Its 1QFY21 which turned profitable as expected with net profit of RM67.9m, beating expectations owing to stronger- than-expected HRO earnings on impressive car sales boosted by clearing of backlogged orders. Ticket sales were well on track with better luck factor. Going forth, with ticket sales currently at 85% of pre-MCO level, BJTOTO’s earnings remain resilient which supports an attractive yield of >6%. We continue to rate the stock an OP with raised TP of RM2.45.

1QFY21 beat expectations. At 30% of both our/street’s FY21 estimates, 1QFY21 net profit of RM67.9m came above expectations. The main variance between our estimate and actual was owing to stronger-than-expected HR Owen (HRO) earnings on higher sales on backlogs clearing after the COVID-19 lockdown ended on 31 May in the UK. It declared 1st interim NDPS of 4.0 sen (ex-date: 30 Dec 2020; payment date: 19 Jan 2021) which is higher than the 2.4 sen paid in 4QFY20 but the same as for 1QFY20.

Strong sequential rebound from the lockdown... After its operations re-opening, 1QFY21 turned profitable with net profit of RM67.9m from net loss of RM43.3m in the preceding quarter as revenue surged 183% QoQ to RM1.35b from RM475.1m. The local NFO returned to the black with operating profit of RM98.0m from operating loss of RM20.2m as revenue soared 866% to RM655.2m. This was due to number of draws reverting back to normal at 42 from the MCO-affected 4QFY20 of only 6 draws. Average ticket sales per draw also improved 38% to RM17.0m from RM12.3m. Luck factor (EPPR) also improved to 62.2% from 64.3%. In addition, the improved NFO results were also helped by lower opex.

…helped by better luck and lower opex. HRO reported 74% jump in 1QFY21 revenue which led to a strong operating profit of RM22.1m from operating loss of RM8.3m in 4QFY20. The strong earnings, besides benefitting from backlog clearing sales, are also attributed to austerity measures undertaken by HRO and the British government reliefs which made up one-third of the earnings in 1QFY21. Meanwhile, Philippine Gaming Management Corp (PGMC) was still faced with a lockdown in the Philippine; thus, associate income remained at losses of RM5.6m from RM4.5m. YoY, 1QFY21 net profit inched up 1% from RM67.0m while revenue fell 6% from RM1.44b in 1QFY20. Overall, 1QFY21 ticket sales tumbled 18% from average ticket per draw of RM20.7m while EPPR improved from 64.0% in 1QFY20.

Ticket sales recovery is encouraging. NFO operation in 1QFY21 is on track with our forecast with actual ticket sales falling 18% YoY while current ticket sales has recovered to 85% of pre-MCO level. As such, we are comfortable with our FY21E average ticket sales per draw of RM19.2m which is 10% lower than RM21.3m posted in FY20. HRO’s results were a pleasant surprise but it should normalise in the coming quarters while PGMC will remains loss-making as the COVID-19 situation in the Philippine is not abating. In all, we upgrade FY21/FY22 estimates by 6%/1% to reflect the strong HRO results in 1QFY21 as well as for cash-flow adjustment. NDPS is also adjusted proportionally based on unchanged 80% pay-out ratio.

Still attractive valuation; remain OUTPERFORM. With encouraging recovery in ticket sales, the MCO-led sharp earnings decline in 4QFY20 is seen as a one-off event with BJTOTO earnings regaining its resiliency status. This also supports its attractive >6% dividend yield which is a good avenue for income seekers. Thus, we maintain our OP rating with a higher DCF-derived TP of RM2.45 from RM2.40 post earnings revision. Risk to our recommendation is a slowdown in ticket sales and unfavourable luck factor.

Source: Kenanga Research - 19 Nov 2020