1QFY16 core earnings of MYR72.5m were within expectations at 22.4%/21.2% of our/consensus full-year estimates. The group declared a first interim DPS of 2.5 sen and 1-for-140 treasury shares distribution. These translate into a generous DPS of 4.7 sen for the quarter, at an annualised yield of 6.1%. Maintain NEUTRAL with our TP trimmed to MYR3.22 (from MYR3.48, 3% upside) on revised WACC assumptions.

Results review. Berjaya Sports Toto (BJ Toto) posted 1QFY16 (Apr) revenue of MYR1.34bn (+7.7% YoY), as the flattish showing from its gaming arm (-0.7% YoY) was more than offset by the motor dealership segment (+20.5% YoY) on improved car sales volume and favourable forex (GBP/MYR averaged at MYR5.79 in 1QFY16 vs MYR5.44 in 1QFY15). EBITDA, however, shed 5.7% YoY to MYR126.6m as opex increased following the commencement of goods and services tax (GST) on Apr 2015. All in, 1QFY16 core earnings of MYR72.5m (-7.5% YoY) were within expectations. 1QFY16 numbers are generally weaker QoQ due to seasonality and the full impact of the GST.

Generous dividend. Management declared a first interim DPS of 2.5 sen (which implies a payout ratio of 46.4%) and 1-for-140 treasury shares distribution (which will involve distribution of 9.7m shares vis-à-vis its accumulated treasury share base of 11.5m). The dividends will go ex on 8 Oct 2015. These translate into a generous DPS of 4.7 sen (based on its last closing of MYR3.12) for 1QFY16, at an annualised yield of 6.1%. We deem this in line with our annual dividend yield forecasts of 6.5-6.8% for FY16-18, pegged at a payout ratio of 85%.

Forecast and risks. We make no changes to our earnings forecasts. Key risks include potentially slower ticket sales as consumers tighten their belts on top of continued rampant competition from illegal number forecast operators (NFOs) and potential revisions in gaming taxes.

Maintain NEUTRAL. We maintain our NEUTRAL call with our DCF-based TP trimmed to MYR3.22, as we revised our WACC to 9.2% (from 8.5%) to reflect the more cautious market sentiment. Although growth of the NFO industry is unlikely to be exciting over the medium term, we continue to see BJ Toto as a dividend play – which may appeal to yield-seeking investors.

SWOT Analysis

Company Profile

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

Recommendation Chart

Source: RHB Research - 18 Sep 2015