Results

• BToto reported FY04/15 PATAMI of RM360.2m, came in above HLIB’s expectations by accounting for 110.0% of our full year earnings estimates. Against consensus, it came in within expectations (99.3%).

Deviations

• Higher-than-expected contribution from its automotive arm, HR Owen.

Dividends

• Declared final dividend of 5.0 sen/share (4QFY14: 7.0 sen/share). Total dividend declared in FY15 was 21.5 sen/share (FY14: 26.5 sen/share), representing total dividend payout and yield of 80.4% and 6.6% respectively.

Highlights

• Yoy: Growth in revenue was largely driven by the 30.6% topline growth in HR Owen. Excluding it, BToto would have experience slight decline in revenue from lower sales per draw and lesser number of draw days. Earnings grew 11.8% yoy, largely due to lower prize payout ratio during the quarter of 65.4% vs. 68.1% in 4QFY14.

• YTD: Jump in revenue once again was attributed to the additional contribution from HR Owen. Stripping it off, BToto’s lottery operations suffered a decline on lesser sales per draw from all games (except lotto games). Total draws in FY15 was also lesser at 178 days (FY14: 179 days).

• Earnings experienced slower growth as FY14 experienced a RM18m refund from the cancellation of Sports Toto Malaysia Trust in Singapore. Apart from that, average prize payout ratio was also lower. (FY15: 62.8%; FY14: 63.4%).

• On a side note, BToto have changed its Mega 6/52 game to Grand 6/63, effective 21 Mar 2015. We believe this initiative is to attract more customers for its higher prize payout (minimum payout of RM15m). Sales per draw for Grand 6/63 is also higher at an average of RM346k/draw vs. RM250k/draw for Mega 6/52.

• BToto have overtook Magnum’s position as market leader under the 4D Jackpot game with market share of 41.9%, followed by Magnum with 40.7% and Da Ma Cai at 17.4%.

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 are keeping our forecasts unchanged as we are expecting softer FY04/16 given the challenging operating environment resulted from rising costs and postimplementation of GST. Furthermore, earnings may be impacted as gaming companies are not allowed to pass on any increases in costs due to GST.

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.

Valuation

Target price remained unchanged at RM3.59 based on DCF valuations. Maintain HOLD despite potential total return is more than 10% given lack of catalyst and negative impact from GST.

Source: Hong Leong Investment Bank Research - 19 Jun 2015