Berjaya Sports Toto Bhd
(Dec 11, RM4.20)
Maintain sell at RM4.20, target price at RM4.05: With a 10% decline in second-quarter (2Q) net profit to RM103 million, 1H net profit dropped by 2% to RM203 million. This is 46% of the consensus full-year forecast.

Revenue for the quarter plunged 9% year-on-year (y-o-y), taking 1H revenue down 5%, well below consensus expectations of 3% full-year growth. However, low prize payouts saved the result from falling well below consensus expectations.

Last year’s 2Q base was very high as the 6/52 and 6/49 jackpots snowballed to RM20 million and RM9 million respectively, taking total lotto sales to RM2.1 million per draw.

The jackpots snowballed to smaller but still fairly high levels of RM10.8 million and RM6.3 million this quarter. However, lotto sales languished at just RM1.4 million per draw during the period.

Magnum’s sales are averaging around RM1.5 million per draw. This was higher than all three of BToto’s lotto sales combined, which languished at around RM1.4 million per draw in 2Q.

The 26% y-o-y lotto revenue plunge is despite four more draws in the quarter. On a per-draw basis, sales plunged 33%. For the first half, we estimate lotto sales fell 22% YTD and 29% on a per-draw basis.

BToto already paid a huge 19 sen dividend on July 27, equivalent to 117% of 1H net profit. There is little scope for further capital management.

The RM229 million of balance sheet cash offsetting the RM550 million debts is not surplus. It is required as working capital to buffer high prize payouts should punters hit a lucky streak.

Lotto accounts for about 10% of revenue. We estimate non-lotto revenue, of which 4D is the most important, fell 3% YTD.

We maintain our earnings forecasts, which incorporate flat full-year revenue. The first half result was exactly half our full-year forecast.

Tanjong plc should be the next in line to benefit from any further regulatory liberalisation, as it is now the only number forecast operator without a Jackpot game and has the smallest distribution network.

Our RM4.05 target price is based on a 10% discount to our RM4.50 per share discounted cash flow valuation for the revenue uncertainty — Maybank IB, Dec 11


This article appeared in The Edge Financial Daily, December 14, 2009.