• Berjaya Sports Toto (BST) reported a decent set of 1HFY21 results, as corePATAMI of RM145.6m (+20.2%) came in above both our and consensus expectations, delivering 62% and 68% of our respective forecasts
• However, BST cut its interim DPS to 2.5 sen from 4.0 sen a year ago, despite the strong earnings growth
• We are lowering our EPS forecasts for FY21E-23E by 1.1%-5.8%, as we believe the recovery is negatively impacted by the reimplementation of the recent MCO. Reiterate SELL, with an unchanged TP of RM1.80

Revenue Per Draw Day Is Recovering But Still 20% Below Yoy

Although the revenue per draw day has increased by 3.8% qoq to RM16.2m, it is still 20% below pre Covid-19 levels. However, we are not fully convinced that the current run rate is sustainable, given that the increase in 2QFY21 was also partly supported by higher demand from the lotto games due to the accumulated jackpot. The recent reintroduction of the MCO across most states is also likely to dampen the recovery, although the impact is unlikely to be as severe as the initial MCO, given that more businesses are allowed to be operational. Most of BST’s outlets have been closed for slightly more than a month in 3QFY21.

Cut in Interim DPS Was a Negative Surprise to Us

Despite the decent set of results, BST decided to reduce its 2nd interim DPS to 2.5 sen from 4.0 sen previously (1st interim was also 4.0sen), which came as a negative surprise to us. Although BST had also reduced the payout during the previous MCO, it was due to the prolonged closure of its outlets which resulted in losses. Most of BST’s outlets have already resumed operation since 16 February. Due to the reduction in DPS, we have lowered our DPS payout for FY21E to 13.0 sen from 16.0 sen previously, as we lower the payout ratio assumption from 95% to 80%.

Reiterate SELL as the Road to Recovery Remains Challening

We are lowering our EPS forecasts for FY21-23E by 1.1%-5.8% to factor in a slower recovery in BST’s NFO operation due to the recent implementation of the MCO. Although the revenue per draw day has increased qoq, it is still significantly (20%) below pre Covid19 levels. The reduction in DPS in 2QFY21 was also a negative surprise to us. We are maintaining our DDM-based TP at RM1.80 and therefore our SELL call. Upside risks include lower-than-expected prize payout ratio and lower-than-expected operating expenses.

Source: Affin Hwang Research - 24 Feb 2021