Falling short of expectations

Although Berjaya Sports Toto’s (BST) 1HFY17 core net profit of RM145mn is up 3% YoY, it is still below our and the street expectations, as it only constitutes 45% of our forecast. The weaker than expected numbers can be attributed to its core numberforecasting business, as revenue continues to decline. BST also announced a 4 sen 2nd interim dividend, which is also below our expectation. Maintain SELL with an unchanged TP of RM2.88.

2QFY17 results fall short of expectations

BST’s 1HFY17 results were below both our and consensus expectations, as core net profit at RM145mn (+3% yoy), but only accounted for 45% of both our and consensus forecasts. The total dividend pay-out at 8 sen for the 1H2017 is also lagging our and consensus expectations of 19 sen and 20 sen for FY17E, respectively.

Toto revenue declining trend continues

Its core number-forecasting Malaysia operation has fail to maintain the positive revenue growth trend in 1QFY17, as revenue is down 6.2% YoY or down 0.2% from 1QFY17. We see downside risk to our and consensus numbers, if the decline worsens in 3QFY17 despite benefiting from the festive (Chinese New Year) season.

Philippines leasing business could see more downside risk

Its Philippines leasing business (PGMC), recorded 11.8% yoy drop in revenue and 19.5% yoy drop in pre-tax profit for 2QFY17, due to lower lease rental income as a result of lower sales reported by the Philippines Charity Sweepstake Office (“PCSO”). We believe that given the declining sales in PCSO, the risk of lowering the leasing fee in 2018 has also intensifies, which will in return lower both PGMC ‘s revenue and profit.

H.R. Owen too small to make a difference

Although H.R. Owen manage to deliver growth in the 2QFY17, it is too insignificant to change the tide for BST. The growth was boosted by higher sales volume of new cars and the launch of new models during the quarter.

Maintain SELL and DDM-based TP of RM2.88

We maintain our SELL recommendation for BST with an unchanged DDMbased 12-month target price of RM2.88 (discount rate: 7.6%; growth rate: 1.0%). We believe BST lacks catalysts as earnings growth remains challenging due to: 1) weak consumer sentiment; 2) increasing illegal gaming activities; and 3) weak sales by PCSO.

Risks

Upside risks to our call include: 1) lower-than-expected prize payouts; 2) higher-than-expected dividend payouts; 3) higher-than-expected revenue per draw; and 4) better-than-expected earnings from the nationwide computerised lottery project in Vietnam.

Source: Affin Hwang Research - 19 Dec 2016