PETALING JAYA: CIMB Research has downgraded its recommendation on Berjaya Sports Toto Bhd (BToto) to “hold” from add, as the number forecast operator’s (NFO) share price nears the brokerage’s target price.
CIMB Research’s target price for BToto stood at RM2.62 based on its dividend discount model (DDM). Despite the downgrade in recommendation, the brokerage said it expected BToto should gain share price support from its strong 6.1% dividend yield.
CIMB Research raised its earnings forecast for BToto by 1.9%-2.7% for the financial years (FY) ending April 30, 2020, to 2021, to 20 sen per share, respectively, to reflect a slightly lower NFO prize payout ratio. It estimated BToto’s FY22 earnings to be 21 sen per share.
BToto’s net profit doubled to RM70.2mil for the fourth quarter ended April 30, 2019, from RM35.2mil million in the corresponding quarter last year, thanks to lower prize payout and a decline in operating expenses.
For the quarter in review, its revenue rose 8% to RM1.51bil from RM1.4bil previously.
BToto declared a fourth interim dividend payment of 4.5 sen per share.
For the 12-month period, BToto’s net profit rose 20% to RM276.4mil from RM229.7mil in the preceding year, while cumulative revenue was up a marginal 1% to RM5.72bil from RM5.66bil.
Meanwhile, TA Research raised its DDM-based target price for BToto to RM2.29 from RM2.21, but it reiterated its “sell” recommendation on the counter, given the looming risks to the company’s FY20 earnings.
“The current dovish interest rate environment bodes well for dividend-paying stock like BToto with a resilient dividend yield of more than 5%.
“However, we remain cautious on Malaysian economy and worry about Brexit, which may dampen consumer sentiment and spending power,” TA Research said.
“Also, note that FY20 will begin to see the first full-year impact of reduction in special draws by half and the absence of tax holiday,” it added, noting it expected BToto’s NFO division to register earnings contraction of 7.4% year-on-year.
Kenanga Research, however, was optimistic on the prospects of BToto, rating the stock “outperform” with a higher target price of RM3, compared with RM2.95, as it rolled over the valuation base-year to FY20 from FY19. The new target price, the brokerage said, implied an undemanding FY20 price-earnings ratio (PER) of 14.4 times.
“We still believe there is still room for higher earnings given the continuous enforcement against the illegal operators. It still trades at attractive PER of 12-13 times with above average yield of more than 6%,” Kenanga Research said.
BToto’s shares gained six sen to close at RM2.66 yesterday.