jpmorgan: 5mar Bjtoto (overweight)

• 9M08 results slightly below expectations: Berjaya Sports Toto
reported flat net profits of M$288MM in 9M08 vs. M$284MM in
9M07 while 3Q08 earnings fell 19% to M$98MM, mainly due to
higher prize payout and lower interest income. The results made up
71% of our full-year estimate and consensus and hence, slightly
below expectations. However, we expect the group to make up the
shortfall in 4Q FY08 given the positive Lunar New Year effect. The
group also declared a third interim net DPS of 5.9 sen (1.2% yield)
bringing total net DPS as of 9M07 to 19.2 sen (84% payout).
• Strong revenue growth offset by lower interest income and
higher taxes in 3Q FY08: Despite a 12% increase in NFO revenues,
earnings in 3Q FY08 fell 16% Y/Y to M$98MM mainly due to lower
interest income and an increase in effective taxes from 22% in 3Q
FY07 to 32% in 3Q FY08. Meanwhile, NFO revenues/draw recorded
a strong increase, up 13.6% Y/Y, 9.5% Q/Q, thanks to its latest Mega
6/52 jackpot game introduced in 1QCY08. Operating margins,
however, fell 80bp to 19.2% in 3Q FY08 as a result of higher prize
payouts.
• Capital management remains a key potential catalyst: Under the
current market environment, we think BToto stands out as a
defensive play with strong capital management potential. In addition
to a potential yield of 6% (based on our payout assumption of 100%),
we believe that management’s ongoing share buyback totaling
22.5MM (1.8% of shares) as of 9M08 should also be viewed
positively. Assuming management cancels its cumulative treasury
shares totaling 93.0MM, this could bring about an immediate EPS
enhancement of 7.4% in FY09E.
• Maintain OW: Our April-08 PT of M$5.70 is based on DCF and
implies an 18x P/E vs. the market’s 15x. We believe a premium is
warranted given its attractive yield of 5.7% vs. the market’s 3.6%. A
key risk to our PT is disappointing dividends.