Berjaya Sports Toto Bhd
(Feb 19, RM2.66)
Maintain outperform with an unchanged target price of RM2.80: For the second quarter ended Dec 31, 2019 (2QFY20), Berjaya Sports Toto Bhd’s (BToto) net profit of RM61.7 million was well on track, with ticket sales hitting a six-year high on an average per draw basis, with a slightly better luck factor.

Going forth, we still see an uptick in ticket sales given sustained enforcement efforts taken against illegal operators. In addition, under the current difficult business environment due to the deadly Covid-19 outbreak, numbers forecast operators (NFOs) stand out as a defensive sector.

BToto declared a second interim net dividend per share of four sen for 2QFY20 (ex-date: March 10; payment date: April 9), which was the same for 1QFY20. Given the change in its financial year end from April to June for FY19, there were no comparable year-on-year results.

Operationally, NFO numbers were impressive with average ticket sales per draw hitting the six-year high of RM22 million, the highest since the Chinese New Year-driven February-April quarter of FY13, thanks to better 4D Jackpot as well as the fruitful results of the enforcement’s clamping down on illegal operators.

This led to a 6% hike in total ticket sales to RM849.2 million. On the other hand, the estimated prize payout ratio was slightly lower at 63.6%, from 64%, which propelled earnings before interest and tax higher by 11% to RM105.5 million. Meanwhile, subsidiary HR Owen reported a lower operating profit, down 9%, to RM7.1 million, largely attributed to a decrease in car sales of 11%.

In Budget 2020, the total number of special draws was cut further to eight times a year from 11, starting this year. In our view, this will have minimal impact on NFO players given that the special draws come with a 10% additional tax which crimps profitability. While BToto’s top line will be reduced by less than 2%, net profit will be impacted by less than 1% and the shortfall should be absorbed by the potential uptick in ticket sales. — Kenanga Research, Feb 19