BST’s MYR288.2m 9MFY14 core earnings were within expectations. A 1-for-43  treasury share distribution  was declared, which  translates into  9 sen  DPS and  brings  YTD DPS to 19  sen at an annualised yield of  6.5%. We make no major changes to our earnings estimates  but lower our FV to MYR4.20 (from MYR4.46)  to  take  into account revisions in our WACC assumptions  amid  a  rising  interest  rate  environment.  Downgrade  to NEUTRAL.

• Within expectations.  BJ Toto (BST)’s  9MFY14  revenue  closed 10.6% higher  y-o-y  on  consolidation of its 71.2%-owned HR Owen’s  accounts. EBIT,  however,  improved  by a  smaller  3.7%  y-o-y  quantum  to  register MYR467.7m.  This  was  on  lower  profitability  reported  by  88%-owned Berjaya Philippines (BCOR PM, NR),  owing to weaker sales registered by  the  Philippine  Charity  Sweepstakes  Office.  All  in,  9MFY14  core earnings closed at MYR288.2m, down 6.9% y-o-y on  a  higher effective tax  rate  but  well  within  expectations  at  73.0%  and  72.0%  of  our  and consensus full-year estimates respectively. BST’s 3QFY14 core earnings of  MYR83.3m  were  lower  by  10.0%  q-o-q  and  3.2%  y-o-y  due  to marginally  higher  prize  payout  in  the  current  quarter  and  weaker contributions from its Philippines’ operations.
• Yield at >6%.  Management declared a  treasury share distribution of 1-for-43,  which  translates  into  DPS  of  approximately  9  sen  based  on  its last  closing  of  MYR3.93.  With  this ,  BST’s  YTD  DPS  totalled  19  sen, which  implies  a  decent  6.5%  annualised  yield  at  close  to  90%  payout ratio.  Moving forward, we  are forecast for  the group’s dividend yield to come in at 6.3-6.6% annually for FY14F-16F. '
• Downgrade  to  NEUTRAL  (from  Buy).  While  we  make  no  major changes to our FY14F  and FY15F earnings estimates, our  DCF-based FV  is  revised  lower  to  MYR4.20  (from  MYR4.46)  as  we  update  our model  to  take  into account revisions in our WACC assumptions amid a rising interest rate environment. Of note, we bump up our WACC to 9.0% (from 8.5%)  to factor in: i) a higher risk-free rate of 4.2%,  ii) higher cost of debt of 6.5%,  and iii) an expected market return of  10.0%. Given the limited upside, we are downgrading our call to NEUTRAL.

Financial Exhibits

SWOT Analysis

• Largest NFO in Malaysia

Company Profile

Berjaya Sports Toto (BST) is one of the largest NFO operators  in Malaysia. It also has an existing presence in the Philippines gaming market.

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Source: RHB