Results

• BToto reported 9MFY04/15 PATAMI of RM282.6m, accounted for 86.3% and 78.2% of ours and consensus’ full year forecasts, respectively.

• We deemed this to be in-line as we expect weaker 4QFY15 due to unexciting outlook under the NFO business from declining sales per draw. Do note as well that 4Q is usually the weakest quarter of all due to seasonality.

Deviations

• None.

Dividends

• Declared third interim dividend of 5.0 sen/share (3QFY14: share dividend equivalent to 9.5 sen/share). Total dividend declared in 9MFY15 was 16.5 sen/share, representing total dividend payout and yield of 78.6% and 4.9% respectively.

Highlights

• Yoy: Growth in revenue was largely driven by the 31.4% topline growth in HR Owen on the back of increase in sales volume. Excluding HR Owen’s contribution, BToto would have recorded flattish revenue (-0.9%) largely from the poor performance of its lotto, 4D, 5D and 6D games (Figure 3), partially offset by higher number of draw days (3QFY15: 46 days; 3QFY14: 45 days).

• Earnings grew 21.6% despite higher prize payout ratio of 62.2% vs. 61.9% in 3QFY14. This was largely attributable to the RM18m refund obtain from stamp duty paid for the listing of STM-Trust.

• YTD: Jump in revenue once again was contributed by the additional contribution from HR Owen (9 months in 9MFY15 vs. 3 months in 9MFY14). Without HR Owen, BToto’s lottery operations suffered a decline on lesser sales per draw from all games across the board (except lotto games).

• Earnings grew slower as well on the back of higher operating expenses incurred in 9MFY15 as the estimated payout ratio was relatively flattish between 9MFY15 and 9MFY14 at 61.9%.

• To date, Magnum remained as the market leader with highest market share of 38.8%, followed by BToto at 35.9% and Da Ma Cai at 25.3%.

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 industry; (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 Mar 2015