In line. BToto's annualized FY12 earnings were largely in line with our and consensus' full-year estimates, making up 98% of our full-year forecast and 102% of consensus' full-year forecast. Its key subsidiary, Sports Toto Malaysia, registered a revenue and pre-tax profit growth of 5.1% and 13.4% respectively. Revenue growth was driven primarily by stronger Jackpot sales while the growth in pre-tax profit relative to revenue got a boost from a lower prize payout ratio. On a sequential comparison, revenue and pre-tax profit declined 7.2% and 32.3% q-o-q. The lower revenue was attributed to the high base effect of 3Q12 due to the CNY festive season, while the plunge in pre-tax profit was attributed to a higher prize payout ratio in 4Q12. The group declared a fourth interim dividend per share of 5 sen (vs 4Q11: 3 sen), bringing its full-year DPS for FY12 to 27.0 sen single tier tax exempt (vs FY11's 21.0 sen), representing a payout ratio of 89.5%.

Earnings dilution post exercise but partially offset by front-loaded dividends. BToto's earnings are expected to slip 18.6% after it sold off its 20.5% stake in STM Trust as part of a proposed listing exercise. However, we note that the entire corporate proposal is expected to unlock RM1.1bn in cash proceeds for BToto, thus providing ample scope for the group to raise its ROEs via a more pro-active front loaded capital management exercise that would entail a combination of special dividends and near 100% recurring dividend payout vs our current assumption of a 85% recurring payout. Concerns of a holding company discount may be mitigated by the fact that units in the STM Trust could eventually be distributed back to BToto shareholders. 

Maintain BUY, keeping FV. We are maintaining our FV of RM5.01 and BUY recommendation. We assume that there is a high likelihood of BToto distributing a meaningful sum as special dividend. We are revising downwards our DDM valuation on its recurring cash flow from Sports Toto to incorporate a lower absolute dividend payout from its diluted stake in STM. However, this will be partially offset by a higher recurring net dividend payout ratio of 95% (vs 85%) given its much stronger balance sheet on completion of the proposed corporate exercise.

Source: OSK