Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 18): Analysts are mixed over the Berjaya Sports Toto Bhd's earnings for the first financial quarter, but are of the view the number forecast operator's outlook remains challenging.

This was due to the lack of enforcement on illegal gambling activities and the weak consumer spending after the implementation of Goods and Services Tax (GST).

In a note to clients today, CIMB Research said BToto's earnings for the first quarter was in line with its estimation, accounting at 20% of its full-year forecast.

"Stripping out the Goods and Services Tax (GST) impact, BToto's sales for the current quarter under review edged up 1% on year," it noted.

But on quarter-on-quarter (q-o-q) basis, CIMB Research said BToto's revenue fell 11.2%, while pre-tax profit slid 14% on year due to Chinese New Year (CNY) falling in fourth quarter of financial year 2015 (4QFY15) and lower number of draws. It was offset by a lower prize payout.

Although result was inline with its estimation, the firm has expressed its worries on the lack of enforcement and clampdowns on illegal gambling, which may further dampen the NFOs earnings.

"Our recent channel checks has revealed that illegal operators have become more brazen in the past few months, with many marketing efforts are carried out via mobile phone advertisements that offer online betting, which includes other sports in addition to NFO bets," it said.

"These sites provide bank account details of major local banks for gaming deposits," it added.

Nonetheless, the firm made no changes to its valuation and earnings per share (EPS) forecast on BToto. It retained its "Hold" call, with unchanged target price (TP) of RM3.15 on the stock.

Meanwhile, Public Investment Bank Bhd Research (PIVB) said BToto's earnings in 1QFY16 was below expectations, accounting for 21% and 20% of its and consensus forecasts, respectively.

This has prompted PIVB to cut BToto's EPS forecast for FY16 and FY17 by 5% to 8%, to factor in lower gaming revenue growth for Malaysian operations.

Accordingly, it also slashed its discounted cash flow (DCF)-based TP to RM3.54, from RM3.70 previously.

In a research report today, the research firm pointed out operating profit for the toto betting and leasing of lottery equipment division dropped by 17.5% on year in 1QFY16.

"We attribute this to higher prize payout and impact from the implementation of GST, which was not passed on to customers.

"On our estimate, BToto recorded a prize payout ratio of 64% for 1QFY16, compared to a theoretical ratio of 62%," it added.

Given its attractive dividend yield of 7% and an active share buyback exercise, PIVB has maintained its "Outperform" call on BToto.

BToto told exchange yesterday (Sept 17) that its net profit fell 7% to RM72.47 million or 5.39 sen per share for the first quarter ended July 31, 2015 (1QFY16), from RM78.34 million or 5.81 sen per share a year earlier. It attributed this to higher prize payout and absorption of GST expenses by its principal unit, Sports Toto Malaysia Bhd.

Revenue for the quarter was up 8% to RM1.34 billion for 1QFY16, from RM1.24 billion in 1QFY15.

BToto announced a first single-tier cash dividend of 2.5 sen per share, payable on Oct 23, 2015. It also declared a share dividend distribution of 9.57 million treasury shares, on the bases of one treasury share for every 140 ordinary shares held.

Despite all the headwinds, BToto's shares inched up as much as four sen or 1.28% in early trades to RM3.16, before narrowing gains to RM3.15 as at 10.47am.

Some 207,900 shares were seen traded between RM3.12 and RM3.16. With the current price, it has a market capitalisation of RM4.18 billion.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)

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