BJ  Toto’s  9MFY15  core  earnings  of  MYR264.6m  were  within expectations  at  76.5%/73.2%  of  our/consensus  full-year  estimates. Maintain NEUTRAL with our DCF-based TP unchanged at MYR3.49 (4% upside). Management declared its third interim DPS of 5.0 sen, with YTD DPS totalling 16.5 sen at an implied payout ratio of 83.8%.
 
Results  review.  BJ Toto’s 9MFY15  (Apr)  revenue  of  MYR3.83bn  grew 28.3%  YoY  as the  lower  contribution  from its  gaming  arm (-4.3%  YoY) was more than offset by the consolidation of its 72%-owned HR Owen’s accounts. EBIT, however, shed 7.5% YoY to MYR394.2m due to higher operating  expenses  registered  during  the  period.  All  in,  9MFY15  core earnings  grew  7.3%  YoY  to  MYR264.6m  on  higher  investment  income as  well  as  a  lower  effective  tax  rate.  This  came  within  both  our  and consensus  expectations.  3QFY15  core  earnings  of  MYR86.6m  were higher YoY but lower QoQ due to fluctuations in the prize payout ratio.

Yield  at  ~6%.  Management  declared  its  third  interim  DPS  of  5.0  sen. YTD  DPS  now  stands  at  16.5  sen  (from 19.5  sen  in  9MFY14  including the  1-for-43  treasury  shares  distribution  announced  in  3QFY14).  This translates  into  a  decent  payout  ratio  of  83.8%.  Moving  forward,  we  are forecasting for an annual dividend yield of 6.0-6.5%, pegged at a payout ratio  of  85%.  On  a  side  note,  the  group  is  currently  sitting  on  6.6m treasury shares, which could potentially be distributed to further bump up its dividend offerings.  

Forecasts  and  risks.  With  the  results  largely  in  line,  we  make  no changes  to  our  forecasts  at  this  juncture.  We  expect  FY16  EPS  to contract  by  7.1%  YoY  due  to  potential  earnings  erosion  from  the implementation  of  the  goods  and  services  tax  (GST)  come  Apr  2015. That  said,  we  expect  earnings  growth  to  resume  in  FY17.  Key  risks include potentially slower ticket sales as consumers tighten their belts on top of continued rampant competition from illegal operators.

Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  call  with  our  DCF-based  TP  unchanged  at  MYR3.49.  Although  growth  of  the  number forecast  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.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

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

Recommendation Chart

Source: RHB