This article first appeared in The Edge Financial Daily on March 20, 2018
Berjaya Sports Toto Bhd
(March 19 March, RM2.12)
Maintain hold with a lower target price (TP) of RM2.20: Despite coming off a strong second quarter (2Q) supported by a record-high jackpot, revenue only declined by 0.4% quarter-on-quarter (q-o-q) which came in above our expectations. We believe that due to the recent few high jackpot payouts, the increase in the number of bets on its jackpot game has helped to compensate for lower bets on its traditional four-digit games. The overall lower prize payout had also helped. However, we believe that Berjaya Sports Toto Bhd (BToto) is not completely out of the woods, as demand for the jackpot games continues to vary depending on the prize pool.
Revenue for the Philippine leasing segment declined by 6.4% q-o-q, due to lower sales number and also the negative impact from the stronger ringgit, which led to a 7.5% q-o-q decline in profit before tax (PBT). However, we believe that there could be more downside risk in the future as the arbitration tribunal has ruled against its favour, indicating that it does not have the exclusive contract rights to supply an online lottery system for Luzon. The case is currently on appeal.
In the UK motor division, overall performance for the segment remains volatile, as PBT has increased to RM10.1 million in 3Q from the loss before tax of RM4 million in 2Q. The overall improvement is supported by the stronger performance from its used car segment.
We are trimming our TP to RM2.20, but maintaining our “hold” rating. Despite revising up our earnings per share for financial year 2018 (FY18) to FY20 by 5%, to factor in the better nine months of FY18 performance, we are lowering our dividend discount model-based 12-month TP to RM2.20, as revised lower our long-term growth rate to 0.5% from 1%, while maintaining our discount rate unchanged at 8%.
Key upside risks to our call include a lower-than-expected prize payout, and better-than-expected revenue per draw day from Malaysia Toto. Key downside risks to our call include a higher-than-expected prize payout, and higher-than-expected costs for the Philippine leasing segment. — Affin Hwang Capital Research, March 19