Berjaya Sports Toto’s (BST) 14M FY19 core-PATAMI of RM318m was within our expectation, delivering 99% of our full-year expectations. The headline numbers were significantly lower at RM235m, due to the write-down of its investment value of its recently disposed subsidiary, PGMC. The revenue trend for its Malaysia Toto operation remained stable; however, profitability fell due to a higher payout. We are trimming our FY20-21E EPS by 3.7-4.7%, but reiterate our SELL call, as our DDM-based TP of RM2.10 remains unchanged.

Malaysia Toto – Revenue Per Draw Day Remain Stable Qoq

As the government continued its efforts in combating illegal gambling, revenue per draw day for the quarter remained relatively stable at RM19.2m (-1.7% qoq). However, we remain sceptical on the sustainability of the trend, as we believe the recovery from RM17.4m/draw-day a year ago could fizzle out once enforcement activity starts to normalise. Nevertheless, there could be upside risk to our forecast (for both EPS and DPS) should BST be able to sustain the current momentum, as we forecast an average revenue per draw day of c.RM18.2m for FY20E.

Philippines Leasing – a Local Partner Helps to Secure Bid

With both the disposal and dilution of its stake in Philippines Leasing (PGMC) to a local partner, BST’s effective stake has been reduced from 88.3% to 35.3%. Although PGMC contributed c.12% of PAT in 14M FY19, the leasing contract with Philippines Charity Sweepstake Office (PCSO) is coming to an end. With the new partner, PGMC was one of only 2 bidders for the new 5-year lease, but PGMC was declared the only bid that was eligible for evaluation and approval. PCSO is currently evaluating PGMC’s financial bid. We believe the rates would be significantly lower than current rates, but would cover 3 regions (Luzon, Visayas and Midanao) instead of Luzion only.

Reiterate SELL Call and TP of RM2.10

To incorporate the disposal of its Philippines leasing business, we are trimming our EPS by 3.7-4.7% for FY20-21E. However, we are keeping our DDM-based 12-month TP unchanged at RM2.10, while reiterating our SELL rating. 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 - 20 Aug 2019