BToto: Tempering expectations but still optimistic

Berjaya Sports Toto Bhd
(Sept 7, RM4.28)
Maintain buy at RM4.24 with revised target price of RM4.85 (from RM4.95): Berjaya Sports Toto will release its 1QFY12 results on Sept 21. The 4D Toto Jackpot outperformed expectations but 4D disappointed. Thus, we trim our earnings estimates by 5% to 6% a year. Assuming a normalised prize payout ratio, we expect 1QFY12 net profit of RM90 million to RM100 million. BToto may embark on a capital management exercise which will serve as a strong re-rating catalyst. We maintain our “buy” call.

Since the introduction of 4D Toto Jackpot on June 11, lotto revenue per draw per outlet has surged from RM1,900 to RM4,500, above our forecast of RM3,600.  That said, we understand that non-lotto revenue per draw per outlet especially 4D has remained flattish. We had expected it to grow by RM1,700, matching our forecast incremental lotto revenue per draw per outlet (RM3,600-RM1,900).

We understand this is because Magnum punters migrated some of their bets to BToto’s 4D Toto Jackpot game but not to its 4D game (as we had expected). To reflect the above, we have trimmed our earnings estimates by 5% to 6% a year. Assuming a normalised prize payout ratio of 61% to 62%, we expect net profit of RM90 million to RM100 million in 1QFY12 (due to 1½ months impact from 4D Toto Jackpot) and RM100 million thereafter.

We estimate that 42% shareholder, Berjaya Land Bhd (BLand), assumed a bridging loan of RM200 million to RM300 million to redeem its RM695.4 million exchangeable bonds on Aug 15. Coupled with another RM459 million required for its Penang Turf Club land purchase, BLand will likely call on BToto to “assist”. If BToto pays out all its cash of RM449.9 million (as at end-FY11) and draws down the remaining RM250 million of its medium-term notes facility, it can return RM700 million or 52 sen per share to investors.

We trim our discounted cash flow-based target price in tandem with our lower earnings estimates and minor housekeeping changes. We still like BToto for its attractive net dividend yields of over 5% and the potential to positively surprise via a special dividend. This high dividend yielding stock will be popular in these times of volatile equity markets. — Maybank IB Research, Sept 7

Written by Financial Daily