As the financial year-end was changed from April to June in FY19, meaningful comparisons are not available for YoY/YTD. BToto reported 3QFY20 core PATMI of RM48.6m (-21.5% QoQ), bringing 9MFY20 core PATMI to RM168.9m which were below expectations as 4QFY20 earnings will be heavily hit by the ongoing closures. We now expect 4QFY20 to register losses given the extended closures. We cut our FY20/21/22 earnings forecast by -39%/-4.8%/-1.6% and maintain HOLD with a lower TP of RM2.24.

Below expectations. BToto reported 3QFY20 core PATMI of RM48.6m (-21.5% QoQ), bringing 9MFY20 core PATMI to RM168.9m. We deem the results below expectations despite forming 82% and 74% of ours and consensus forecasts, respectively, as 4QFY20 earnings will be heavily hit by the ongoing closures. Our core PATMI sum has been arrived from excluding the gain on disposal of an investment property (RM8.6m).

Dividend. None Declared.

QoQ. Revenue decreased marginally by -5.3% to RM1.3bn as the drop in revenue from Sports Toto was partially offset by higher revenue from the Motor Vehicle (H.R. Owen). Subsequently, core PATMI fell -21.5% to RM48.6m largely due to the drop in Sports Toto which provides better margins compared to its Motor Vehicle operations

YoY/YTD. As financial year-end was changed from April to June in FY19, meaningful comparisons are not available. Note that due to the FYE change, 3QFY19 and 9MFY19 did not consist of the same months as 3QFY20 and 9MFY20 (i.e. 3QFY19 was Nov-Jan and 3QFY20 was Jan-Mar)

Outlook. As the closure of Sports Toto operations has been ongoing since the start of MCO back in Mar 2020 up until the end of CMCO (slated for 9 June); we gather that 37 draws have been foregone during this period. A rough calculation implies that this reduction of draws would impact BToto’s full year bottom-line by c.25%. Given that most of the outlets (over 600 across Malaysia) are operated by agents, the overhead expense required to run NFO outlets are incurred by the respective agents. This essentially helps to partially cushion BToto’s profits from the MCO closures as the impact is largely seen from the absence of commissions to be derived from the gross sales of outlets. In Phillipines, the Philippine Gaming Management Corporation will continue operating on monthly contracts with PCSO moving forward, pending clarity on the next rebidding timeline. All-in-all, we now expect 4QFY20 to register losses given the extended closures. Due to the ongoing challenging environment, we now reduce our FY20 DPS estimates to 8 sen (from 16 sen) as the company is unlikely to declare dividends in 4QFY20 as well.

Forecast. We cut our FY20/21/22 earnings forecast by -39%/-4.8%/-1.6% as we impute the extended lockdown impact towards FY20 alongside slightly lower contributions from the overall operations moving forward.

Maintain HOLD, with a slightly lower TP of RM2.24 (from RM2.26) based on a DCF valuation with WACC of 8.8% and TG of 1.5%. We feel that BToto remains unexciting with the lack of fresh catalyst coupled with challenging operating environment amid rampant illegal operators. Nonetheless, operations should normalise in FY21 once operations resume as post-CMCO social distancing measures should still allow for stable business volumes.

Source: Hong Leong Investment Bank Research - 9 Jun 2020