• Berjaya Sports Toto (BST) reported a relatively weak set of numbers, with FY20 core PATAMI of RM129.3m (-54.3% yoy) at only 75% and 91% of our and consensus expectations respectively
• We Had Overestimated the Recovery in BST’s Revenue Post-MCO
• We have lowered our EPS forecasts for FY21-22 by 6.0%-7.4% to take into account a slower recovery in BST’s NFO operation, while maintaining our DCF-based TP at RM1.70. Maintain SELL

Revenue Per Draw Day Will Take Time to Recover

Although the NFOs including BST were able to resume operations on 17th June 2020, there were only 6 draw days available in 4QFY20 compared to 36 draw days in 3QFY20. However, during the initial stage of re-opening, not all outlets were able to resume operations, as certain states still required additional approval. This was one of the contributing factors for the 45% decline in revenue per draw day in 4QFY20, in our view. Although revenue for the NFO division was relatively resilient during past economic crises, we believe that given the record high unemployment rate since the 1990s, it is likely that the recovery in revenue per draw day might take longer than previously expected.

Reduction in DPS Was Lower Than Our Expectation

Given the weak set of results, we were already expecting a cut in overall DPS for FY20. However, the overall DPS at 10.4 sen (inclusive of 2.4 sen of share dividend) was even lower than our expectation of 16 sen. As BST didn’t announce any dividend in 3QFY20, we had assumed that BST would announce a higher dividend payout in 4Q despite the 2.4 sen share dividend announced recently. We had assumed that BST could fund a higher DPS through its cash reserve. In theory, the board of directors can propose a final DPS for shareholders to approve at the upcoming AGM, but we see this as unlikely.

Reiterate SELL, TP Maintained at RM1.70

We lower our EPS forecasts for FY21-22 by 6.0-7.4% to factor in a slower recovery in the revenue per draw day, as we expect lower consumer spending on gaming activities given the high unemployment rate. We also introduce our FY23 forecasts. We maintain our SELL rating and DDM-based 12-month TP of RM1.70, due to the challenging outlook. Key upside risks to our call: enhanced enforcement activity on illegal operators and an increase in the number of special draw days.

Source: Affin Hwang Research - 19 Aug 2020