Results

BToto reported FY14 PATAMI of RM323.94m came in within our expectations, accounting for 96% of our full year forecasts. Against consensus, BToto came in below expectations (87%).

Deviations

None.

Dividends

Declared forth interim dividend of 7 sen/share (4QFY13: 4 sen/share), bringing FY14’s total dividend to 26.5 sen/share. This represents a total dividend payout and yield of 90% and 7% respectively.

Highlights

Yoy: Gaming revenue fell in absence of strong sales from its lotto game. Berjaya Philippines Inc. (BPI) suffered from lower lease rental income by Philippines Charity Sweepstake Office (PCSO). Lower revenue from both divisions was partially offset by the consolidation of HR Owen that was acquired by BPI late last year. Earnings were further impacted by higher expenses from its corporate actions (HR Owen and STM-Trust) as well as higher payout ratios (Figure 3) under its gaming business.

Lotto games experienced a 15% drop yoy in sales/draw largely due to lower average sales/draw from Power 6/55 (- 64%) and Supreme 6/58 (-14%), partially offset by the sales growth in Mega 6/52 (+43%). Lotto games’ sales/draw is largely driven by the movement of prize payout amounts. Hence, higher prize payout would result in higher average sales per draw and vice-versa.

Qoq: Total revenues grew largely due to the revenue growth from HR Owen. Gaming grew slightly from one additional draw day as well as sales growth across all its games. Earnings, however, fell 20% from higher prize payout ratio (Figure 3) and operating expenses.

To date, Magnum remained as the market leader with highest market share of 42.8%, followed by BToto at 38.8% and Da Ma Cai at 18.4%. BToto’s market share remained relatively stable while Da Ma Cai’s market share continues to fluctuate from more volatile sales per draw.

Risks

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

Forecasts

Largely unchanged.

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.

Valuation

Target price remained unchanged at RM4.15 based on DCF valuations. Maintain BUY on the stock for its high dividend yield of 7.3% based on current price.

Source: Hong Leong Investment Bank Research - 18 Jun 2014