Results

• BToto reported 1HFY15 PATAMI of RM178.03m, accounted for 54.4% and 47.1% of ours and consensus’ full year forecasts, respectively.

• We deemed this to be in-line as we expect weaker 2HFY15 due to unexciting outlook under the NFO business from declining sales per draw.

Deviations

• None.

Dividends

• Declared second interim dividend of 6.0 sen/share (2QFY14: 6 sen/share). Total dividends declared in 1HFY15 totaled 11.5 sen/share, representing total dividend payout and yield of 87.1% and 3.3% respectively.

Highlights

• Yoy: Growth in revenue was largely driven by the additional boost from the consolidation of HR Owen acquired back in 3QFY14. Excluding HR Owen’s contribution, BToto would have recorded a decline in revenue of 3.8% largely from the poor performance of its lotto, 4D, 5D and 6D games (Figure 3), partially offset by higher number of draw days.

• Earnings grew 20.64% on the back of lower estimated prize payout ratio of 60.4% vs. 62.9% in 2QFY14. Apart from that, lower operating costs also resulted to the growth in earnings.

• YTD: Jump in revenue once again was contributed by the additional contribution from HR Owen. Without HR Owen, BToto’s lottery operations suffered a decline from lesser draw days coupled with lesser sales per draw from all games across the board.

• Earnings however, decline mainly due to higher operating expenses incurred in 1HFY15 as the estimated payout ratio was relatively flattish between 1HFY15 and 1HFY14 of 61.7% and 61.8%, respectively.

• To date, Magnum remained as the market leader with highest market share of 44.3%, followed by BToto at 37.9% and Da Ma Cai at 17.8%.

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

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 indust ry; (2) Prize payoutdependable on luck factor.

Valuation

• Target price remained unchanged at RM3.59 based on DCF valuations. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 19 Dec 2014