Results

• 9MFY18 core PATAMI of RM189.9m came in below expectations, accounting for 68.6% and 66.2% of HLIB and consensus FY18 full year forecasts, respectively. However, the results were in line at EBITDA level.

Deviations

• Due to higher than expected effective tax rate.

Dividends

• Declared 3 rd interim dividend of 4.0 sen (3QFY17: 3.0 sen) going ex on 11 Apr 2018, bringing YTD dividend to 12.0 sen, translating to an annualized yield of 7.6% at current price.

Highlights

• QoQ: Core PATAMI was flat (-0.5%) mainly due to higher effective tax rate. EBITDA was higher (+6.4%) on the back of higher revenue (+1.5%) mainly due to better performance HR Owen resulting from better car sales and higher margin from used car sales. The results were partially offset by lower contribution from Sports Toto and PGMC, affected by lower revenue and higher opex.

• YoY: Core PATAMI improved by 44.5% resulted from higher revenue (+2.7%) given the better performances from Sports Toto thanks to lower payout and opex. H.R. Owen also recorded better results from better car sales and higher margin. Besides, the better results were also due the RM15.6m negative GST adjustment back in 3QFY17.

• YTD: Core PATAMI improved by 10.1% mainly due lower payout as well as low base effect given higher opex and GST adjustment made in FY17. Revenue was flat with higher revenue from H.R. Owen and PGMC, offsetting the lower sales from Sports Toto due to high base effect in 3QFY17 (Chinese New Year festive period and higher number of draws).

• Overall, Sports Toto operation posted lower sales per draw except for the Lotto games (+41% yoy), enticed by the high jackpot prizes (Power 6/55 and Supreme 6/58), cannibalizing the sales for other games.

Risks

• Higher-than-expected prize payout ratio.

• Cannibalization from Magnum and PMP.

• Hike in pool betting duty/gaming tax.

Forecasts

• Our FY18 earnings is lowered by 3.2% after taking into account higher effective tax rate, but our FY19/FY20 earnings are raised by 2.6%/3.9% after factoring lower interest cost assumptions.

Rating

HOLD ↔

• Btoto remains unexciting given the lack of fresh catalyst, challenging operating environment amid rampant illegal operators coupled with the risk of losing income stream from Philippines. 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 RM2.21 based on DCF valuations with WACC of 9.3% and TG of 1.5%.

Source: Hong Leong Investment Bank Research - 19 Mar 2018