BJToto 'buy', Hai-O 'buy', Spritzer 'market perform'

Berjaya Sports Toto Bhd

By Maybank Research

Rating: Buy

Target Price: RM3.05

MAYBANK Research said BJToto’s earnings were in-line with expectations but dividends missed a tad.

The company’s first quarter FY18’s core net profit of RM71.2mil (+3% year-on-year (yoy), +2% quarter-on-quarter) was within its expectations at 23% of its full year estimates.

The quarter’s revenue of RM1.47bil and earnings before interest, taxes, depreciation and amortisation of RM130.8mil were also in-line at 26% and 25% of its full year estimates respectively.

However, it said that dividends marginally disappointed at 22% of its full year estimates.

“We maintain our buy call and RM3.05 sum of parts-based target price.

“More importantly, we hope that the y-o-y decline in gaming revenue/draw will come to an end thanks to recent crackdowns on illegal number forecast operators (NFOs) and legislation will be passed to cement these gains,” it said.

“Our earnings per share and dividend per share (DPS) estimates are unchanged. Our DPS estimates translate into very attractive dividend yields of more than 7.8%. Even if the first quarter DPS of four sen were annualised, BJToto still offers very attractive dividend yields of more than 6.9%,” it added.

It noted that gaming revenue/draw have been struggling to grow due to competition from the illegal NFOs.

“We understand that the respite in the first quarter was due to the recent crackdowns on illegal NFOs. We hope that amendments to the Common Gaming Houses Act and Cyber Security Act will be passed soon to cement recent market share gains,” the research house said.

“Until then, our EPS and DPS estimates are unchanged. On the latter, BJToto typically declares more dividends in the second to fourth quarter to bring full year dividend payment ratio to more than 75%,” it added.

Hai-O Enterprise Bhd

By Affin Hwang Capital Research

Rating: Buy

Target Price: RM5.50

HAI-O’S first quarter of FY18’s revenue and core net profit increased by 58.3% and 83% year-on-year (yoy) to RM124.5mil and RM17.9mil respectively.

Commenting on this, Affin Hwang Capital Research (AHCR) said core net profit was ahead of expectations, accounting for 24% and 25% of its and consensus estimates.

“Traditionally the first quarter is the weakest quarter contributing only to 15%-20% of full year earnings, but it came as a pleasant surprise that 40% y-o-y increase in the number of distributors in the quarter negated the seasonality effect,” it said.

ACHR noted that Hai-O’s strong earnings growth continues to be underpinned by its growing distributor force, which is currently growing at an average of 5,000 distributors per month.

“Sales per distributor have also increased due to higher recurring sales of small ticket items (food and beverage, personal care products and skincare series).

“While big ticket items – fashion and garments (such as Hijabs) which were introduced early this year also contributed to higher sales,” ACHR said.

Meanwhile, wholesale division recorded a decrease in revenue of 8% yoy due to higher one-off export sales of RM2mil of Chinese liquor in the first quarter, but pretax profit rose strongly by 60% due to higher sales margin from patented medicines and Chinese medicated tonics.

ACHR maintained its “buy” call with a higher target price of RM5.50.

“We revise up Hai-O’s core net profit by 11% for FY18-20 estimated, assuming higher distributors of 188,000 in FY18 (vs 159,000 previously). We are fairly positive that more of Hai-O’s product launches and contributions from fashion wear can sustain its sales momentum,” it said.

It raised its target price to RM5.50 (from RM4.92 previously) based on an unchanged price to earnings ratio of 18 times on 2018 estimated EPS.

“We like Hai-O’s management quality and its ability to deliver growth going forward, and we reiterate our buy call on the stock,” it added.

Spritzer Bhd

By Kenanga Research

Rating: Market Perform

Target Price: RM2.20

KENANGA Research has initiated a coverage on Spritzer Bhd with a “market perform” call and target price of RM2.20 based on price earnings ratio 13 times financial year 2018 ending Dec 31 estimate.

It said the valuation is at a 25% discount from the stock’s small cap beverage peers, including Power Root Bhd at 17 times PE, which we believe is fair because Power Root’s dividend potential of about 6% yield.

The research house reckoned Spritzer’s future earnings is backed by growing export sales, while investments in production and warehousing capabilities should improve output and efficiency.

The company’s leading market position is expected to sustain given the resilient demand for the group products.

Spritzer had ventured into the China and UK markets as a means of expanding its export market base.

Kenanga said the move could potentially serve as a buffer against the weak domestic market, which has been undermined by poor consumer spending post-GST implementation and unfavourable foreign exchange.

Nonetheless, it expected that the operations in China to incur high gestation costs from high marketing expenses against the heavy competition.

For the next three years, Spritzer has aimed to invest about RM60mil to RM80mil to increase the automation of its production lines and key warehousing capabilities.

The management targeted to expand production capacity by 20%.

Kenanga said the expansion of production and warehouse capabilities should improve economies of scale and subsequently lead to margins expansion.

The added capacity could also allow for more aggressive trading of products in China in the near future.

Currently, the group has a total production capacity of 650 million litres per annum with an utilisation rate of about 70%.

Spritzer is a leading player in the domestic bottled water market with an estimated 40% share, backed by three key product brands (Spritzer, Cactus, Summer) with different price ranges.

In addition, Kenanga said the exclusive licensing of the group’s key water well locations make it difficult for new entrants to compete in the market.

For FY17, Kenanga expected that Spritzer to record lower earnings at RM23mil on the back of flattish sales of RM319.4mil against RM318.5mil last year, due to gestation cost from China and higher raw material prices.

But it anticipated the company to perform better in FY18 with stronger sales at RM333.2mil driven by higher export volume and product price increase of 5% to support local sales margins.

Net earnings could potentially record at RM30.3mil, up 31% year-on-year on the back of higher margins in lieu of the said price increase and cost savings from higher production efficiency.

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