4QFY20 results came below expectations as it turned into the red amidst lockdowns which disrupted business operations. However, we believe the worst should be over as the local NFO core business has already reopened with ticket sales currently at 80% of the pre-MCO level. We continue to rate the stock an OP with revised TP of RM2.40 for its undemanding valuation coupled with attractive yield of >6%.

4QFY20 missed forecast. FY20 net profit of RM134.3m came 23%/22% below house/street’s forecast as 4QFY20 turned to the red with RM43.3m loss as lockdowns hit its operations in Malaysia, UK and the Philippines badly. Meanwhile, it declared a share dividend distribution of 13.4m treasury on the basis of 1-for-100, implying book cost of 2.4 sen (ex-date: 23 Sep), bringing FY20 total NDPS to 10.4 sen. Meanwhile, given the change in financial year-end from April to June in 2019, there are no comparable YoY results.

Results in the red. It reported RM43.3m net loss in 4QFY20 against net profit of RM48.6m in the preceding quarter with revenue plummeting 64% to RM475.1m from RM1.33b in 3QFY20. The dismal results were largely due to the lockdowns which had caused all its businesses to be loss-making. The local NFO reported operating loss of RM20.2m vs. RM79.1m EBIT previously as ticket sales plunged 91% due to cancellation of 34 draws to 6 vs. 36 in 3QFY20 while average ticket price declined 46% to RM12.3m per draw from RM22.6m previously. Meanwhile, HR Owen (HRO) raked in operating loss of RM8.3m from profit of RM79.1m previously as there was a 2- month closure in the UK. Likewise, associate income turned to share of loss of RM4.5 from profit of RM1.2m in 3QFY20 as associate company Philippine Gaming Management Corporation (PGMC) was also affected by the COVID-19-led lockdown.

A restart in FY21. Since reopening business on 17 June, ticket sales have slowly picked up. We learnt that currently ticket sales have recovered to 80% of pre-MCO period while HRO is opened by appointment but PGMC is still closed as the COVID-19 outbreak situation in the Philippine is not abating. Going forward, the local ticket sales should pick up further but the non-Malaysia units’ situation remained tough. We cut FY21E CNP by 13% as we trimmed FY21 ticket sales by 9% to RM19.1m per draw and make downward adjustments to HRO and PGMC. We also introduced new FY22 forecasts where we expect earnings to grow 7% as we assumed ticket sales to improve 5% to RM20.0m per draw. Our NDPS is still based on 80% pay-out.

Attractive valuation; reiterate OUTPERFORM. Like other gaming stocks, BJTOTO was not spared from a heavy sell-down but we believe the worst of its woe is over as it should turn profitable in the upcoming quarter as its core NFO business has resumed. As such, we maintain our OUTPERFORM rating albeit with a lower DCF target price of RM2.40 from RM2.55 post earnings revision. In addition, the stock is a good avenue for income seekers as it offers attractive yield of >6%. Risk to our recommendation is a slowdown in ticket sales and unfavourable luck factor.

Source: Kenanga Research - 19 Aug 2020