We believe that Berjaya Sports Toto’s (BST) 1QFY20 core PATAMI of RM54.2m was within our expectation but fell short of consensus, delivering 23% and 21% of our respective full-year forecasts. Headline profit was higher due to the disposal gain of its investment property. The revenue trend for its Malaysian Toto operation has remained relatively stable at around RM800m per quarter since early 2019. Although we have raised our forecasts to factor in the cut in special draw days starting in 2020, we are keeping our DDM-based TP unchanged at RM2.10, and reiterate our SELL call.

Malaysian Revenue Remains Stagnant

We believe that the benefits from an increase in enforcement activity on illegal gambling websites have plateaued, as revenue from the Malaysian lottery operation has remained relatively stable at around RM800m/quarter since 4QFY19. The improvement in revenue/draw day was due to the fluctuation of draw days during the quarter. We are expecting revenue per draw day to increase in 2020, as the special draw days will be reduced from the current 11 days to 8 days; however, the revenue per quarter should remain relatively stable at RM800m/quarter.

Fewer Special Draw Days Is Good for Margin

We are raising our margin forecasts, as we are assuming that the cut in special draw days would not impact the overall revenue in each quarter. The total number of draw days will be reduced to 164 days from 167 days. Margins on special draw days are lower relative to a normal draw day as there is an additional 10% gaming tax imposed on the ticket sales. There could be downside risk to our revenue forecasts if the government reduces the intensity on enforcement, as revenue per quarter has improved from RM750m/qtr in mid-2018 to RM800m/qtr currently.

Reiterate SELL Call and TP of RM2.10

We have raised our EPS forecasts for FY20-21 by 1.3%-2.7% to factor in the better margins from the reduction in special draw days. However, we are keeping our DDM-based 12-month TP unchanged at RM2.10, and 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 Nov 2019