Berjaya Sports Toto Bhd (June26, RM4.31)
Maintain buy with target price of RM5: Berjaya Sports Toto introduced a second jackpot to Mega Toto 6/52 over the weekend, the second easiest to be struck in the industry. We believe this variation may boost sales by drawing punters who will be attracted to lotto games with high odds of striking, albeit smaller jackpots.

We make no change to our earnings forecasts and RM5 discounted cash flow-based target price for now. Maintain “buy”. Over the weekend, Sports Toto varied some elements of its poorest performing lotto game, Mega Toto 6/52.

Four features are unchanged: (i) 55% of sales are allocated to the prize pool; (ii) the Jackpot 1 minimum is RM2 million; (iii) Jackpot 1 is struck when the winner(s) pick six numbers from one to 52 and all six match the results; and (iv) the odds of Jackpot 1 being struck are one in 20.4 million.

Jackpot 2 was introduced with a minimum size of RM100,000. Ten per cent of the prize pool will be allocated to Jackpot 2 (40% to Jackpot 1). Previously, 60% of the prize pool was allocated to only one jackpot. Jackpot 2 is struck when the winner(s) pick six numbers from one to 52, five match the results and one matches a bonus number.

The odds of Jackpot 2 being struck are one in 3.4 million. When Jackpot 1 exceeds RM20 million and is not struck, the excess will be cascaded to Jackpot 2. Mega Toto 6/52 Jackpot 2 is now the second easiest lotto game jackpot to be struck in the industry. YTD, Mega Toto 6/52’s average sales/draw stands at only RM300,000 (4D Toto Jackpot: RM1.8 million, Supreme Toto 6/58: RM750,000, Power Toto 6/55: RM600,000).

The new variations may boost sales by drawing punters who have hitherto been discouraged by the low odds of striking jackpots. We leave our earnings estimates unchanged for now as we wait and see how well the newly varied Mega Toto 6/52 will be received. Nonetheless, we are encouraged that the government is not averse to game innovation in order for Sports Toto to boost sales, how ever marginally. High net dividend yields of 5.5% to 6% will limit share price downside. — Maybank IB Research, June 26.