Berjaya Sports Toto - MARKET PERFORM - 22Mar12

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD

Research House: KENANGA

Price Call: BUY

Target Price: 4.52

At RM310.5m, BToto's 9M12 net profit beat the consensus estimatesas it continued to  enjoy a relativelygood luck factor in 3Q12. The EPPR of 58.46% in 3Q12 was still below the 60%theoretical level. The stronger-thanexpected 3Q12 ticket sales, which leapt 13%QoQ, were mainly led by the CNY effect, higher average ticket sales and moredraw days during the quarter. We have upgraded our FY12 EPS forecast by 3% on alower EPPR assumption by 0.5% to 59% but keeping our FY13-FY14 estimates unchangedfor now. Nonetheless, despite the strong 3Q12 and the earnings upgrade, we aredowngrading BToto back to  a  MARKET PERFORM  rating  as it  is  now fairly  priced following the goodrun in the share price in the past three months. Our TP for the stock remainsat RM4.52/share. 

3Q12 above estimates.  Berjaya Sports Toto Bhd (BToto) reported yet againanother strong set of results where 3Q12 net profit rose 7% QoQ to RM112.7m,thanks to the luck factor coupled with solid ticket sales.  This brought its YTD 9M12 net profit toRM310.5m, which accounted for 80% and 78% of ours and the street's  FY12 full year estimates. The main discrepancybetween the actual result and our estimate is due to the 58.85% estimated prizepayout ratio  (EPPR) reported in 9M12 vs.our assumption of 59.5%. However, we view  the  strong 3Q12 ticket  sales as  in line due to the CNY effect and the higherdraw days.

' fuelled by luckfactor again.  Although 3Q12 EPPR hasincreased to 58.8% from 57.9% in the preceding quarter, it is still below thetheoretical  EPPR of 60%. This is thecompany's fifth straight quarter of being blessed with the good luck factorsince 3Q11 as the EPPR is still below or near to the theoretical level. As the3Q12 EPPR was higher QoQ (vs. 57.9%) and YoY (vs. 56.4%), the 3Q12 operatingmargin dipped slightly to 18.0% vs. 18.5% in 2Q12 and 20.3% in 3Q11.

Solid ticket sales onhigher draw days.  The CNY effect hadled to higher average ticket sales per draw in the quarter. The higher drawdays of 46 in 3Q12 vs. 43 draws each in both 2Q12 and 3Q11 had also boosted 3Q12total NFO ticket sales by 13%  QoQ and15% YoY respectively. The 3Q12 average ticket sales per draw of RM22.9m was 6%QoQ and 7% YoY higher, which we believe was due partly to the 4D Jackpot whichwas launched in June last year. 

Lower dividend payoutbut still decent. BToto declared a 6 sen net DPS (8.0% gross) in 3Q12, downfrom 8 sen net in the preceding quarter. This represents a 70.7% earningspayout, far below the 101.0% payout in 2Q12. YTD, it has declared a total  of 22 sen net DPS (29.3 sen gross), implyinga total dividend payout of 94.5%. As such, our assumption of a 30 sen gross inFY12 is highly likely to be conservative. 

FY12E EPS upgraded.  In view of the lower-than-expected EPPRreported in 9M12, we are upgrading our FY12E estimate by 3%. While we have loweredFY12 EPPR to 59% from 59.5%, we do expect lower ticket sales in 4Q12 as salesnormalise from the CNY effect and a lower draw day of 43 vs. 46 in 3Q12. Wehave meanwhile also upgraded our FY12 GDPS to 34 sen from 30 sen previously.Nonetheless, we are maintaining our FY13-FY14 estimates for now.

But downgraded toMARKET PERFORM. Despite having strong 3Q12 numbers and having upgraded ourearnings estimates, we are downgrading our call on BToto back to a MARKETPERFORM from an OUTPERFORM (upgraded on 13 Dec 2011) as it is now fairly pricedfollowing the good run in the share price in the past three months. We maintainour DCF-derived price target of RM4.52/share and continue to like BToto for itssustainable and attractive 7%-8% gross dividend yield.

Source: Kenanga