RHB upgrades Berjaya Sports Toto to 'buy'

KUALA LUMPUR: RHB Research has upgraded Berjaya Sports Toto Bhd to a "buy" recommendation as the Toto-betting business remains resilient under the conditional movement control order and as the government cracks down on the illegal gambling market.

The research house raised its target price to RM2.40 from RM2.31 previously after rolling forward its discounted cash flow valuation base year to FY22 to reflect post-pandemic earnings.

"Despite the downward earnings revision, there is still sufficient upside for us to upgrade the stock to a BUY in view of the attractive FY21F-22F dividend yield of 6.8-7.7%, backed by the resilient Toto business.

"Further upside could come from potential replacement draws in 2021 and the ongoing effort to clamp down on the illegal gambling market.

"While there is a risk of PGMC’s lottery equipment lease agreement not being renewed, we note that impact to our earnings forecasts are minimal (<3%) and should not affect dividend payments," said RHB.

Berjaya Sports Toto's ticket sales recovered to 80% to 85% of pre-MCO levels as compared to 45% to 50% after reopening on June 17.

"We believe impact to ticket sales is minimal – this reaffirms our view that NFO demand is inelastic," said RHB.

The research house said ticket sales for jackpot games fell by only an estimated 2% year-on-year in 1QFY21, owing to the higher average jackpot prize.

Meanwhile, the group's motor retailing business in the UK is expected to be affected by the government's one-month lockdown from Nov 5 to Dec 2.

In the Pilippines, the group's associate Philippines Gaming Management Corp is operating partially, although RHB is not overly concerned as its monthly operating expense is minimal at about RM1mil.

"All in, we cut our FY21F-23F earnings by 3.9-8.0% after imputing weaker contribution from its overseas businesses. We also lower our FY21F DPS to 14 sen from 16 sen to be more conservative," said RHB.
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