• Berjaya Sports Toto (BST) reported a strong set of numbers, as 1QFY21 PATAMI of RM67.9m (+1.3% yoy) constituted 30% of both our and consensus full-year estimates
• We believe that the better-than-expected performance is not sustainable as it was from backlog fulfilment for its auto dealership, and also lower prize payouts for its Toto betting operation
• We revise our earnings for FY21E by 6% to factor in the stronger performance in 1QFY20; however, we are keeping our SELL call as the operating environment for its core Toto betting remains challenging

Revenue per draw day for Toto betting is still below pre COVID-19 level

The revenue per draw day for the quarter was at around RM15.6m/draw day, which is still 22% lower than the RM20.0m/draw day BST was generating pre COVID-19. We believe that given the patchy economic recovery and also the introduction of CMCO in most states in Malaysia, the road to recovery might take longer than expected, as consumers might refrain from spending. Despite the lower revenue, the operating profit at RM98m for 1QFY21 is similar to pre COVID-19 levels, mainly driven by a lower payout ratio and operating expenses, which will normalise in coming quarters.

Motor dealership’s strong performance is not replicable

The overall better-than-expected performance for BST in 1QFY21 was partly driven by the higher profit of its UK motor division, as its operating profit nearly tripled during the quarter to RM22m from RM7.8m in 1QFY20. However, we believe that the improvement is unlikely to be repeated, as it was mainly because of backlog fulfilment after the earlier COVID-19 lockdown ended on 31 May 2020. Apart from that, BST also benefited from the favourable currency exchange movement for the quarter. The UK had reintroduced another lockdown starting 1 November 2020.

Maintaining SELL as outlook remains challenging

Although we are raising our EPS forecast for FY21 by 6% to factor in the latest quarter performance, we believe that the current operating environment is likely to remain challenging for BST, as the ongoing pandemic has continued to alter spending patterns. We raise our DDM-based TP to RM1.80 as we revise our DPS forecast for FY21 from 15.5sen to 16.0sen, but keep our SELL call unchanged. Upside risks includes lower-thanexpected prize payout ratio and lower-than-expected operating expenses.

Source: Affin Hwang Research - 19 Nov 2020