BToto reported 4Q21 core net profit RM34.9m (+38.7% QoQ, YoY: -RM39.7m) bringing FY21’s sum to RM205m (+56.8% YoY), coming in-line with our (96%) but below consensus’ (90%) full year forecast. We remain optimistic on the vaccination rollouts and the gradual re-opening of the Malaysian economy despite the rising Covid-19 cases and we expect BToto to record a modest YoY recovery of 11.5% 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 4Q21 core net profit RM34.9m (+38.7% QoQ, YoY: -RM39.7m) bringing FY21’s sum to RM205m (+56.8% YoY) forming 96% of ours (inline) and 90% of consensus’ expectations (below). FY21 core PATMI sum was arrived after adjusting for provision/write-off of inventories amounting to RM21.3m and write-offs for receivables amounting to RM2.0m.

Dividend. None declared for the quarter, none SPLY. QoQ. Core profit increased by 38.7% due to lower prize payout, operating expense for Sports Toto and better results from HR Owen. The better results from HR Owen was attributable to higher sales from the used car sector as well as favourable GBP/MYR rate.

YoY. Core profit of RM34.9m vs core loss of -RM39.7m in 4Q20 was primarily attributable to higher relative operating days for its outlets and draws due to MCO1.0 in 4QFY20.

YTD. Core profit increased by 56.8% YoY due to less stringent MCO implemented in FY21 which resulted in higher operating days for its outlets and higher draws.

Outlook. We expect a modest recovery beginning from 2Q22 despite the rising Covid19 cases in Malaysia as we believe that we are making some very good progress with regards to vaccination rates. We believe that BToto’s customers would have a higher willingness to go out to purchase draws when vaccination rates are higher. 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 1Q22 would be the trough for BToto in FY22 and we expect its earnings to recover sequentially from 2Q22 onwards when we achieve herd immunity. We opine that the stock is attractive at this juncture with a decent projected dividend yield of 5.1% in FY22.

Source: Hong Leong Investment Bank Research - 23 Aug 2021