• Berjaya Sports Toto (BST) reported a relatively weak set of results, as 9MFY21 core-PATAMI of RM171.1m (+1.0% yoy) fell below both our and consensus expectations
• The weaker-than-expected performance was due to the significant decline in revenue per draw day after the introduction of MCO 2.0 in 3QFY21
• We are lowering our EPS forecasts for FY21-23E by 0.1%-12.5% to factor in lower revenue per draw day, while maintaining our SELL call and DDM-based TP at RM1.80 after rolling forward our valuation base

Revenue Per Draw Day Takes a Hit Due to MCO 2.0

The revenue per draw day in 3QFY21 declined by 34% qoq to RM10.6m, which is also 46% below pre-Covid-19 levels. We believe that the reimplementation of MCO 2.0 in 3QFY21 resulted in a weaker consumer sentiment, forcing punters to change their spending pattern. Given that the government has introduced MCO 3.0 in 4QFY21, we believe that the revenue per draw day would remain under pressure. Even if the MCO is lifted in the following quarters, it would take time for earnings to recover, as pre MCO 2.0, the revenue per draw day was still 20% below pre-Covid-19 levels.

There Is Still Downside Risk to Our Forecasts

Our current earnings forecasts assumes that by early 2022, the revenue per draw day would recover to 80% of pre-Covid-19 levels, and by end of 2022, the revenue per draw day would recover to pre-Covid-19 levels. However, we believe that there could be downside risk to this, as consumer spending patterns might diverge from previous trends, and may no longer revert to pre-Covid-19 levels. Although historically, spending on NFOs have been relatively resilient during an economic downturn, similar patterns have not seemed to emerge during this Covid-19 crisis.

Maintain SELL With An Unchanged TP at RM1.80

We lower our EPS forecasts for FY21-23E by 0.1%-12.5% to factor in the weaker performance in 3QFY21 and also lower the revenue per draw day due to the recent reimplementation of MCO. However, we maintain our DDM-based TP at RM1.80, as we roll forward our valuation base, and therefore our SELL call. Upside risks include lower than-expected prize payout ratio and lower-than-expected operating expenses.

Source: Affin Hwang Research - 21 May 2021