Highlights

• It was reported that Sports Toto is retiring its lotto game variant in Grand Toto 6/63 and replacing it with new Star Toto 6/50 starting from this Saturday, Oct 21.
• The final Grand Toto 6/63 draw was yesterday and the prize money from Grand Toto that is not won will be allocated to Star Toto 6/50 Jackpot 1, Power Toto 6/55 and Supreme Toto 6/58 in proportion to the games' odds of winning.
• We opine that it is a positive move as it will help to revive the interest on its Lotto games while punters are able to play the game at a lower cost as well as stand a higher chance of winning.
• We believe Star Toto is likely to draw more interest as it is cheaper for punters to play given that the ticket price is selling at RM1 compared to Grand Toto of RM2.
• Besides, the better odds of winning in terms of probability (1 in 15.9m chance to win the jackpot in Star Toto vs 1 in 67.9m chance in Grand Toto). More prizes (7 prizes) to be won as compared to Grand Toto (4 prizes) would also entice more punters to play. (refer to Figure #1)
• Thirdly, the actual payout of the game would normalize closer to the theoretical payout of 55% as it draws more ticket sales into the pool in proportion to the minimum jackpot at RM1.18m, statistically speaking. This would bring stability to the payout of the game and earnings barring any luck factor.
• Historically, Lotto games account for about 7% of total sales and the obsolete games have been very challenging in gaining traction with the exception when the jackpot prize snowballed to a very attractive amount. Hence, changing the game variant with more features and higher chance of winning would bring more excitement.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ↔

• Despite the recent retracement in share price, BToto remains unexciting given the lack of fresh catalyst, challenging operating environment amid rampant illegal operators. There are also uncertainties in the ongoing disputes on the interpretation of GST and the trend of IRB's of going hard on retrospective tax claims.

Valuation

• Target price is maintained at RM2.50 based on DCF valuations with WACC of 9.3% and TG of 1.5%.

Source: Hong Leong Investment Bank Research - 19 Oct 2017