PP 7767/09/2010(025354)

02 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
2 July
022010
July 2010
MARKET DATELINE

Berjaya Sports Toto Share Price

Fair Value
:
:
RM4.22
RM4.45
Struck By Pool Betting Duty Hike Recom : Market Perform
(Downgraded)

Table 1 : Investment Statistics (BTOTO; Code: 1562) Bloomberg: BST MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Apr (RMm) (RMm) (sen) (%) (x) (x) (x) (x) (%) (%) (%)
2010 3,392.3 381.7 28.9 (11.6) 14.6 12.6 NM 85.5 41.9 6.4
2011f 3,445.6 383.6 28.4 (1.7) 14.9 33.0 20.4 NM 107.0 74.1 5.7
2012f 3,470.0 401.8 29.7 4.8 14.2 34.0 20.4 NM 98.3 80.4 5.9
2013f 3,574.6 412.9 30.6 2.8 13.8 17.3 (46.3) 87.6 78.1 6.2
Main Market Listing / Non-Trustee Stock / Non Syariah-Approved Stock By The SC * Consensus Based On IBES
E i

♦ Pool betting duty revised up by 2%-pt. Berjaya Sports Toto Berhad Issued Capital (m shares) 1,351.0
announced that the Ministry of Finance has, in a letter dated 29 June 2010, Market Cap (RMm) 5,701.3
informed of a revision of the pool betting duty (PBD) for all NFOs to 8% Daily Trading Vol (m shs) 1.0
(from 6%), to be applicable retroactively from 1 June 2010. Recall the PBD 52wk Price Range (RM) 4.11-4.99
is applicable on gross turnover, after deduction of gaming tax of 8%. Major Shareholders: (%)
♦ History lesson. The last time the PBD was raised for NFOs was in 2001 Berjaya Land 43.5
(from 7% to 10%). However, as a result of the increase, all the NFOs Tan Sri Vincent Tan 4.6
reduced their prize pools, including BToto and this caused 4D and lotto (direct)
sales volume to decline by 1.2% yoy in FY02 and 6.1% yoy in FY03. As
this move only proved to be detrimental to the gaming tax collected by the FYE Apr FY11 FY12 FY13
Government, the Government reversed the decision in 2004 and PBD was EPS chg (%) (12.0) (12.1) (12.0)
reduced to an even lower 6%. Var to Cons (%) (13.9) (12.3) -
♦ -12% p.a. impact, if no prize pool revision. We understand this move
by the Government comes as a surprise to the NFO players, and as such, PE Band Chart
there is no intention to revise the prize pool downwards for the moment.
However, we believe this would be a matter of discussion among the NFOs PER = 16x
as they will have to agree upon the quantum of change, if any, and apply PER = 13x
PER = 10x
to the Government to change it. Assuming an unchanged prize pool and no
changes to our sales volume assumptions, the impact of the 2%-pt hike to
BToto’s net profit is -12% p.a.. However, if the prize pool is reduced,
earnings would be affected more negatively. In FY03 for example, total
decline in net profit for BToto from FY01’s base was -55%.
♦ Risks. Main risks for BToto include: 1) Poor luck factor causing high prize
payout ratios; 2) Regulatory changes for NFO industry to discourage Relative Performance To FBM KLCI
gambling in the country or to allow competitors more outlets and more
game variations; and 3) Hike in gaming taxes. We think that an additional FBM KLCI
risk has emerged for the gaming sector as a whole, as this move by the
Government, as well as the recent abortion of the sports betting licence
deal, could potentially signify a turnaround in policy with regards to the
gaming sector and could mean a further crackdown on industry players. Berjaya Sports Toto

This could also potentially spell an oncoming hike in casino gaming duties
(now at 25%). We estimate every 1%-pt hike in casino gaming tax would
impact earnings by 2-3% p.a..
♦ Forecasts. We have revised down our forecasts by 12-12.1% for FY11-13
to take into account the PBD hike. We highlight that every 1%-pt decline in
sales/draw volume growth would affect net earnings by an additional -1%
and our fair value by -RM0.05/share, although we note that a cumulative
annual decline in sales/draw volume would have a larger impact on Hoe Lee Leng
earnings. We have also reduced our DPS forecasts accordingly, to (603) 92802184
maintain our 80-85% net payout ratio assumption, translating to lower net hoe.lee.leng@rhb.com.my
yields of 5.7-6.2% p.a. (from 6-7% previously).
♦ Investment case. Post-earnings revision, we reduce our DCF-based fair
value to RM4.45 (from 5.05). Due to the higher risks involved in the
sector, we are downgrading our recommendation to a Market Perform
(from Outperform).

Please read important disclosures at the end of this report. Page 1 of 3

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 02 July 2010

Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Apr (RMm) FY10a FY11F FY12F FY13F FYE Apr FY11F FY12F FY13F

Turnover 3392.3 3445.6 3470.0 3574.6 Revenue per draw day (RMm) 21.9 22.1 22.7
Gaming 3374.1 3421.1 3444.3 3547.6 No. draw days 156 156 156
Others 18.2 24.5 25.7 27.0 Gross prize payout ratio (%) 63.0 63.0 63.0
Turnover growth (%) (8.2) 1.6 0.7 3.0 No. of outlets 680 680 680

EBITDA 612.1 558.3 575.0 588.6

Gaming 585.1 580.3 589.0 606.6
Others (23.0) (22.0) (14.0) (18.0)
EBITDA margin (%) 18.0 16.2 16.6 16.5

Depreciation (17.7) (18.0) (18.2) (18.4)

Net Interest (15.9) (25.3) (24.2) (22.9)
Associates (0.0) 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 546.2 513.6 531.1 545.9

Tax (159.7) (133.5) (132.8) (136.5)
PAT 386.4 380.1 398.3 409.4
Minorities (4.7) 3.5 3.5 3.5
Net Profit 381.7 383.6 401.8 412.9

Source: Company data, RHBRI estimates

Technical Viewpoint: Gaming Sector (02 Jul 2010) – BjToto

Chart 1: BjToto Technical View Point

♦ The share price of BjToto accelerated from the
previous trading range of below the RM4.30 level in
Jun 2009, before hitting a high of RM4.68 in mid
Jun.

♦ However, as it failed to sustain at above the

RM4.60 hurdle, it began to retrace to the
resistance-turn-support level of RM4.30.

♦ The stock relaunched another attempt to remove

the RM4.60 hurdle in late Apr and May 2010.

♦ Again, it failed to confirm a crossover.

♦ As a result, the stock pulled back to a low of

RM4.16 by late May.

♦ Though it has tried to recover to above the RM4.30

level, it encountered another bout of selling
pressure in recent trading.

♦ It closed yesterday at RM4.22, with another bearish

candle on the chart, indicating follow-through
selling momentum likely ahead.

♦ If it fails to recapture the RM4.30 level, it will head

towards a lower support at RM4.00 in the next few
weeks, in our view. The effective trading range for
the stock now is from RM4.00 to RM4.30.

Page 2 of 3
 02 July 2010

IMPORTANT DISCLOSURES

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