Results

• 1HFY18 core PATAMI of RM131.4m (-3.6% YoY) came in within expectations, accounting for 47.5% and 46.1% of HLIB and consensus FY18 full year forecasts, respectively.

Deviations

• None.

Dividends

• Declared 2nd interim dividend of 4.0 sen (2QFY17: 4.0 sen) going ex on 24 Jan 2018, translating to an annualized yield of 7.0% at current price.

Highlights

• QoQ: Revenue and core PATAMI decreased by 6.0% and 15.1% respectively, due to lower performance from HR Owen resulting from softer demand in UK car market and lower margin. The results were partially mitigated by better contribution from Sports Toto and PGMC, thanks to the higher number of draws and higher jackpot prize in 2QFY18.

• YoY: Core PATAMI contracted by 12.2% resulted from lower revenue (-4.9%) mainly due to weaker performance from HR Owen as UK car market softened. Similarly, better performances from Sports Toto and PGMC helped to mitigate the drop, thanks to higher sales and lower payout.

• YTD: Core PATAMI contracted by 3.6% after adjusting for investment related income/expenses and forex gain/loss. Revenue was lower by 1.2% due to lower project contract sales from ILTS, mitigated by higher revenue from Sports Toto.

• Overall, Sports Toto operation posted higher sales thanks to the Lotto and 4D Jackpot games enticed by the high jackpot prize (top RM69.6m for Grand Toto 6/63), cannibalizing the sales for its 4D, 5D and 6D games.

• The ongoing arbitration on Philippine Charity Sweepstakes Office’s (PCSO) intention to open public bidding for the supply and delivery of online lottery equipment remains a concern for BToto. Note that PGMC’s current license is expiring in August 2018.

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, it remains unexciting given the lack of fresh catalyst, challenging operating environment amid rampant illegal operators. An expected dividend of circa. 7% p.a. is the positive note, barring any huge swing in the luck factor.

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 Dec 2017