Berjaya Sports Toto - Lady luck in 2Q13; 1-for-45 share dividend

Period    2Q13

Actual vs.  Expectations  The 2Q13 results came in slightly above our expectations with the 1H13 core earnings of RM214.5m making up 53% and 52% of our FY13 fullyear estimate and that of the market consensus respectively.

 The main difference between the actual results and our estimates was the reported estimated prize payout ratio (EPPR) of 58.5% in 1H13, which was lower than our assumption of 60.0%. 

Dividends   A 1-for-45 share dividend (entitlement: before 4pm on 17 Jan 2013) has been declared, implying a 9.5 sen NDPS or 2.2% yield (based on yesterday’s closing price). This brings 1H13 NDPS to 16 sen, which is the same as last year. 

Key highlights   The 2Q13 net profit rose 2% QoQ and 7% YoY to RM112.6m thanks to a better luck factor as the EPPR dropped to 57.5% from 59.9% in 1Q13 and 57.9% in 2Q12. The higher ticket sales also contributed as they rose by 1% QoQ and 5% YoY as more draw days were conducted. (45 vs. 44 in 1Q13 and 43 in 2Q12). The 2Q13 average ticket sales per draw dipped slightly by 1% QoQ to RM21.7m from RM22.0m but inched up from RM21.6m last year.  For the YTD, the 1H13 headline net profit rose 13% to RM223.3m on the back of the 6% rise in the revenue to RM1.81b. The higher revenue was due to a higher jackpot for Power Toto 6/55 game in 2Q13 and a full 6-month impact for the  4D Jackpot game vs. 4.5 months previously. The improved 1H13 results were mainly attributable to a better luck factor (58.5% vs. 59.1% previously). There was also a RM8.8m one-off gain in 1Q13 from the disposal of an unquoted investment, i.e. Cassis International Pte Ltd. 

Outlook   The forward NFO sales/profits remain resilient, but the net earnings and dividends are set to decline postlisting of STM-Trust by c.9% and c.20% respectively. 

Change to Forecasts   Although the 1H13 earnings was stronger than expected, we are keeping our FY13-FY15 estimates for now. We will adjust our earnings model once the listing of the Business Trust on SGX-ST is completed.  Rating  MAINTAIN UNDERPERFORM We maintain our view that the spin-off of its NFO business to be listed as a Business Trust in Singapore may not be value-accretive and will lead to a derating of the stock by the market.

Valuation    Our price target of RM3.88/share is maintained. This is based on the floor valuation, which includes a 10% holding company discount to its RNAV and a 49 sen special dividend. 

Risks   The risks to our estimates are stronger than expected ticket sales and a lower than expected EPPR.

Source: Kenanga