BJ Toto’s  FY14 core earnings  of MYR314.3m were below  expectations due to higher-than-expected prizes paid out in 4Q. On a positive note, it declared a fourth interim DPS of 7.0 sen, bringing FY14 DPS to 26.5 sen. Taking  a  more  conservative  stance  going  forward,  we  cut  our  FY15F-16F earnings forecasts by 8.2-8.6%. Maintain NEUTRAL,  with our SOPbased FV lowered to  MYR3.96  (from MYR4.20) to take into account  our earnings revisions.

• Below expectations.  BJ Toto’s  FY14 revenue closed 19.6% higher  y-oy  on consolidation of  72%-owned HR Owen’s accounts. EBIT, however, sunk 8.9% y-o-y to register at MYR501.0m as a maiden contribution from its  motor  vehicle  dealing  segment  was  more  than  offset  by  the  8.0% decline  in  contributions  from  its  gaming  division. We  attribute  this  to  a higher  prize  payout  in  Malaysia  and  lower  profitability  reported  by  its 88%-owned Berjaya Philippines (BCOR PM, NR), owing to weaker sales registered  by  the  Philippine  Charity  Sweepstakes  Office.  All  in,  FY14 core earnings  of  MYR314.3m  (-14.2% y-o-y) fell below both consensus and  our  expectations,  at  92.4%  and  92.1%  of  full-year  estimates respectively.
• Yield  at  >6%.  Management  declared  a  fourth  interim  DPS  of  7.0  sen, bringing its FY14 DPS to 26.5 sen (after factoring in its  treasury share distribution  of  1-for-43  announced  in  3QFY14).  This  translates  into  an appealing annual yield of 6.9% for FY14.
• Forecasts and risks. Taking a more conservative stance going forward, we  cut  our  FY15F-16F  earnings  forecasts  by  8.2-8.6%  to  factor  in  a higher  prize  payout  for  its  Malaysian  operations.  Nonetheless,  our FY14F-15F  DPS  of  23.0-24.0  sen  still  translates  to  a  decent  annual dividend  yield of  over 6%. Key risks include  potential earnings erosion upon implementation of the goods and services tax (GST) in April 2015.
• Still  NEUTRAL.  We  maintain  NEUTRAL  on  the  stock,  with  our  SOPbased FV revised to MYR3.96 following our earnings revision. Although growth of the number forecasts operator (NFO) industry is unlikely to be exciting over the medium term,  as the illegal number  betting market is still burgeoning, we see BJ Toto  as an  appealing yield play at >6% per annum, given the strong cash flow generation of its NFO business.

Source: RHB