Review

• Stripping off forex gains and other exceptional items totalling RM21.8mn, BJToto’s 9HFY17 core profit came in at RM190.7mn, representing 57% of our full-year estimates and 59% of consensus forecast. This disappointing results performance was due to higher-than-expected GST as the company made an additional GST adjustment of RM15.6mn in 3QFY17.

• For this quarter, the company declared a third interim dividend of 3 sen/share, bringing the YTD total dividend to 11 sen/share. This was lower than 14sen/share (i.e.: 2.5 sen cash and 11.5 sen share dividends) declared in the same period last year.

• The cumulative 9MFY17 core profit contracted by 6.8% to RM190.7mn despite a marginal 4.4% growth in revenue. The drop in earnings was due to the GST adjustments arising from different interpretation of gaming revenue by the Royal Malaysian Customs Department which resulted in additional charges of RM15.6mn. Excluding this, 9MFY17 profit would have increased by 1% due to higher contribution from the motor franchising business in the UK.

• QoQ, 3QFY17 revenue and core profit declined by 6% and 38.7% respectively. This was due to the GST adjustment, higher prize payout and lower sales of used and new cars in the quarter.

Impact

• We cut our FY17 earnings projected by 9.9% to factor in the additional GST while keeping our FY18-19 earnings projections relatively unchanged. We also reduce our dividend projections by 3sen/2.5sen/1sen per share for FY17/18/19.

Outlook

• As the amount of estimated jackpots hit RM32mn for Grand 6/63 and RM14.3mn for 4D games, we expect 4QFY17 (Feb-Apr) sales to be buoyant. In addition, fourth quarter sales would also be seasonally boosted by Chinese New Year effect. Looking forward, we expect FY18 sales to be resilient with minimal risk of gaming tax hike ahead of the general election in Malaysia.

Valuations

• Given the lower dividend assumptions, we reduce our DDM to RM3.81 (from RM4.01/share previously) based on unchanged CAPM rate of 10.88%. BJToto remains as one of our preferred dividend plays given its stable cash flow and resilient sales. Maintain Buy

Source: TA Research - 17 Mar 2017