Berjaya Sports Toto - 4QFY09: Hefty shareholder payouts but …

As expected, BToto declared a hefty net interim DPS of 30 sen (for FY09 and FY10) plus distribution of treasury share for every 14 shares held. Future payouts may be less spectacular. FY09 results beat our expectation by 2.4%.

BToto reported a net profit of RM107.2m in 4QFY09, +10.4% qoq, despite having six draws less than the preceding quarter. This was attributed to a lower estimated prize payout ratio of 60.9% vs 65% in 3QFY09. Revenue grew 12.7% yoy in FY09, driven by strong ticket sales and additional draws. Correspondingly, net profit rose 17.7% yoy as the result of higher revenue and lower prize payout ratio.

Net DPS of 30 sen and distribution of treasury shares provide an effective 13% net yield. Management has recommended a fourth interim tax exempt DPS of 11 sen for FY09 and brought forward its first interim DPS for FY10, comprising a 9 sen tax exempt and a 10 sen single-tier. In addition, it is distributing treasury shares on a 1-for-14 basis. This brings the total effective net DPS to 65 sen (entitlement date on 15 Jul 09), which translates to a net yield of 13% in one month.

Generous payouts unlikely in the near future. The payouts are close to our base case assumption of a net DPS of 36 sen and a 1-for-13 treasury share distribution, which would provide just sufficient funds for parent Berjaya Land (BLand) to meet its financial obligations if half of its exchangeable bondholders (outstanding value of RM882m) choose to exercise their put options by 16 Jul 09.

BLand may need to raise more cash should over half of the bondholders exercise their put options but we understand such a scenario may not materialise. More importantly, BToto’s future shareholder payouts may be limited by a few issues, including limited distributable reserves, even though theoretically it has the funding capacity to do so.