BToto’s 12MFY19 core PATMI of RM258.0m (+8% YoY) came within expectations. 4QFY19 reported stronger YoY and QoQ earnings mainly due to lower prize payout and higher sales from Sports Toto despite lower draw days. This was partially offset by higher cost base from H.R. Owen in spite of higher car sales. 12MFY19 higher earnings were also due to better efficiency from Sports Toto and better profitability coupled with higher new car sales from H.R. Owen. FY19 earnings forecast are increased by 22% to account for 14 months earnings following the change of FYE to June from April. We also increased our FY20/21 earnings forecast to account for lower prize payout. Maintain HOLD with higher TP of RM2.46 based on DCF valuation.

Within expectations. 12MFY19 core PATAMI of RM258.0m (+8% YoY) was within expectations, accounting for 103% and 96% of ours and consensus 12MFY19 forecasts, respectively. Note that BToto recently announced the change in its FYE from Apr to June. As such, there will be a 5Q results of 2 months (i.e. May and June) that will be announced for FY19 (14M FYE).

Dividend. Declared 4th interim dividend of 4.5 sen (4QFY18: 4.0 sen) per share going ex on 18 July 2019, bringing YTD dividend to 16 sen.

QoQ. Revenue increased by 10.8% largely led by higher car sales by H.R. Owen (+24.7%) and seasonally stronger sales (due to Lunar New Year) for Sports Toto (+1.9%) in spite of lower draw days of 41 days vs 44 days in the preceding quarter. Better luck factor had further strengthened core PATMI by 24.1% to RM67.5m. The lower prize payout more than cushion the weaker contribution from H.R Owen as a result of higher operating costs.

YoY. Core PATMI improved by 22.6% largely underpinned by stronger contribution from Sports Toto in view of higher sales, lower prize payout and lower operating expenses. This has offset weaker contribution from H.R. Owen which incurred higher operating expenses despite higher car sales and lower lease rental income from PCSO.

YTD. Revenue marginal growth of 1.1% was predominantly due to higher car sales by H.R Owen which overwhelmed lower revenue from PGMC amidst flattish sales from Sports Toto. Core PATMI strengthened by 8% due to better contribution from Sports Toto on lower operating expenses and H.R. Owen with the help of higher new car sales.

Sports Toto operation. Overall, Sports Toto operation posted higher sales per draw (+11.6% QoQ; +10.2% YoY) mainly supported by most of the games especially the Lotto games. The overwhelming responds for lotto games is due to the huge jackpot prize pool total of RM49m for all 4 games (4D jackpot, Power 6/55, Supreme 6/58 and Star 6/50).

Forecast. FY19 earnings are increased by 22% mainly to account for 14 months earnings (i.e. additional 2 months) as the group has changed their FYE to June from April. We also increased our FY20/21 earnings by 4.3%/7.1% respectively on the back of better luck factor (lower payout).

Maintain HOLD, with slightly higher TP RM2.46 (previously: RM2.31) post adjustment of earnings. Our valuation is based on DCF valuation with WACC of 8.1% and TG of 1.5%. We believe BToto remains unexciting with the lack of fresh catalyst coupled with challenging operating environment amid rampant illegal operators. Nonetheless, dividend yield of 6.2% is the saving grace.

Source: Hong Leong Investment Bank Research - 19 Jun 2019