Results

• BToto reported FY01/16 PATAMI of RM72.47m, came in below expectations, accounting for 20.1% of HLIB’s full year earnings estimation and 20.6% of consensus estimation.

Deviations

• Below expected due to BToto’s lottery operations.

• Higher payout ratio and GST impact.

Dividends

• Declared first interim dividend of 2.5 sen/share and share dividend of 2.5 sen/share (1QFY15: 5.5 sen/share) as compared to our full year forecast of 23.2 sen/share. This represents a total dividend payout of 92.8%.

Highlights

• Yoy: Growth in revenue was largely driven by the 20.49% topline growth in HR Owen. Excluding it, the growth is a mere 0.44%. Looking at lottery operation, this quarter result posted lower sales per draw despite higher number of draw days of 43 compared to 42.

• Qoq: The revenue of main core business of BToto’s lottery operations suffered huge decrease of 10% due to the GST effect and earnings were further impacted absorption of GST.

• As shown in Figure 6, the sales for 4D Jackpot game was cannibalized by Magnum and Damacai resulting in lower market share due to the higher Jackpot prizes from the other operators.

• We do not foresee the motor dealership segment to contribute significantly to bottom line (until margin improves) despite revenue contribution of about 35-40%. Despite the double digit growth achieved by HR Owen, the segmented PBT margin is only 2.1% and mere 2.3% of our bottom line forecast given the steady car sales growth in UK as per Society of Motor Manufacturers and Traders (SMMT)’s statistic.

Risks

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

Forecasts

• In view of the lower than expectation results and challenging operating environment culminating from rising costs and GST impact (on both sales and margin from GST absorption) as well as the higher payout ratio in 1Q, we are lowering our earnings forecasts by 5.2% and 2.6% for FY16 and FY17, negatively.

Rating

HOLD

Positives

• (1) Extension of gaming concession agreement with the Philippine Charity Sweepstakes via subsidiary of Berjaya Philippines Inc.; (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. (3) Higher cost environment

Valuation

We revised our target price lower from RM3.59 to RM3.21 based on DCF valuations. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 18 Sep 2015