Two research houses "overweight" Berjaya Sports Toto Bhd (BJ Toto) on the basis of its dominance in the numbers forecast operations (NFO) and dividend yields.
Although the fourth quarter results ended April 30 (FY4/07) were marginally off by 3% of market estimates and 2% below consensus, CIMB Research were generally happy with BJ Toto’s performance.
They, however, did note the unsatisfactory fourth interim dividend per share (DPS) of 7.5 sen which fell short of their 10.5 sen expectation; bringing full-year DPS to 45 sen (8.5% gross yield) versus their projection of 48 sen. According to them that translated into a dividend payout of 118% for FY07.
It pointed out that BToto's 4.8% on-year growth for 4Q07 was commendable as there were two fewer draw days. According to their analysis, growth of gaming revenue per draw was even better at 9.7%.
On the future outlook of BJ Toto, the research house projected a 7% improvement in FY08, to be forthcoming from more market share gains within the 4D segment due to its growing popularity, as well as expansion of the non-4D segment.
On June 23, BToto launched its Mega 6/52 Jackpot with a minimum RM2 million jackpot. This gave its daily lotto revenues a 25% boost. With three lotto games now, it believed BToto's core 4D operations would be a prime beneficiary.
CIMB is maintaining a prize payout assumption of 68%, which will provide potential upside surprises when luck factors normalises.
It also raised BToto's target price to RM6.60. It trimmed the estimates for FY08-09 back by 1% — 2% to reflect fewer draw days and the lower FY07 lotto revenue base. It also scaled back its dividend expectations slightly, although yields remain highly attractive at over 8.5%.
It cited upside catalysts to be the continued market share gains with the new game providing extra ammunition; normalisation of luck factors and the still-attractive gaming industry dividend yields.
Meanwhile, SJ Research said it has "overweight" BToto similarly on its dominance in the NFO industry.
It said BToto's 4Q07 revenue came within its expectation, but its net profit was below its forecast. The group's revenue increased by 3.3% to RM3 billion, compared with RM2.9 billion a year ago. The higher revenue was spurred by better sales of 4 Digit game and full year contribution of 4 Digit I-Perm game when compared to seven months contribution in the previous year.
However, BToto registered 8.9% decrease in earnings from RM464.5 million to RM376.6 million, mainly attributable to the t tax write back of RM51.8 million in the previous year. Hopefully this is a rare occasion.
As expected, the Group declared a fourth interim dividend of 5.5 sen per share bringing the full year dividend payout to 32.7 sen per share.
SJ Research favours BToto due not only to its dominance in the NFO industry but also its relatively stable profits which are not highly correlated with economic conditions.
"Due to its strong balance sheet and its cash generative assets, we expect the group to maintain its high dividend payments. In view of the rising risk premium and high volatility in the market, we believe the defensive nature of BToto will be an ideal stock to have in everyone's portfolio," it said.
SJ Research fairly valued BToto at RM5.65 based on its discounted cashflow model. It was maintaining its "Overweight" recommendation on the company due to its decent gross dividend yield of 7% and a total return exceeding 13%.
In fact, BJ Toto went up to RM5.50 today (2 July 2007) on heavy volume trading. Let us see how high it will go in the next few days.
Heartsong
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