Berjaya Sport Toto Bhd (BST MK, FV: RM4.72, Close: RM4.40)

BToto’s annualized 9MFY12 numbers were largely within our and consensus expectations. Its relatively stable and defensive earnings as well as  the strong likelihood  of  dividends surprising on the upside make the stock ideal  to  hold under the current volatile environment.  The share price is supported by a net dividend yield of 6.4%,  which may  potentially  rise to 7.3%, assuming a 100% payout ratio. Maintain BUY, with an unchanged fair value of RM4.72.

In line.  BToto’s annualized  9MFY12 earnings was spot on with our estimates, making up 100.2% of our full-year forecast and largely in line with consensus, meeting 104.2% of  the  full-year forecast. We expect a slight moderation in sequential revenue performance as the current quarter’s strong results  are skewed by the  festive effect arising from the Chinese New Year (CNY). The group reported a 9MFY12 revenue and earnings growth of 6.3% and 27.3% respectively. The stronger earnings vs revenue growth was attributed to a lower prize payout ratio and finance costs. Revenue growth was driven by the fact that  CNY fell in the month of January  this year (during the  3Q period) vs February in 2011 (the 4Q period).

Higher dividends on the cards? The group declared a third interim single-tier DPS of 6 sen, bringing  its  9MFY12 DPS to 22 sen (vs 18 sen in 1HFY11). This represents a payout ratio of 94%,  beating  our forecast  for an  88% full-year payout ratio. Given the seasonal moderation in 4Q earnings, we are maintaining our full-year dividend estimates. We expect an identical final quarter DPS of 6 sen per share, which would bring the full-year DPS close to our full-year estimate of 28 sen/share, representing a net dividend yield of 6.4%.

Maintain BUY. Given its defensive earnings and solid dividend track record, we are maintaining our BUY recommendation  and fair value of RM4.72. The stock’s  net dividend yield of 6.4% on our relatively conservative dividend payout assumption of 88% vs YTD payout ratio of 94%, coupled with its defensive earnings, make BToto an ideal investment, especially in view of the volatile and uncertain market conditions of late.

Source: OSK188