Review

• Excluding forex and disposal losses as well as provisions totaling RM23.9mn, BJToto’s 1HFY17 core profit came in at RM144.8mn, or 44% of our full-year estimates and 45% of consensus forecast. This was within expectations after considering the seasonal factor that second half will have more lottery draws.

• For this quarter, the company declared a second interim dividend of 4 sen/share, bringing the YTD total dividend to 8 sen/share. This was a tad lower than 10 sen/share (i.e.: 2.5 sen cash and 7.5 sen share dividends) declared in the same period last year.

• 1HFY17 core profit expanded by 2.6% to RM144.8mn on the back of 4.9% increase in revenue. The increase in revenue can be attributed to higher contribution from the motor franchising business in the UK. This was more than offset lower contribution from the lottery division due to poor luck factor.

• QoQ, 2QFY17 core profit increased by 7.1% owing to higher project sales from International Lottery & Totalizator System. However, both lottery and motor franchising divisions recorded lower profit due to higher prize payout and drop in new car sales.

Impact

• No change to our FY17-19 earnings projections. However, we adjust our FY17 dividend forecast lower to 19 sen (from 21 sen previously), as 1HFY17 dividend was lower-than-expected.

Outlook

• Recently, BJToto, via its 88.26%-owned subsidiary, entered into a share sale agreement to purchase additional 6.6mn shares of H.R. Owen for GBP14.8mn. The acquisition is expected to be completed by 1H17. Post-acquisition, BJToto’s effective equity interest in H.R. Owen will increase to 98.4% from 72.0% currently. We are neutral on the acquisition as the earnings impact is insignificant given that car franchising business contributed less than 10% of the group’s total EBIT.

Valuations

• We adjust our DDM valuation slightly lower to RM4.01/share (from RM4.03/share previously) based on unchanged CAPM rate of 10.88%. Maintain Buy on BJToto given its defensive quality against the current macro headwinds.

Source: TA Research - 19 Dec 2016