFY15 underpinned by the motor dealership division in United Kingdom. The unit recorded revenue of RM1.3bil in 9MFY15, 281.6% higher than the RM344.7mil achieved in 9MFY14. BST only recognised two quarters of the motor dealership’s contribution in FY14.

- In spite of the significant revenue contribution, the motor dealership division recorded an operating profit of only RM15.4mil in 9MFY15 compared with RM2.3mil in 9MFY14.

- BST’s gaming turnover eased by 4.2% YoY to RM2.3bil in 9MFY15. On a per draw basis, ticket sales slid by 4.2% from RM16.7mil in 9MFY14 to RM16.0mil in 9MFY15.

- Like the other lottery operators, BST’s ticket sales were sluggish in 9MFY15. Industry ticket sales were weak due to soft consumer spending, competition from the illegal operators and a switch towards online betting.

- Comparing 3QFY15 against 2QFY15, BST’s ticket sales per draw rose by 2.6% from RM15.8mil to RM16.2mil. It appears that BST was not significantly affected by the launch of Magnum Bhd’s and Da Ma Cai’s new games.

- Recall that Magnum Bhd launched 4D Jackpot Gold in November 2014 while Da Ma Cai launched Super 1+3D in

November 2014 and 3D Jackpot in January 2015.

- BST’s gaming profits shrank by 5.1% YoY to RM437.7mil in 9MFY15 mainly due to increased operating expenses. We estimate prize payout at 64.3% in 9MFY15 versus 64.2% in 9MFY14. Prize payout was 65.1% in 3QFY15 compared with 63.2% in 2QFY15.

Source: AmeSecurities