• We believe overall revenue per draw day will remain below pre COVID-19 levels over the next 2 years, due to a change in spending patterns
• Management also noted the recovery post MCO 2.0 is slower than MCO 1.0, as current revenue is only 60-70% of pre-COVID-19 levels, despite introducing delivery services
• We believe that the illegal operators remain a major challenge for BST, as their pay-out remains more attractive, capping BST’s recovery. Reiterate SELL

Recovery Takes a Hit After MCO 2.0

Although the government has lifted the MCO 2.0, management guided that the current revenue per draw day is still 60-70% below pre COVID-19 levels, and the recovery is tracking behind MCO 1.0. Before the implementation of MCO 2.0, overall revenue per draw day was only 20% pre COVID-19 levels, which was also partly supported by the higher demand from the lotto games due to the accumulated jackpot. Although it is widely believed that gaming activities are more resilient to economic cycles, we believe the change in consumer spending pattern might have distorted the trend. The reduction in the inflow of foreign workers might have also reduced demand for gaming spending, in our view.

Illegal Operators Still a Problem

Apart from a change in consumer spending patterns, we also believe that the legal operators like BST continue to lose market share to the illegal operators. Although BST has introduced delivery services to provide more convenience to their customers, it is still not sufficient to regain its market share. We estimate that the illegal market is at least 1.5- 2.0x the size of the legal market. Apart from convenience, the biggest lure of the illegal market is their higher pay-out, which is currently 28% higher than the legal operators. Management believes that the current laws are also too lenient to both the illegals and its customers, which has allowed this to prosper.

Reiterate SELL Rating, as There Is Still Downside Risk to DPS

Although we are expecting the revenue per draw day to recover to pre COVID-19 levels in 2022, we believe there is significant downside risk to this, if current consumer patterns persist. Apart from that, we also believe the higher payout and easy access to the illegal market will also continue to gain market share from the legal operators. Thus, we reiterate our SELL call, as we believe there is downside risk to our DPS forecast, if the recovery were to take longer than expected. Upside risk: lower-than-expected prize payout ratio and operating expenses.

Source: Affin Hwang Research - 5 Apr 2021