BJ Toto’s  1QFY15  net profit  of MYR78.3m was  within our expectations.We  fine  tune  our  SOP-based  FV  to  MYR3.82  (from  MYR3.96)  as  we update our model for housekeeping purposes. Maintain NEUTRAL since the upside return is only 2%.  Management  declared first  interim DPS of 5.5 sen (up from 4.0 sen in 1QFY14), which is a 94% payout ratio for the quarter.  This translates into a dividend yield of approximately 6%.

Largely  in  line.  1QFY15  revenue  of  MYR1.24bn  closed  40.2%  higher y-o-y  on  consolidation  of  72%-owned  HR  Owen’s  accounts  but  down 8.5% q-o-q. We attribute this  to lower number of draws and  lower rental income  reported by its 88%-owned Berjaya Philippines (BCOR PM, NR), owing to weaker sales registered by the Philippine Charity Sweepstakes Office.  EBIT,  meanwhile,  grew  26.5%  q-o-q  but  dipped  16.5%  y-o-y  to close at MYR120.0m  due to fluctuations in its overall prize payout ratio. All  in,  1QFY15  core  earnings  of  MYR78.3m  (-16.4%  y-o-y;  +15.8% q-o-q)  came  in  within  our  expectations  but  fell  short  of  consensus estimates, at 23.3% and 20.9% of the full-year estimates respectively. 

Yield at ~6%.    Management declared its first interim DPS of 5.5 sen (up from 4.0 sen in 1QFY14). This translates into a generous payout ratio of 94%  for  the  quarter.  Moving  forward,  we  are  forecasting  for  annual dividend yield of 5-6%,  pegged at  a  payout ratio of 85%. That said, we do  not  discount  the  possibility  of  further  upside  should  management decide to reward its existing shareholders.

Forecasts  and  risks.  While  we  make  no  major  changes  to  our  core assumptions,  we  trim  marginally  our  FY15F-16F  earnings  forecasts  by 1.0-1.3%  as  we  update  our  model  for  housekeeping  purpose.  We  are also taking the opportunity to  introduce our FY17F estimates.  Key risksinclude potential earnings erosion upon implementation of the goods and services tax (GST) in April 2015. 

Maintain  NEUTRAL.  We  maintain  NEUTRAL  on  the  stock,  with  our SOP-based  FV  revised  to  MYR3.82  (from  MYR3.96)  following  our earnings  revision.  Although  growth  of  the  number  forecasts  operator (NFO) industry is unlikely to be exciting over the medium term, we see BJ Toto as an appealing yield play given the strong cash flow generation of its NFO business.

Source: RHB