Berjaya Sports Toto - 1QFY10: Fewer punters?

BToto’s 1QFY01 revenue went flat yoy as revenue per draw unexpectedly declined 6.6% due to weak ticket sales. No dividend was declared for the current quarter. The annualised net earning is 9.2% below our expectation.

Berjaya Sports Toto (BToto) reported a net profit of RM100.5m in 1QFY10 (+8.7% yoy, -6.3% qoq). The yoy rise in net profit was attributed to a lower estimated prize payout ratio of 61.2% vs 62.5% in 1QFY09. 1QFY10 revenue was flat yoy and 5.1% lower qoq despite there being three draws more than the year-ago quarter. Annualised net earnings are 9.2% below our estimate but 1QFY10 was expected to be a seasonally weak quarter with fewer festive days. No dividend is declared for the current quarter, which is in line with our expectation.


Gross revenue per draw unexpectedly declined 6.6% yoy (from RM22.9m to RM21.4m), as the economic slowdown probably hurt tickets sales to the blue-collar segment. Consumption falloff offset the impact of three additional draws in 1QFY10 (compared with 1QFY09). Nevertheless, we expect revenue to improve in 2HFY10 with the new launch of Power Toto 6/55 game in Nov/Dec 09 and on the back of a stronger economic recovery. We forecast gross revenue per draw to improve 1-3% on the back of this new game after factoring in cannibalisation effect on existing games.

No dividends as expected. BToto has front-loaded its FY10 dividend payout (net: 19 sen) in 4QFY09, totalling about RM238.6m, which is equivalent to 237.6% of its 1QFY10 net profit. To finance the dividend, BToto has taken a five-year term loan (RM380m) with an interest rate of about 5%. As at 31 Jul 09, its net debt stood at RM359m and its interest cover is expected to remain healthy at 18x for FY10.

Maintain BUY but no near-term upside catalyst. Based on DCF valuation (cost of equity of 8.9% and terminal growth of 1%), we value BToto at RM4.90/share, which implies prospective FY10 and FY11 PEs of 15.0x and 14.4x respectively. We like the stock as a defensive play and its gross dividend yields should remain attractive at 7-8% beyond FY10.

Astro - lower ARPU and higher churn

Astro's 1H FY10 net profits were 47% of our FY10E forecast and 31% of street. 1H FY10 Pay TV revenues for Malaysia were up by 6% YoY, driven by higher subscription revenues (growing subscriber base but lower ARPU). Net adds were tracking in line with full-year guidance. ARPU was lower YoY due to lower yielding new subs, although a price hike for the sports package is expected to arrest the slide. Churn edged up for the second consecutive quarter to 11.9%.

For India, the 1H10 loss of RM54 mn was in line with our assumption of RM100 mn share of Sun Direct TV losses this year. Litigation costs from Indonesia were in line with expectations.

We continue to rate Astro UNDERPERFORM, due to its rich valuations. Our DCF-based target price of RM2.65 spells 24% potential downside from the current levels. Additionally, Astro's FY10 EV/EBITDA of 13.5x is a steep premium to global peers of 3.6x-8.5x.

Risk factors include: potential surge in premier league football content cost and HDTV rollout.

SP Setia - Expect higher earnings

Stronger upcoming quarterly results but recent sales trend has softened. SP Setia’s 3QFY09 net profit could have increased 10-13% qoq and yoy due to an across-the-board higher sales in Klang Valley, Johor and Penang (please refer to table overleaf). The strong sales were mainly attributable to deferred payment scheme such as the 5/95 programme and low mortgage rate of less than 3.5%, which helped to boost the affordability of home buyers. The Group has achieved new sales of RM1.3b as of 9MFY09, which is RM100m higher than the corresponding period of 9MFY08 and exceed its full-year target of RM1.1b, and it can easily match FY08’s sales of RM1.4b.

However, we understand that the new bookings have slowed down since the 5/95 scheme ended in mid-July.

Margin likely to be 2-3ppt lower. Nonetheless, these new sales were achieved at the expense of margins. We expect FY09’s EBIT margin to decline to 16% (vs FY08’s 19%) as a result of the margin compression of around 2-3ppt from the 5/95 scheme, which requires SP Setia to absorb documentation and interest costs during the 2-year construction period. We note that EBIT margin has dropped from 17% in 4QFY08 to 15% in 2QFY09 since the introduction of the scheme earlier this year.

No new launches. Going forward, we understand that the Group has no plan for any new launches in the next 3-6 months. However, should consumer sentiment improve significantly, the Group will bring forward its launches such as: a) second block of Sky Residences which is selling at RM730-750psf (10% higher than its first block of RM680psf with 50-60% bookings), b) serviced apartments in Setia Pearl Island, which has a target selling price of RM320psf, and c) serviced apartments in Setia Walk.

Commercial project in Abdullah Hukum still preliminary. The RM5b-6b GDV mixed development project (JV with a local partner) with estimated GFA of 5-6m sf, which consists of retail, office, hotel and serviced apartments is still awaiting necessary approvals and pending land privatisation. The project is located at a 24-acre of land next to the Abdullah Hukum LRT station and nearby the Mid Valley City. We understand that the Group targets to launch the project in 2H10. Should the project materialise, we believe that it will further enhance the Group’s earnings as we still have not factored in our earnings forecast.