BToto reported 2Q21 core net profit RM70.4m (-6.2% QoQ, +5.2% YoY) bringing 1HFY21’s sum to RM145.3m (+20.2% YoY) constituting 68% of ours/consensu s full year forecasts. We deem this result to be in-line with expectations as we expect 3Q21 results to be significantly weaker due to the closure of its outlets when MCO2.0 was re-implemented. Its outlets have since been re-opened on the 16th of February and we expect BToto’s operations to record a strong recovery in 4Q21. We upgrade our call from Hold to BUY, with a higher TP of RM2.40 based on a DCF valuation with WACC of 7.6% and TG of 2% leaving our earnings assumptions unchanged.

Within expectations. BToto reported 2Q21 core net profit RM70.4m (-6.2% QoQ, +5.2% YoY) bringing 1HFY21’s sum to RM145.3m (+20.2% YoY) forming 68% of ours and consensus expectations. We deem this to be inline as we expect 3Q21 results to be weak due to MCO2.0. 1HFY21 core PATMI sum was arrived after excluding provision/write-off of inventories amounting to RM14.9m and reversal of write-offs for receivables amounting to RM2.4m.

Dividend. Declared second interim dividend of 2.5 sen/share (SPLY: 4.0 sen/share) going ex on 31 Mar 2021 bringing 1HFY20 DPS to 6.5 sen/share (SPLY: 8.0 sen/share).

QoQ. Core profit declined by 6.2% due to lower footfall from customers as a result of rising Covid-19 cases and the implementation of CMCO2.0.

YoY. Core profit improved by 5.2% YoY due to luck factor and increased contribution from its UK motor vehicles subsidiary H.R Owen. H.R Owen saw its PBT increasing to RM11.1m (+363%) due to lower operating expenses incurred resulting from certain cost-cutting measures adopted by the Company, coupled with support fee from franchises, business relief from the UK government and spill over of previous orderbook backlog.

YTD. Core profit was up by 20.2% mainly due to luck factor and increased contribution from its UK subsidiary.

Outlook. We expect higher gaming revenue from 4Q21 onwards due to the current timeline of vaccine rollouts. 3Q21 performance should be its weakest for FY21 due to the 5 weeks closure of its outlets as a result of MCO2.0. We believe that its customers would have a higher willingness to go out to purchase draws when vaccination rates are higher and Covid-19 cases are lower. We also expect the clamp down on illegal NFOs to be more rampant after the MCO restrictions are lifted, which could bode well for BToto’s sales volume.

Forecast. No Changes.

Upgrade to BUY, with a higher TP of RM2.40 (from RM2.13) based on a DCF valuation with WACC of 7.6% and TG of 2%. We believe that 3Q21 would be the trough for BToto in FY21 and we expect its earnings to recover sequentially from 4Q21 onwards heading into FY22 as the Malaysian economy continues to recover from the Covid-19 pandemic. We believe that the stock is attractive at this juncture with a strong projected dividend yield of 5.2%.

Source: Hong Leong Investment Bank Research - 24 Feb 2021