Results

BToto reported FY13 revenue of RM3.63bn came in within expectations. However, earnings of RM385m were below expectations, accounting for only 87.5% and 91.9% of ours and consensus’ estimates.

Deviations

Higher-than-expected prize payout and operating expenses.

Dividends

Declared 4th interim single-tier dividend of 4 sen/share. Total dividends declared for FY13 amounted to 28 sen, in line with our estimates of 28.7 sen.

Highlights

YoY: Gaming revenue grew 3% from the one additional draw day (4QFY13: 45 days; 4QFY12: 44 days), partially offset by lower revenue from its Philippines entity, Berjaya Philippines Inc. (BPI). Bottomline was impacted with a decline of 10% due to higher operating expenses incurred during the quarter.

QoQ: Revenue grew 4.8% on the back of the CNY festive season which results in traditionally higher sales, partially offset by the lower revenue from BPI. However, similar to the yoy comparison, earnings fell 13.4% due to higher operating expenses.

YTD: Revenue recorded a marginal increase of 0.9% on the back of higher revenue from BPI as well as additional 2 draw days (FY13: 179 days; FY12: 177 days). However, operating profit fell marginally by 3.5% from slightly higher average prize payout of ~61.7% vs. 61.5% in FY12, and higher operating expenses in 4Q which we do not expect sustain at such high level.

Under the 4D Jackpot segment, Magnum remains the leader with YTD average sales of RM2.3m/draw, followed by BToto at RM2.03m/draw. Da Ma Cai is slowly picking up in terms of sales, standing at an average of RM1.1m/draw.

As for the 4D market, sales/draw for the segment is slowly picking up with growth for the second consecutive year after experiencing decline historically. However, Magnum’s 4D sales/draw are still experiencing fluctuations.

On the status of the listing of STM-trust on SGX-ST, it had sought a further extension of validity period of the conditional eligibility-to-list by 3 calendar months to 10 Sept 2013.

Risks

• Higher-than-expected prize payout ratio.
• Cannibalization from Magnum’s and PMP’s 4D Jackpot.
• Hike in pool betting duty/gaming tax.

Forecasts

No changes given that revenue was in line and we maintain the theoretica prize payout ratio while the high opex in 4Q is not expected to sustain.

Rating

HOLD

Positives – (1) 4D Jackpot shows signs of stabilization vs. decline in sales previously (2) Monopoly of lotto games; (3) Highest-yielding stock in the gaming sector.

Negatives – (1) Highly regulated industry; (2) Prize payout dependable on luck factor; and (3) listing of business trust dilutive to earnings and attracts holding company discount.

Valuation

Maintain HOLD with unchanged TP of RM4.64 based on SOP valuations. Note that TP would be lowered post declaration of special dividend upon listing of STM-Trusts.

Source: Hong Leong Investment Bank Research - 19 Jun 2013