PP 7767/09/2010(025354)

21 September 2010
RHB Research
Corporate Highlights Institute Sdn Bhd

Malaysia
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
21 September 2010
MARKET DATELINE

Berjaya Sports Toto Share Price

Fair Value
:
:
RM4.11
RM4.35
Struck By Pool Betting Duty Hike and Weaker Recom : Market Perform
(Maintained)
Luck Factor

Table 1 : Investment Statistics (BTOTO; Code: 1562) Bloomberg: BST MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Apr (RMm) (RMm) (sen) (%) (x) (x) (x) (x) (%) (%) (%)
2010 3,392.3 381.7 28.9 (11.6) 14.2 12.3 NM 82.4 43.2 6.6
2011f 3,312.3 349.3 26.4 (8.5) 15.5 30.0 12.3 NM 76.1 19.0 5.8
2012f 3,254.5 391.3 29.0 9.6 14.2 31.0 11.2 NM 80.8 cash 6.6
2013f 3,352.5 403.1 29.8 3.0 13.8 32.0 10.9 NM 79.0 cash 6.8
Main Market Listing / Non-Trustee Stock / Non Syariah-Approved Stock By The SC * Consensus Based On IBES

RHBRI Vs. Consensus

♦ Affected by weaker luck factor and pool betting duty hike. BToto’s Above
1QFY04/11 net profit was below our and consensus expectations, In Line
accounting for 16.8% of our forecast and 15.7% of consensus FY11 Below
forecast. This was due to: (1) higher-than-expected gross payout ratio of
67.1% recorded in 1Q11 (vs. our projected 63%) caused by weaker luck Issued Capital (m shares) 1,351.0
factor, which combined with the two-month effect of the 2%-pt pool Market Cap (RMm) 5,552.7
betting duty hike, caused 1QFY11’s gaming EBIT margin to decline 4.2%- Daily Trading Vol (m shs) 1.0
pt yoy; and (2) higher-than-expected interest expense, due to RM7.5m in 52wk Price Range (RM) 4.06-4.67
one-off costs relating to loan redemption and MTN issuance. We note that Major Shareholders: (%)
topline numbers were in line with our and consensus’ expectations, making Berjaya Land 43.5
up 24-25% of our and consensus FY11 forecasts. Tan Sri Vincent Tan 4.6
♦ Potential of larger dividend payouts? BToto declared an 8 sen single (direct)
tier dividend in 1QFY11 (vs. 19 sen in 1QFY10). We believe there is a
possibility for FY11’s dividend payout to surpass consensus expectations, FYE Apr FY11 FY12 FY13
due to holding company Berjaya Land’s need for cash for its RM711m EPS chg (%) (8.3) - -
convertible bonds which are maturing Aug 11. At end-Jul, BToto had still Var to Cons (%) (11.4) (6.6) (6.7)
not used about RM300m of its total RM800m MTN facility, while we do not
rule out a take-up of more debt to finance dividend payments, as was done PE Band Chart
previously. We expect BToto’s net debt to fall to 18% (from 48.5% PER = 19x
currently) by end-FY11. Nevertheless, we have remained conservative on PER = 17x
PER = 15x
our forecasts, assuming net dividend payout of 90-95% for FY11-12.
♦ No news of prize payout reduction yet. We understand that the NFOs
are still waiting on MOF’s response to their prize payout reduction request
following the 2%-pt hike in pool betting duty. While we have not projected
any reductions, we note that a 1%-pt reduction would improve earnings by
6-8% p.a., assuming no change in business volumes. However, if we were
to assume a 1%-pt drop in sales/draw volume growth as a result of the
prize reduction, this would lower the earnings improvement by 1% p.a.. Relative Performance To FBM KLCI

When NFOs reduced prize payouts in 1998, sales volumes declined about
2% yoy. On a more positive front, sales from BToto’s Supreme 6/58 game FBM KLCI
have improved significantly of late and are now generating sales of RM1.8-
2.1m per draw, owing to the large jackpot of almost RM45m currently.
♦ Risks: 1) Poor luck factor; 2) Regulatory changes for NFO industry to Berjaya Sports Toto
discourage gambling in the country or to allow competitors more outlets
and more game variations; and 3) Hike in gaming taxes.
♦ Forecast and Investment case. Although we maintain our topline
numbers, we have revised down our bottomline numbers for FY11 by 8.3%
after adjusting up our gross payout ratios by 1%-pt to 64% (assuming
prize payout returns to theoretical levels for the rest of the year) and
including the one-off interest costs. No change to FY12-13 forecasts. Post-
earnings revision, there is little change to our DCF-based fair value of
RM4.35. We maintain our Market Perform recommendation, as despite Hoe Lee Leng
(603) 92802184
unexciting earnings growth, we believe investors would still hold on to the
hoe.lee.leng@rhb.com.my
stock given the decent 5-7% p.a. dividend yield.

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Table 2. BToto Quarterly Results

QoQ YoY YoY
FYE Apr (RMm) 1Q10 4Q10 1Q11 1QFY10 1QFY11 Comments
(%) (%) (%)
Turnover 826.2 858.3 835.4 (2.7) 1.1 826.2 835.4 1.1
Gaming 823.8 848.0 829.3 (2.2) 0.7 823.8 829.3 0.7 Higher 4D games revenue offset
slightly by decline in lotto
games sales, despite 3
additional draws in 1QFY11, due
to lower sales per draw caused
by overlapping special draw
days
Others 2.3 10.3 6.1 (41.0) 160.1 2.3 6.1 160.1
EBIT 141.9 121.0 110.6 (8.6) (22.0) 141.9 110.6 (22.0)
Gaming 148.9 121.5 114.9 (5.4) (22.9) 148.9 114.9 (22.9) Lower margin yoy due to
weaker luck factor, combined
with two-month effect of higher
pool betting duty implemented
in June 2010
Others (7.1) (0.4) (4.2) 886.9 (40.4) (7.1) (4.2) (40.4)
Investment (0.0) (0.0) 0.0 (100.0) (100.0) (0.0) 0.0 (100.0)
Interest income 3.8 3.0 1.7 (44.3) (55.3) 3.8 1.7 (55.3)
Interest expenses (3.5) (6.7) (13.4) 100.4 289.3 (3.5) (13.4) 289.3 Due to increased net debt of
RM195.4m (from RM186.9m at
end- FY10) and higher interest
rates
Assc 0.0 0.0 (0.3) n.m. n.m. 0.0 (0.3)
Exceptional items 0.0 0.0 0.0 n.m. n.m. 0.0 0.0
Pre-tax profit 142.1 117.3 98.6 (16.0) (30.6) 142.1 98.6 (30.6) Flow through from EBIT and
higher interest expense
Norm pre-tax 142.1 117.3 98.6 (16.0) (30.6) 142.1 98.6 (30.6)
Taxation (40.8) (34.3) (33.3) (2.9) (18.2) (40.8) (33.3) (18.2)
Minority interest 0.9 (2.2) (1.3) (40.5) (239.6) 0.9 (1.3) n.m.
Net profit 102.3 80.8 64.0 (20.9) (37.5) 102.3 64.0 (37.5) Flow through from PBT and
higher effective tax rate
Norm net profit 102.3 80.8 64.0 (20.9) (37.5) 102.3 64.0 (37.5)
EPS (sen) 8.0 6.1 4.8 (21.0) (40.0) 8.0 4.8 (40.0)
DPS (sen) 19.0 8.0 8.0 19.0 8.0

Margins (%)
EBIT 17.2 14.1 13.2 17.2 13.2
Gaming 18.1 14.3 13.9 18.1 13.9 Due to lower prize payout ratio
Pre-tax 17.2 13.7 11.8 17.2 11.8
Normalised pre-tax 17.2 13.7 11.8 17.2 11.8
Net 12.4 9.4 7.7 12.4 7.7
Normalised net 12.4 9.4 7.7 12.4 7.7
Tax rate (%) 28.7 29.3 33.8 28.7 33.8 Higher effective tax rate due to
certain expenses being
disallowed for tax purposes

Source: Company, RHBRI

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Table 3: NFO Sales Trend

FYE Apr (RMm) 1Q10 4Q10 1Q11 % qoq % yoy 1QFY10 1QFY11 % yoy Comment
Sales (gross) 895.5 921.7 901.4 (2.2) 0.7 895.5 901.4 0.7
- Super & Jackpot^ 89.9 55.6 71.9 29.4 (20.0) 89.9 71.9 (20.0) Decrease in revenue despite
higher number of draw days due
to lower sales per draw day
- 4D, 5D, 6D & 805.5 866.1 829.5 (4.2) 3.0 805.5 829.5 3.0 Yoy decline due to higher number
4/49* of draw days offset slightly by
lower sales per draw day

No. of draw days 42.0 44.0 45.0 2.3 7.1 42.0 45.0 7.1 Includes 5 special draws in
1QFY11 versus 3 in 1QFY10

Sales per draw day 21.3 20.9 20.0 (4.4) (6.0) 21.3 20.0 (6.0)
- Super & Jackpot^ 2.1 1.3 1.6 26.5 (25.3) 2.1 1.6 (25.3) Yoy decrease due to competition
from Magnum’s new 4D jackpot
game, although QoQ
improvement due to launch of its
new Supreme 6/58 game in Mar
2010
- 4D, 5D, 6D & 19.2 19.7 18.4 (6.4) (3.9) 19.2 18.4 (3.9) Weaker consumer spending yoy
4/49* and qoq

Est payout ratio (%) 63.3 66.7 67.1 0.6 6.1 63.3 67.1 6.1 Luck factor weakened
significantly in 1QFY11 yoy
^ Estimate, * Mostly 4D

Table 4. Earnings Forecasts Table 5. Forecast Assumptions

FYE Apr (RMm) FY10a FY11F FY12F FY13F FYE Apr FY11F FY12F FY13F

Turnover 3392.3 3312.3 3254.5 3352.5 Revenue per draw day (RMm) 20.6 20.7 21.4
Gaming 3374.1 3293.2 3234.5 3331.5 No. draw days 160 156 156
Others 18.2 19.1 20.0 21.0 Gross prize payout ratio (%) 64.0 63.0 63.0
Turnover growth (%) (8.2) (2.4) (1.7) 3.0 No. of outlets 680 680 680

EBITDA 579.8 518.9 548.1 558.8

Gaming 602.8 538.9 558.1 574.8
Others (23.0) (20.0) (10.0) (16.0)
EBITDA margin (%) 17.1 15.7 16.8 16.7

Depreciation (17.7) (18.0) (18.2) (18.4)

Net Interest (20.8) (22.2) (11.4) (6.2)
Associates (0.0) 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 546.2 488.2 528.0 543.7

Tax (159.7) (134.2) (132.0) (135.9)
PAT 386.4 353.9 396.0 407.8
Minorities (4.7) (4.7) (4.7) (4.7)
Net Profit 381.7 349.3 391.3 403.1

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.
This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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