No Big Surprises

Berjaya Sports Toto’s (BST) 9M19 core net profit of RM208m (+6.8% yoy) is within our and consensus expectations, contributing to 77% and 74% of respective full year forecast. However, we believe that there could be weakness to share price performance, due to higher investors expectation arising from the better earnings delivery by its peers. Likewise, the full impact of the reduction of the number of special draw days has yet to be reflected in its numbers. Reiterate SELL with an unchanged TP of RM2.00.

Malaysia Toto – Expectation Might be Set Too High

Revenue for the 9MFY19 recorded a marginal drop of -0.6% yoy, while PBT contracted by -2.0% yoy. Nevertheless, the result is within both our and consensus expectations. However, we believe that investors might have higher expectations as Magnum (MAG MK, Not Rated) which announced a stronger set of 4Q results back in February, guided that a surge in its gaming revenue by 8.6% qoq was partly attributed the success to an increase in enforcement activities to combat the illegals. For BST, revenue for the segment only grew a marginal 0.5% qoq.

Philippines Leasing – More Cost Cutting Needed

For the 9MFY19, PBT for this segment contracted by 7.6% yoy due to lower leasing activities from PCSO. The decline in PBT was less than the -17.3% yoy decline in revenue due to lower operating expenses. However, we believe that there could be more downside risk to revenue, as the fees on the leasing contract to supply lottery equipment in Luzon, is likely to be renewed at a lower rate moving forward. We expect the current pricing to last till August 2019 only.

Reiterate SELL Call With An Unchanged TP of RM2.00

We make no change to our EPS forecasts and DDM-based TP of RM2.00. We are maintaining our SELL call, due to the limited upside from current levels. Although management has lower its dividend payout from 4sen in 2QFY19 to 3.5sen in 3QFY19, we are keeping our dividend forecast unchanged, as management could still raise the payout in the following quarter, our full year forecast for DPS is at 16.5sen. Key upside risks to our call: enhanced enforcement activity on illegal betting operators, and increase in number of draw days.

Source: Affin Hwang Research - 19 Mar 2019