Berjaya Sports Toto continues to fall short of expectations

KUCHING: Berjaya Sports Toto Bhd’s (Berjaya Sports Toto) first half of 2017 financial year’s (1HFY17) results have continued to fall short of expectations, with its core net profit of RM145 million accounting for only 45 per cent of consensus expectations.

These weaker than expected numbers are mostly attributed towards the declining performance of the group’s core number forecasting Malaysia operations which has failed to maintain the positive revenue from the first quarter of FY17 (1QFY17).

Berjaya Sports Toto’s 1QFY17 revenue stream from its core number forecasting Malaysia operations saw a 6.2 per cent decline year over year (y-o-y), and a 0.2 per cent decline quarter over quarter (q-o-q).

While earnings saw a pickup in the coming quarter (2QFY17), yielding a 6 per cent increase quarter over quarter (q-o-q), it was still not enough to offset the loss Berjaya Sports Toto saw in 1QFY17.

This increase was mostly due to higher performances experienced in Berjaya Sports Toto’s other segments such as luxury cars, where the group maintains majority shareholder status in HR Owen, a UK based luxury car dealership.

Despite HR Owen’s stellar performance so far owing to higher sales volume of new cars and the launching of several new models, the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital), stipulates that the contribution from the car dealership is just too insignificant to change the tide for Berjaya Sports Toto.

The research arm of Kenanga Investment Bank Bhd added that any contribution HR Owen brought to the table was further offset by the recent unfavourable foreign exchange rates.

Meanwhile, Berjaya Sports Toto’s estimated prize pay-out ratio (EPPR) for 2QFY17 also saw deterioration from 61.7 per cent to 63.6 per cent.

Kenanga research conjectures that this lacklustre performance was due to the volatile luck factor involved in Number Forecast Operator (NFO) operations, and the declining ticket sales trend which saw total ticket sales falling 8 per cent in 2QFY17, or 3 per cent 1HFY17.

In light of this, Kenanga research has trimmed their FY17/ FY18 estimates by 10 per cent.

“We also lowered dividend payout ratio to 80 per cent from 9- per cent, thus cutting FY17/FY18 estimated net dividend per share (NDPS) by 20 per cent,” added the research arm.

Kenanga Research maintains its ‘market perform’ rating for Bjtoto with a reduced target price (TP) of RM3.06. The research arm defends its rating citing that “even after we lowered pay-out ratio to 80 per cent from 90 per cent and the earnings revision, the firm still offers attractive yield of 6 per cent.”

On the other hand, Affin Hwang Capital sees a different story, arguing that Berjaya Sports Toto lacks catalyst as earnings growth remains challenging due to weak consumer sentiment, increasing illegal gaming activities and weak sales by its NPO operations in the Philippines.