Berjaya Sports Toto’s (BST) 1HFY19 net profit of RM147.2m (+8.2% yoy) was slightly ahead of our full year forecast, contributing to 55% of our full year forecast. However, results were in-line with consensus expectation. We believe the operating environment would be more challenging in 2HFY19, due to a reduction in number of special draw days effective 2019. BST also announced a 4sen DPS, which is in line with expectations. Reiterate SELL with an unchanged TP of RM 2.00.

Malaysia Toto – Strong 1Q Helps Drive 1HFY19 Performance

PBT for 1HFY19 was up slightly yoy, despite a revenue drop of 0.1% yoy. The flattish earnings was supported by the strong performance in 1QFY19, as BST benefited from the tax holiday period and lower prize money payout during the quarter. Without the benefit of both, PBT contracted significantly in 2QFY19 (-1.9% yoy; -29.1% qoq). We are expecting a contraction in earnings for 2H19, as there would be fewer draw days due to the reduction in the overall number of special days starting in 2019.

Philippines Leasing – A Positive Surprise

In local currency terms, the segment revenue was up 3.4% yoy, while PBT increased by 31.8% yoy for 1HFY19. The stronger-than-expected performance was a positive surprise, as management was able to lower cost to improve profitability. However, we believe the revenue growth is not sustainable as the fees on the leasing contract to supply lottery equipment in Luzon, is likely to be renewed at a lower rate moving forward.

UK Motor Division – Dependent on Delivery of New Car Models

The earnings momentum for the quarter slowed in 2QFY19, as it only recorded PBT of RM4.5m in 2QFY19, lower than the RM20.9m in 1QFY19. The reduction in profit was due to the delay in new car delivery, due to the new changes to the emission testing of all new vehicles.

Reiterate SELL Call With An Unchanged TP of RM 2.00

We make no changes to our EPS forecasts and DDM-based 12-month TP of RM2.00. We are maintaining our SELL call unchanged, due to the limited upside potential from current levels. Key upside risks to our call: enforcement activity on illegal betting operators, and changes in number of draw days

Source: Affin Hwang Research - 17 Dec 2018