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This article first appeared in The Edge Financial Daily on April 4, 2019

Berjaya Sports Toto Bhd
(April 3, RM2.52)
Maintain buy with a target price (TP) of RM2.65:
We maintain our “buy” recommendation on Berjaya Sports Toto (BToto) with a higher TP of RM2.65, based on the dividend discount model (DDM). The extension of its lease deal for lottery equipment with the Philippine Charity Sweepstakes Office should address its near-term earnings risks. We are also positive that the group will continue to benefit from the more stringent enforcement by the authorities in curbing the activities of illegal numbers forecast operators (NFOs). We believe the stock’s attractive dividend yield of more than 6% will continue to support its share price.

Our TP is higher than consensus as we have adopted a more aggressive valuation basis. We believe that the market has underappreciated the intensified efforts by the authority to curb the illegal NFO activities. Furthermore, its attractive dividend yields of higher than 6% will continue to support its share price.

Potential catalysts. Higher-than-expected ticket sales due to: i) intensified efforts by the authorities to curb the activities of illegal NFOs; ii) successful launch of new game variants; and iii) stronger-than-expected recovery in consumer sentiment.

We maintain our “buy” recommendation for the group with a higher DDM-based TP of RM2.65 upon: 1) making earnings revisions; and 2) rolling our value base to FY20.

We raise our FY20/21 earnings forecasts by 2%-4% mainly on higher gaming revenue growth. — AllianceDBS Research, April 3

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