Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: CIMB

Berjaya Sports Toto Bhd
(Dec 13, RM4.23)
Maintain neutral at RM4.13 with target price of RM4.67: A higher-than-expected prize payout led to a subpar interim showing by BToto, with 1HFY4/11 core earnings coming in at only 39% of our projection and 34% of consensus.

The second interim tax-exempt dividend per share (DPS) of four sen was marginally below forecast and took year-to-date (YTD) DPS to 12 sen or 42% of our full-year estimate. Factoring in the higher payout for 2Q, we cut our FY11 EPS forecast by 11% and trim FY11 DPS by one sen. Our FY12-13 numbers are unchanged. Our discount dividend model-based end-CY11 target price also stays at RM4.67 due to the minimal reduction in dividends assumed.

We remain neutral on BToto given the competitive threat from Magnum's 4D Jackpot game and concerns over softer sales following the recent cut in prize payout for the Big 4D game. We prefer Genting for exposure to the sector.

2QFY11 topline fell 1.3% year-on-year (y-o-y) due to a lower number of draw days compared to the previous year. On a quarter-on-quarter (q-o-q) basis, 2Q sales advanced 1.3%, lifted mainly by stronger lotto sales despite the lower number of draw days. Like the previous quarter, Supreme Toto 6/58 was the main growth driver, propelling 2Q11 lotto revenue higher by a staggering 55% y-o-y and 26% up q-o-q, thanks to its attractive jackpot which snowballed to RM47.8 million during the quarter. On a year-to-date basis, revenue dipped 0.1% y-o-y as the gaming business was affected by the lower number of draw days and rising competition.

2Q11 earnings before interest and tax (Ebit) fell 33% y-o-y due to the two percentage points (ppts) hike in pool betting duty on June 1 and the less favourable prize payout ratio of 70% versus 2Q10's 63%. Ebit margin continued to narrow q-o-q due to the higher payout ratio. We expect BToto's gaming margin to improve in 4Q as the government recently approved a reduction in the special prize payout, which we estimate will lower the payout ratio for the Big 4D game by two ppts effective Dec 15.

Although we expect BToto to retain its market leadership in CY11 due to decent punting interest in its flagship 4D game and the boost from its three lotto variants, we expect its lead to be crimped by strong interest in Magnum's 4D Jackpot game. Because of this and the maturity of the NFO market in general, we see some downside risk to our flat to +3% annual topline growth projections for BToto for FY11-13. ' CIMB Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.