As the financial year-end was changed from April to June in FY19, meaningful comparisons are not available for YoY/YTD. BToto reported 4QFY20 core net loss of -RM43.3m (from RM48.6m QoQ), bringing FY20 core PATMI to RM125.7m which were below expectations largely due to lower-than-expected contributions from the Sports Toto operations since its resumption in mid-June coupled with larger-than-expected losses from the UK business. We believe near-term operations will likely remain challenging given the ongoing outbreak but remain hopeful for 2HFY21 to normalise. We tweak our FY21/22 earnings forecast by -17.6%/-7.1% and maintain HOLD with a slightly lower TP of RM2.20 based on a DCF valuation with WACC of 8.2% and TG of 1%.

Below expectations. BToto reported 4QFY20 core net loss of -RM43.3m (from RM48.6m QoQ), bringing FY20 core PATMI to RM125.7m, forming 85% and 73% of ours and consensus full year forecasts, respectively. The results disappointment was largely due to lower-than-expected contributions from the Sports Toto operations since its resumption in mid-June coupled with larger-than-expected losses from the UK business. Our core PATMI sum has been arrived from excluding the gain on disposal of an investment property (RM8.6m).

Dividend. Declared share dividend on the basis of 1 treasury share for every 100 existing ordinary shares held (ex-date 23 Sep), bringing 4QFY20 dividend to 2.4 sen per share (based on the book cost of the treasury share) and FY20 dividends to 10.4 sen per share (FY19: 16 sen per share).

QoQ. Revenue fell -64.4% to RM475.1m as Sports Toto operations only resumed mid-June (6 draws carried out in the quarter). Subsequently, a core net loss of - RM43.3m was recorded (from RM48.6m QoQ) in tandem with the decrease in revenue coupled with the unavoidable fixed costs incurred.

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, 4QFY19 and FY19 did not consist of the same months as 4QFY20 and FY20 (i.e. 4QFY19 was Feb-Apr and 4QFY20 was Apr-Jun)

Near-term still impacted by Covid-19. We gather that ticket sales are hovering at c.75% of pre-Covid levels (since the resumption in mid-June). Note that this could be attributed to the overall economic impact of Covid-19 and the potential shift in preference towards the illicit market which operated during the MCO period. The foreign operations are also undergoing its challenges whereby the UK car dealership businesses are carrying out appointment-only customer visits while the PGMC bid in Philippines remains on hold. As such, near-term operations will likely remain challenging but we remain hopeful for 2HFY21 to normalise to pre-Covid levels.

Forecast. We tweak our FY21/22 earnings forecast by -17.6%/-7.1% as we take a conservative stance and impute lower sales volume in both the gaming operations and motor dealership segment in the near-term due to the Covid-19 outbreak. We also lower our FY21 dividend forecasts to 14 sen (from 16 sen) given the ongoing impact of the outbreak towards all its operations.

Maintain HOLD, with a slightly lower TP of RM2.20 (from RM2.24) based on a DCF valuation with WACC of 8.2% and TG of 1%. We feel that BToto remains unexciting with the lack of fresh catalyst coupled with challenging operating environment amid rampant illegal operators. Nonetheless, we expect earnings to normalise by 2HFY21 as operations have resumed.

Source: Hong Leong Investment Bank Research - 19 Aug 2020