Berjaya Sports Toto could see minimal impact from SST, special draw cut

KUCHING: Berjaya Sports Toto Bhd’s ( Berjaya Sports Toto) ticket sales in the second half of 2019 ( 2H19) will likely experience neutral to minimal impact from the Sales and Service Tax (SST) and special draw cut.

Barring ‘ luck factor’, Berjaya Sports Toto could see minimal downtick- to- f lattish trend in ticket sales in 2H19 as opposed to 1H19 following the reintroduction of SST after the three-month zero-rated Goods and Services Tax (GST) in June-August as it was just a replacement of GST prior to June this year, said the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) in its results note.

“On the other hand, the reduction of special draw days in 2019 should have a minimal impact to Berjaya Sports Toto, as these draw come with 10 per cent additional tax that crimps profitability,” it added.

“We estimate that if special draw days are reduced to 10 from 22 currently, players will see their earnings dropping by two to three per cent.”

With the stabilising ticket sales in the past one year, Kenanga Research believed the downtrend should have abated. Thus, it believed downside risk in the number forecast operator’s earnings is fairly minimal.

As such, Kenanga Research continued to rate Berjaya Sports Toto an ‘outperform’ given attractive valuation of 11- fold financial year 2019 ( FY19) price earnings ratio ( PER) as well as above- average yields of seven to eight per cent.

However, it reduced its discounted cash flow ( DCF)- derived target price to RM2.55 per share from RM2.65 per share after adjusting for FY18A numbers.

Meawhile, Affin Hwang Investment Bank Bhd (AffinHwang Capital) expected a contraction in earnings for 2H19, as there would be fewer draw days due to the reduction in the overall number of special days starting in 2019.

All in, AffinHwang Capital made no changes to its earnings per share ( EPS) forecasts and dividend discount model ( DDM)based 12-month target price of RM2.00 per share.

“We are maintaining our ‘sell’ call due to the limited upside potential from current levels,” the research firm said.