BToto remains a dividend yield play given its resilience backed by a stable revenue and cost structure and a visible capital management policy. We maintain our BUY recommendation and TP of RM4.90. The stock’s current valuations remain undemanding at 13.2x FY10 PER, with an implied average sustainable gross dividend yield of 7.9%.
Results broadly in line. BJTOTO’s annualised 1HFY10 earnings represented 46% and 48% of consensus and our full-year estimates. However, we deem the results as being largely in line as its 2HFY10 earnings are likely to outpace that in 1H owing to the following factors: i)) the 4Q period is traditionally its strongest quarter (being the CNY festive season), ii) new high yielding Power 6/55 lotto game is likely to start contributing positively from 3Q-to-4QFY10 onwards, and iii) a bigger number of special draws to be utilised over the remaining period of the FY. 1HFY10 revenue declined 5.1% y-o-y as the corresponding period’s sales benefited from two high jackpots in the Mega 6/52 game.
Earnings dipped by a lower 1.6% y-o-y on the back of improved luck factor. On a q-o-q comparison, revenue and net profit rose 3.6% and 2.0% respectively as a result of a bigger number of special draws and lower prize payouts but were tempered by weaker results from its 88.3% subsidiary, Prime Gaming Philippines Inc (PGP). Ex-PGP, the group’s core NFO (Sports Toto) pre-tax profit was up 11.2% q-o-q, largely driven by lower prize payouts.
Same draw sales hit by high base and lower jackpot element. The group’s blended same draw sales shrank 8% y-o-y as sales in the previous corresponding period benefited from two high jackpots in its Mega 6/52 games. The increased number of special draws also contributed to the dilutive impact on same draw sales. Nonetheless, we have modelled for a conservative 2.5% contraction in full year revenue, whereby the larger number of special draws in FY10 is expected to partially cushion the drop in same draw sales growth arising from FY09’s high base effect.
Dividend on track to meet expectations. Although no dividend was declared in the current quarter, we note that the first interim dividend of 19 sen/share, which was declared in advance in 4Q09, represents a relatively attractive 1HFY10 net payout ratio of 117.6% vs our more conservative full-year net dividend payout ratio of 75%. As such, although no dividend was declared in the current quarter, we believe that the full year dividend payout is well on track to meet or potentially surpass our relatively conservative minimum 75%dividend payout assumption.