This article first appeared in The Edge Financial Daily on June 20, 2019

Berjaya Sports Toto Bhd
(June 19, RM2.66)
Downgrade to hold with an unchanged target price (TP) of RM2.62: Berjaya Sports Toto Bhd’s (BToto) 12 months of financial year 2019 (12MFY19) core net profit was up 20.4% year-on-year (y-o-y) at RM276.5 million, mainly due to growth in its UK motor division, with earnings before interest and taxes (Ebit) up 26.7% y-o-y to RM57.9 million. In the cumulative 12-month period for its FY19, the numbers forecast operator’s (NFO) Ebit rose 2.9% y-o-y to RM436.4 million, although revenue declined 1% y-o-y. The higher NFO’s Ebit was mainly due to a lower prize payout ratio in FY19. A final interim dividend per share (DPS) of 4.5 sen was declared. Full-year DPS declared was 16 sen, higher than our 15.5 sen DPS forecast. We estimate the NFO’s prize payout ratio in 12MFY19 was 67.7%, compared with 68% in 12MFY18. Fourth quarter of FY19 NFO’s revenue grew by 1.9% quarter-on-quarter (q-o-q) while profit before tax (PBT) grew 20.7% q-o-q, mainly due to a lower prize payout ratio during the quarter. 12MFY19 Philippines Gaming Management Corp (PGMC) revenue declined 23% y-o-y to RM102 million, mainly due to lower lease rental income earned from the Philippines Charity Sweepstakes Office. 12MFY19 PGMC PBT was down 22.7% y-o-y at RM47.1 million.

HR Owen’s (HRO) 12MFY19 revenue was up 3.2% y-o-y at RM2,418 million while HRO’s Ebit was up 26.7% y-o-y at RM57.9 million due to higher sales of new cars, which was offset by weak used car sales. The division was helped by some loss-making sectors which were sold off. HRO’s Ebit margin was 2.4% compared with 2% in 12MFY18.

BToto’s net debt was at RM655 million as at end-March, or 0.7 times net gearing. The higher debt levels should not be a concern as operational cash flow is more than RM300 million annually. We raise our FY20-FY21F (forecast) earnings per share (EPS) by 1.9% to 2.7% to reflect a slightly lower NFO’s prize payout ratio and introduce FY22F EPS. — CGSCIMB Research, June 19