Berjaya Sports Toto (BST) reported lacklustre 9M FY20 core-PATAMI of RM169.4m (-19% yoy), which is largely within both our and consensus estimates, delivering 77% and 74% of respective full-year forecasts. However, we are cutting our EPS by 0.1-34.8% for FY20- 22E to factor in the loss of draw days in 4Q FY20 and lower revenue per draw day due to weaker consumer sentiment. Nevertheless, we are reiterating our SELL rating and DDM-based TP of RM1.70.

Higher Revenue Per Draw Due to Festive Season

The increase in revenue per draw day by 2.9% qoq in 3Q FY20, did not come as a surprise to us, due to the Lunar New Year festive season in January 2020. However, revenue for the lottery segment dropped by 11.8% qoq, due to the cancellation of 6 draw days during the movement control order (MCO). Assuming that the conditional MCO (CMCO) is not extended beyond 9 June 2020, there will only be 9 draw days left in the 4Q FY20, and hence we are cutting our EPS to reflect the changes. We believe that given the uncertainty in the economic outlook, consumption on gaming activities will also be lower.

Higher Car Sales Surprise Us on the Upside

The PBT for the auto division increased to RM8m from RM2.2m from the previous quarter, with the better performance supported by higher sales of new cars. However, the strong performance might not be sustained given that the UK is also on lockdown, and car showrooms will only reopen by 1 June. As such, we have also lowered our earnings expectations for the segment. The impact on earnings is not as significant as BST’s lottery operations, as it only contributed to around 10% of PBT in 3Q FY20.

Reiterate SELL Call and TP of RM1.70

We are cutting our EPS for FY20-22E by 0.1-34.8% to factor in the reduction in draw days due to the MCO and lower consumer spending on gaming activities. However, we are maintaining our DDM-based 12-month TP of RM1.70 and SELL rating due to the challenging outlook. Key upside risks to our call: enhanced enforcement activity on the illegal operators and an increase in the number of special draw days.

Source: Affin Hwang Research - 3 Jun 2020