BJ Toto’s 1HFY15  (Apr)  MYR178.0m earnings were  above our  estimate due  to  a  lower-than-expected  prize  payout  ratio  in  2QFY15.  Still,  we maintain  our  NEUTRAL  call  as  we  trim  our  TP  to  MYR3.49  (from MYR3.82)  as  we  factor  in  potential  earnings  erosion  upon implementation  of  the  GST  come  Apr  2015.  Management  declared second interim DPS of 6.0 sen. Its YTD DPS is now at 11.5 sen.

Results  review.  BJ  Toto’s  1HFY15  revenue  of  MYR2.50bn  closed 42.4% higher  YoY  as  the  lower contribution from its gaming arm (-6.0% YoY  on  lower  number  of  draws)  was  more  than  offset  by  the consolidation of 72%-owned HR Owen’s accounts. EBIT, however,  shed 3.7% YoY to MYR273.7m due to higher operating  expenses  registered during  the  period.  All  in,  1HFY15  core  earnings  grew  2.5%  YoY  to MYR178.0m  on  a  lower effective tax rate as well as minority leakages.This  came  above  our  but  within  consensus  estimates,  at  53.7%  and 47.1% of the  full-year  forecasts respectively, taking into account that 2H is seasonally stronger.  2QFY15 numbers are generally  higher both QoQ and YoY on improved prize payout ratios during the quarter.

Yield at ~6%.  Management declared its second  interim DPS of  6.0  sen. YTD DPS now stands at 11.5 sen  (up from  10.0 sen in 1HFY14). This translates  into  a  generous  payout  ratio  of  86.8%  vis-à-vis  77.4%  in 1HFY14. Moving forward, we are forecasting for an annual dividend yield of 5.8-6.3%, pegged at a payout ratio of 85%. 

Forecasts and risks.  We lift  our FY15F EPS by 4.3% by lowering our prize payout ratio. Nonetheless, we trimmed our FY16F-17F EPS by 5.1-5.4%,  factoring in potential earnings erosion upon implementation of  the goods  and  services  tax  (GST)  come  Apr  2015.    Key  risks  include potentially  slower ticket sales as consumers tighten their belts on top of continued rampant competition from illegal operators.

Maintain  NEUTRAL.  Following  our  earnings  revision,  our  SOP-based TP  now  stands  at  MYR3.49.  Given  the  limited  upside,  we  are maintaining our NEUTRAL call. 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