Berjaya Sports Toto’s FY16 Patami above expectations

by **Cals** Fri 24 Jun 2016, 04:08

Berjaya Sports Toto’s FY16 Patami above expectations

By HLIB Research / The Edge Financial Daily | June 23, 2016 : 9:51 AM MYT

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This article first appeared in The Edge Financial Daily, on June 23, 2016.

Berjaya Sports Toto Bhd
(June 21, RM2.90)
Upgrade to buy with an unchanged target price of RM3.10: Berjaya Sports Toto Bhd’s financial year ended April 30, 2016 (FY16) core profit after tax and minority interest (Patami) of RM297.55 million came in at 110.1% of our full-year estimate, due to lower prize payouts, and 102.8% of the consensus estimate.
A fourth interim dividend of five sen was declared, with FY16 dividend at 19 sen consisting of 16.5 sen cash and a share dividend of one for 140 existing shares, representing a yield of 6.6%.
Full-year Patami contracted by 10% due to lower contribution from number forecast operations (NFOs) in Malaysia, attributable to the effect of the goods and services tax (GST), implemented in April 2015, poor luck and competition from illegal betting operators.
Its strong fourth-quarter bottom line came in at a surprising high (representing 33.9% of full-year profit), which helped mitigate an otherwise lacklustre year, thanks to the lower payouts (estimated at 61% versus 65% year-on-year [y-o-y]).
Meanwhile, Philippine Gaming Management Corp reported lower top and bottom lines caused by lower rental income and higher operating expenses. It is a relief that the licence will only expire in August 2018, given the competitive lottery business environment in the Philippines.
Revenue from HR Owen plc continued to climb (+15% y-o-y), contributing 39% of FY16 revenue, partially helped by a favourable foreign-exchange effect. However, its bottom-line contribution remained minimal, with a decline of 27.3% y-o-y, due to higher operating expenditure from additional outlets.
2016 serves as a new normal for NFOs as the GST effect normalises and a more stable performance is foreseen onwards, provided no large swing in luck factor.
Risks lie in: i) a higher-than-expected prize payout ratio; ii) cannibalisation from Magnum Bhd’s and Pan Malaysia Pools Sdn Bhd’s jackpot games; and iii) a hike in pool betting duty/gaming tax.
We revise upwards our FY17 and FY18 revenue forecasts by 5.2% and 7.3%, and bottom line by 5.1% and 5.2% respectively, after factoring in higher revenue growth for HR Owen at 5% and revising our margin assumptions. We upgrade to “buy” in view of the recent retreat in share price and attractive yield play. Besides, possible margin expansion at HR Owen and additional income from Vietlott may provide futher upside. However, we remain cautious about its longer-term outlook with no excitement for a matured NFO market with shrinking margins due to difficult economic conditions and rampant illegal gaming activities.
The company’s positives are its monopoly of lotto games and highest-yielding stock in the gaming sector. However, its negatives include: a) operating in a highly regulated industry; b) the luck factor; c) a higher-cost environment; and d) illegal NFOs. — HLIB Research, June 21
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