End of dry spell for Berjaya Sports Toto

KUCHING: Analysts say Berjaya Sports Toto Bhd ( Berjaya Sports Toto) is ‘ now seeing daylight after five long gloomy years’ following the release of the group’s first nine months of 2019 (9M19) financial results.

According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), at 75 per cent and 74 per cent of house and street’s FY19 estimates, Berjaya Sports Toto’s 9M19 net profit of RM206.2 million came in within expectations.

“While 9M19 earnings were largely on track, the solid ticket sales, thanks to enforcement clampdown on illegal operators, led us to believe that the number forecast operator ( NFO) player is now seeing daylight after five long gloomy years.

“We also saw the same trend in Magnum Bhd’s ( Magnum) latest earnings results last month as well,” Kenanga Research said.

Berjaya Sports Toto’s 9M19 core net profit of RM208 million was also within Affin Hwang Investment Bank Bhd’s (Affin Hwang Capital) and consensus expectations, contributing to 77 per cent and 74 per cent of respective full year forecast.

“However, we believe that there could be weakness to share price performance, due to higher investors expectation arising from the better earnings delivery by its peers.

“Likewise, the full impact of the reduction of the number of special draw days has yet to be reflected in its numbers,” the research firm said.

On the group’s Malaysia segment Sports Toto Malaysia Sdn Bhd (Sports Toto), Affin Hwang Capital noted that the 9M of financial year 2019 (9MFY19) result was within both its and consensus expectations.

Berjaya Sports Toto revealed in its financial statement on Bursa Malaysia that for the 9M period, as compared to the previous year corresponding period, Sports Toto recorded a marginal drop in revenue of 0.6 per cent while pre-tax profit decreased by two per cent mainly due to higher prize payout in the current period under review.

“However, we believe that investors might have higher expectations as Magnum which announced a stronger set of fourth quarter (4Q) results back in February, guided that a surge in its gaming revenue by 8.6 per cent quarter on q- o- q was partly attributed the success to an increase in enforcement activities to combat the illegals.

“For Berjaya Sports Toto, revenue for the segment only grew a marginal 0.5 per cent q- o- q.”

On its dividend projections, Af f in Hwang Capital noted that although management has lowered Berjaya Sports Toto’s dividend payout from four sen in 2QFY19 to 3.5sen in 3QFY19, the research firm kept its dividend forecast unchanged.

This was because management could still raise the payout in the following quarter.

The research firm’s full year forecast for dividend per share ( DPS) is at 16.5sen.

Meanwhile, Kenanga Research has adjusted downwards its FY19 and FY20 estimates on Berjaya Sports Toto, on the back of reduced annual special draws.

“With annual special draw reduced to 10 draws from 22 draws, we trimmed FY19 estimates slightly by two per cent as we reduced our draw day assumption to 174 from 179 coupled with fine-tuning after the 9M19 results.

“For FY20, we lowered draw day assumption to 166 from 179 whi le imputing higher average ticket sales per draw to RM20.5 million from RM20.3 million given the solid sales following the clamp- down of illegal operators.”

This reduced Kenanga Research’s FY20E core net profit (CNP) slightly by 0.7 per cent. As such, the research arm’s FY19E and FY20E core net profit projections for the group amounted to RM271.3 million and RM279.3 million, respectively.

“Although we expect overall ticket sales to come off in the near term on special draw cut, the NFO player should benefit from improved average ticket sales per draw over the longer term.

“Despite share price rising 12 per cent year to date ( YTD) and near- term lower ticket sales, we believe there is still room for higher earnings should enforcement continues against the illegal operators, as this effort will boost ticket sales and bottom-line.”