Berjaya Sports Toto’s (BST) 12MFY19 core-PATAMI of RM282.7m (+8.5%) came in above both consensus and our expectations, contributing to 105% of our respective forecast. We believe that the better-than-expected performance was mainly driven by the lower prize payout for its Malaysia operation. Nevertheless, the 1.3% yoy increase in Malaysian operation revenue in 12MFY19 was a positive surprise to us, despite the cut in the number of draw days. We revise up our target price (TP) to RM2.10 but keep our SELL call unchanged.

Malaysia Toto – Better Than Expectations

Despite the cut in the overall number of draw days as the government cut the number of special draw days by half, BST was still able to maintain a marginal revenue growth of +1.3% yoy for its Malaysian operation in 12MFY19. We were expecting a decline in revenue due to less draw days. Revenue for the 9MFY19 recorded a marginal drop of 0.6% yoy prior to the 4Q. However, we believe that CNY in February could have disrupted the trend. Malaysian operation PBT increased by 44.2% yoy in 4QFY19, mainly driven by the lower payouts, which we believe will normalise in subsequent quarters.

Philippines Leasing – More Challenges Ahead

For 12MFY19, PBT for this segment contracted by 23% yoy, which is due to lower leasing activities from PCSO. The decline in revenue has accelerate in 4QFY19, compared to the revenue decline of 17.3% yoy in 9MFY19. We believe that there could be more downside 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 only last until August 2019. PBT for the segment contracted by 22.7% yoy for 12MFY19 in tandem with the decline in revenue.

Reiterate SELL Call With a Higher TP of RM2.10

As the company have change its financial year end from April to June, we have also revised our FY19E forecast from 12M to 14M. We have also revised up our DDM-based TP to RM2.10 as we roll forward our valuation base to CY20E. Key upside risks to our call: enhanced enforcement activity on illegal betting operators, and an increase in the number of draw days.

Source: Affin Hwang Research - 19 Jun 2019