Berjaya Sports Toto Bhd
(Sept 20, RM3.36)
Maintain hold with an unchanged target price (TP) of RM3.10: Berjaya Sports Toto Bhd’s (BToto) Malaysian number forecast operation (NFO) business posted a year-on-year (y-o-y) revenue growth of 3.6% for the first quarter ended July 31, 2016 (1QFY17), due to higher sales of 4D Jackpot, while pre-tax profit rose 7.5% y-o-y to RM113 million on lower prize payouts.

On a quarter-on-quarter basis, revenue fell 6.1%, while pre-tax profit slid 33% y-o-y, due to strong Chinese New Year sales in the last quarter and lower prize payouts in 4QFY16 (4QFY16: 63%; 1QFY17: 66%).

Headline net profit was negatively affected by RM9 million in translation losses from its Philippine subsidiary.

HR Owen’s (a luxury-car distributor in the UK and a 71% subsidiary of BToto’s Philippine subsidiary) revenue rose 17% y-o-y, due to higher car sales volumes and new model launches, while pre-tax profit contracted 27% y-o-y, as it was negatively impacted by higher operating expenditure in the quarter.

BToto paid out 92% of its 1QFY17 net profit, well above its stated minimum dividend payout policy of 75%.

We retain our FY17 to FY19 payout ratio estimates of 85%.

BToto’s share price has done well in the past three months, rising 16%. We believe this is due to: (i) BToto’s holding company, Berjaya Land Bhd, stopped selling BToto shares since June 16; and (ii) a 25-basis-point cut in overnight policy rate by Bank Negara Malaysia on July 16.

BToto’s 10% stake in the Vietnam lottery operation should benefit any dividend income declared. 

We do not expect any profit contribution to BToto in the first two years, but it should be a long-term positive for BToto, as Malaysia’s NFO sector has gone ex-growth.

The major beneficiary, in our view, will be Berjaya Corporation Bhd, BToto’s ultimate holding company, which holds an effective 40% stake in BToto.

Our TP is unchanged and supported by a 6.5% dividend yield. We maintain our FY17 to FY19 earnings-per-share forecasts. — CIMB Research, Sept 19