We are maintaining our HOLD call on Berjaya Sports Toto (BST), with a slightly lower TP of RM2.20 as we revised lower our long term growth rate assumption. 9MFY18 net profit of RM195.3m (+15.7% yoy) came in above our expectation but fell short of consensus, as it delivered 80% and 70% of our respective full year forecast. The better than expected performance was supported by the higher revenue related to its Jackpot game and also a lower prize payout. A 4sen interim DPS was also announced.

Malaysia Toto – Revenue Decline Manageable

Despite coming off a strong 2Q supported by a record high jackpot, revenue only declined by 0.4% qoq which came in above our expectations. We believe that due to the recent few high jackpot payouts, the increase in the number of bets on its jackpot game has helped to compensate for lower bets on its traditional 4-digit games. The overall lower prize payout had also helped. However, we believe that BST is not completely out of the woods, as demand for the Jackpot games continues to vary depending on the prize pool.

Philippines Leasing – Exclusivity at Risk

Revenue for the segment declined by 6.4% qoq, due to lower sales number and also negative impact from the stronger RM, which led to a 7.5% qoq decline in PBT. However, we believe that there could be more downside risk in the future as the arbitration tribunal has ruled against their favour, indicating that they don’t have the exclusive contract rights to supply an online lottery system for Luzon. The case is currently on appeal.

UK Motor Division – Volatility in New Models’ Launch

Overall performance for the segment remains volatile, as PBT has increase to RM10.1m in 3Q from the LBT of RM4.0m in 2Q. The overall improvement is supported by the stronger performance from its used car segment.

Trimming Our TP to RM2.20, But Maintaining Our HOLD Rating

Despite revising up our EPS for FY18-20E by 5%, to factor in the better 9MFY18 performance, we are lowering our DDM-based 12-month TP to RM2.20, as revised lower our long-term growth rate to 0.5% from 1.0%, while maintaining our discount rate unchanged at 8.0%.

Source: Affin Hwang Research - 19 Mar 2018