BERJAYA SPORTS TOTO BHD

Target price: RM2.80

BERJAYA Sports Toto (BST) reported third quarter FY18 (Q3FY18) revenue of RM1.4bil (+2.7% year-on-year, +1.5% quarter-on-quarter) and core net profit of RM59mil (+23.6% y-o-y, - 4% q-o-q).

Nine-month FY18 net profit of RM193mil (+8.2% y-o-y) was below UOB Kay Hian’s expectations due to the higher-than-expected effective tax rate. The nine-month FY18 profit before tax (PBT) of RM312mil was in line with expectations, representing 74% of UOB Kay Hian’s full-year forecast.

Sports Toto Malaysia’s Q3FY18 revenue dropped 3.3% y-o-y as Q3FY17 benefitted from seasonally higher sales during the Chinese New Year festive period in January, and Q3FY17 had 47 draws, one additional draw compared with Q3FY18. The research house estimates the revenue mix of jackpot games and classic games to be largely unchanged y-o-y in Q3FY18.

Despite the drop in revenue, PBT increased 19.6% y-o-y in Q3FY18 due to lower prize payout and lower operating expenses incurred.

Q3FY18’s prize payout is estimated to be close to 62%, 0.5 percentage points lower than Q3FY17’s. BST declared a third interim dividend per share (DPS) of 4 sen, bringing the ninemonth FY18 dividend per share (DPS) to 12 sen.

“We expect the industry to see at best, low single-digit ticket sales growth in 2018.

“2017 saw yet another year of uninspiring number forecast operator (NFO) ticket sales, with quarterly y-o-y ticket sales per draw growing in the range of -5% to +2% in 2017.

“Nevertheless, industry sales are expected to stabilise after years of decline. We understand that some state authorities have recently increased efforts to curb illegal NFO operations, although the sustainability of curbing illegal operators remains a long-term concern,” said UOB Kay Hian.