BToto reported 1QFY21 core net profit RM64.6m (from core net loss of -RM46m QoQ, +24.1% YoY). We gather that ticket sales are hovering at c.85% of pre-Covid levels (since the resumption in mid-June). The commendable results of the latest quarter were supported by a higher luck factor, which may not be sustainable moving forward. We increase our FY21 earnings by 16.8% and maintain HOLD with a higher TP of RM2.13) based on a DCF valuation with WACC of 7.4% and TG of 1%.

Above expectations. BToto reported 1QFY21 core net profit RM64.6m (from core net loss of -46m QoQ, +24.1% YoY) forming 35% and 28% of ours and consensus expectations respectively. The results were above our expectations largely due to higher than expected sales volume and margins. Our core PATMI sum has been arrived from excluding investment related income of RM3.2m.

Dividend. Declared first interim dividend of 4.0 (1QFY20: 4.0) sen per share going ex on 30 Dec 2020.

QoQ. Revenue increased 183.3% to RM1.3bn as 4QFY21 had only 6 draws worth of operations in its Gaming segment. Subsequently a core net profit of RM64.6m was recorded (from a core net loss of -RM46m).

YoY. Revenue fell marginally to -6.3% largely due to lower revenue from to the Gaming segment partially mitigated by higher revenue from the Motor business. However, core net profit increased 24.1% on the back of higher luck factor in the Gaming segment coupled with improved margins in the Motor segment.

Latest info. We gather that ticket sales are hovering at c.85% of pre-Covid levels (since the resumption in mid-June). The commendable results of the latest quarter were supported by a higher luck factor, which may not be necessarily sustainable moving forward.

Forecast. We increase our FY21 earnings by 16.8% to reflect higher sales in the Gaming segment as we were previously too conservative on our estimates.

Maintain HOLD, with a slightly higher TP of RM2.13 (from RM2.05) based on a DCF valuation with WACC of 7.4% 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 as operations have resumed with a dividend yield of over 6%.

Source: Hong Leong Investment Bank Research - 19 Nov 2020