Results

BToto reported 1HFY14 PATAMI of RM181.42m came in below expectations, accounting for only 40.3% and 42.3% of ours and streets’ full year estimates.

Deviations

Higher-than-expected payout ratio.

Higher-than-expected effective tax rate.

Dividends

Declared 2nd interim single-tier dividend of 6 sen/share, totaling to 10 sen/share in 1HFY14. This represents a payout of 73.8% and yield of 2.56%.

The ex- and payment date have been set on 9 Jan and 28 Jan 2014 respectively.

Highlights

Yoy: Gaming revenue fell in the absence of strong sales from the high jackpot under its lotto game and lesser draw days during the quarter. Wholly-owned subsidiary, Berjaya Philippines Inc. (BPI) suffered from lower lease rental income by Philippines Charity Sweepstake Office (PCSO). Earnings were further impacted from higher payout ratio coupled with higher expenses incurred for the proposed listing of STM-Trusts in Singapore (which has been aborted on 2 Dec 2013) and higher tax rate.

Qoq: Total revenues declined marginally (-2.3%) from flattish gaming sales with the same amount of draw games qoq and lower revenue from subsidiary, BPI. Earnings fell 16.4% from higher expenses (for STM-Trusts) and higher tax rate.

4D Jackpot’s market share has recently evened up among all three operators (BToto, Magnum and Da Ma Cai), as what we have earlier expected. The latest market shares by these three operators are 29.7%, 34.4% and 35.9% respectively.

The absence of high sales from Supreme 6/58 during the quarter contributed to the 22.5% drop in lotto sales. To note, Supreme 6/58’s jackpot of RM42.67m was hit back in 1QFY14, where its sales have fetched up to RM1.16m.

Risks

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

Forecasts

We tweaked our payout ratio by 1ppt arising from higherthan- expected payout ratio and narrowed down our net profit margin following the higher effective tax rate for FY14. Hence, FY14-16 EPS is lowered by 1.1-14.5%.

Rating

BUY

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

Post-earnings revision, TP is reduced to RM4.57 (from RM4.76) based on DCF valuations. However, we maintain BUY on the stock for its high dividend yield of 6.4% based on current price.

Source: Hong Leong Investment Bank Research - 16 Dec 2013