This article first appeared in The Edge Financial Daily on April 20, 2018

Berjaya Sports Toto Bhd
(April 19, RM2.09)
Maintain hold with an unchanged target price (TP) of RM2.20: We are maintaining our “hold” recommendation on Berjaya Sports Toto Bhd (BToto), with a TP of RM2.20 that is based on the dividend discount model. Industry prospects remain lacklustre due to intense competition from illegal number forecasting operators (NFOs) and poor consumer sentiment. Also, there are earnings downside risks for its Philippine operations. In the absence of near-term rerating catalysts, the stock is fairly valued at this juncture, in our view.

We differ in taking a more bearish stance than consensus. Our TP is lower than consensus since we have adopted a more conservative valuation basis. Other than the cloudy earnings outlook, we believe that the ongoing gradual global monetary tightening cycle does not favour yield-seeking investments.

A potential catalyst is higher-than-expected ticket sales due to intensified efforts by the authority to curb the activities of illegal NFOs, a successful launch of new game variants, and a stronger-than-expected recovery in consumer sentiment.

Key risks to our view include a steeper-than-expected decline in ticket sales with intensifying competition from illegal NFOs and weaker consumer sentiment. — AllianceDBS Research, April 18