STOCK FOCUS OF THE DAY

Berjaya Sports Toto : Dividends, a sure bet BUY

We are maintaining our BUY rating on Berjaya Sports Toto (BToto) with a higher DCF-based fair value RM5.55/share, from RM5.35/share previously, to account for an expected earnings uplift coming from the imminent introduction of its “Power Toto 6/55” lottery game. We have raised our earnings estimates for FY10F-12F by 1%-5% on the back of stronger betting sales growth assumptions, underpinned by incremental sales from the Power Toto 6/55 lottery game where the jackpot starts from RM3mil, as opposed to RM300,000 previously for its 6/42 game. “Snowballing” effect on sales is expected to be more significant. In our opinion, BToto should remain a core holding. Its structural advantages and attractive business model are well-known. And we continue to expect BToto to outpace the industry’s betting sales growth, having grown by +13% in FY09 against 7% for the industry. In addition, BToto may further “optimise” its games by revamping its less popular digit games - 5-D and 6-D, and the 6/49 lottery game - to maximise betting sales growth. For FY10F, we forecast betting sales to expand by 7%, and 9% in FY11F, with stable payout ratios of 65%-66% (FY09: 64%). As it is, the stock is already offering an attractive yield of 13% (RM0.66/share) based on its current share price of RM5.10/share. This comprises a final dividend of RM0.11/share for 4QFY09, a forward dividend of RM0.19/share for 1QFY10 and also, the distribution of Treasury shares on a ratio of 1:14.

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