BToto reported 3Q21 core net profit RM25.1m (-64.3% QoQ, -49.5% YoY) bringing 9M21’s sum to RM170.5m (-0.2% YoY) constituting 80/82% of ours/consensus full year forecasts. We deem this result to be in-line with expectations as we expect 4Q21 results to be weaker YoY due to the escalating Covid-19 cases in Malaysia of late. Nevertheless, we remain optimistic on the vaccination rollouts (back loaded to 2HCY21) and we expect BToto to record a modest YoY recovery of 7% in FY22. We maintain our BUY rating with an unchanged 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 3Q21 core net profit RM25.1m (-64.3% QoQ, - 49.5% YoY) bringing 9M21’s sum to RM170.5m (-0.2% YoY) forming 80% of ours and 82% of consensus’ expectations. We deem this to be inline as we expect 4Q21 results to be weaker YoY due the rising domestic Covid-19 cases of late. 9M21 core PATMI sum was arrived after adjusting for provision/write-off of inventories amounting to RM21.2m and reversal of write-offs for receivables amounting to -RM2.3m.

Dividend. Declared third interim dividend of 1.5 sen/share (SPLY: none) going ex on 29 June 2021 bringing 9M21 DPS to 8.0 sen/share (SPLY: 8.0 sen/share).

QoQ. Core profit declined by -64.3% due to lower footfall from customers as a result of rising Covid-19 cases and the implementation of MCO 2.0 as its outlets were forced to close for 5 weeks. However, the decline in core profit was mitigated by a 76.8% increase in its franchised motor vehicles division EBIT.

YoY. Core profit declined by -49.5% for the same reasons mentioned above, mitigated by an increase of 86.4% in its motor vehicles division EBIT.

YTD. Core profit was flat YoY as its better 1H21 performance was balanced out with its weaker 3Q21 performance from the implementation of MCO 2.0.

Outlook. We expect a modest recovery in its 4Q21 results despite the rising Covid-19 cases in Malaysia as its outlets are still allowed to operate. However, we are cognisant of the possibility of the implementation of a stricter MCO. This is the main reason behind our conservative FY22 forecast of RM227.7m (+7% YoY). We remain optimistic on the vaccination rollouts but note that bulk of the supply (>70%) is back loaded to 2HCY21. We believe that BToto’s customers would have a higher willingness to go out to purchase draws when vaccination rates are higher and Covid-19 cases dissipate. 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.

Maintain BUY, with an unchanged TP of RM2.40 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 strives to recover from the Covid-19 pandemic with its vaccination rollout plans. We believe that the stock is attractive at this juncture with a strong projected dividend yield of 4.0%.

Source: Hong Leong Investment Bank Research - 21 May 2021