Possibility of extra special draws expected for BToto

Berjaya Sports Toto Bhd
(April 9, RM2.22)
Maintain hold with an unchanged target price of RM2.26.The movement control order (MCO) has led to the closure of numbers forecast operator (NFO) operations for a month (13 draws, including one special draw). A rough calculation implies that this reduction of draws would impact Berjaya Sports Toto Bhd’s (BToto) bottom line by about 9%. We gather that sales/draws were still holding up in February to March (pre-MCO) despite the initial Covid-19 wave which began in late January.

We do not discount the possibility of special draws increasing to offset the tax revenue lost from the MCO. Note that the number of special draws has been reduced from 22 to eight days over the past two Budget announcements. The prospects remain uncertain at this juncture given the recent change in government.

Most of the 600 over NFO outlets across Malaysia are operated by agents who have to bear their own overhead expenses. This essentially helps to partially cushion BToto’s profits from the MCO closure as the impact is largely seen from the absence of commissions to be derived from the gross sales of outlets.

To recap, the court had ruled in favour of Philippine Charity Sweepstakes Office (PCSO) with regard to a protest filed by the Philippine Gaming Management Corp (PGMC) as the latter was disqualified over minor issues despite being the only eligible candidate. As such, the rebidding process will continue with the timeline uncertain at this juncture. Nonetheless, PGMC is still operating on monthly contracts with PCSO until August. We expect this to likely continue into 2021 or so given the uncertainty in rebidding process commencement.

HR Own plc, a luxury car distributor based in the UK, is not sparred from the ongoing Covid-19 pandemic. We gather from the management that its outlets experienced a slowdown in footfall over the past weeks prior to the implementation of social distancing measures. We expect the UK operations to be hit in the fourth quarter of 2020 given the lower volume alongside ongoing rental expenses from its outlets. Any temporary rental-free period by landlords, if any, would serve well for this segment.

Dividend declarations are largely dependent on the Malaysian operations and as such, we may potentially see full-year dividend for financial year ending June 31, 2020 to come in just short of the initially anticipated 16 sen in order to manage its cash flow during the MCO.

We feel that BToto remains unexciting with the lack of fresh catalyst given the challenging operating environment amid rampant illegal operators. Nonetheless, dividend yield of 6.6% offers the saving grace. — Hong Leong Investment Bank Research, April 9