Berjaya Sports Toto Bhd (Aug 2, RM2.67) Maintain hold with a target price of RM2.40: While the government’s campaign against illegal operator by closing their physical outlets has been effective in allowing the numbers forecast operators (NFO) industry’s revenue to grow again in the last two quarters, the benefits will be capped without an effective amendment to the Gaming Act which addresses the much larger illegal online operators.
While Sports Toto Malaysia’s (STM) fourth quarter of financial year 2019 (4QFY19) core net profit rose 18% year-on-year (y-o-y), we gauge that the growth of ticket sales per draw was decent (3% to 4% for the classic NFO games) despite the number of special draws being halved by the government for 2019.
Berjaya Sports Toto Bhd’s (BToto) new game variant 4D Zodiac has reportedly received encouraging response. The game which was introduced last month should modestly enhance BToto’s classic games revenue. However, we gauge that the popularity of this game would not be high, based on the reportedly lukewarm response for a similar “zodiac” game (3+3D Bonus) by rival operator Da Ma Cai.
Subsidiary Berjaya Philippines (BPI) will need to participate in a tender exercise when its concession expires in August 2019. Competition is keen as there is only one licence up for bid, and some of BPI’s competitors include some Chinese and South Korean companies.
Meanwhile, on a positive note, Philippine President Rodrigo Duterte has quickly allowed BPI’s lotto operations to resume a few days after suspending all of the Philippines Charity Sweepstake Office’s (PCSO) gaming activities after he ordered a corruption investigation against PCSO.
There is 10% to 15% downside risk to BToto’s earnings should BPI lose its concession but this in theory should not reduce BToto’s dividends which are fully dependent on its Malaysian operation’s cash flow.