BJToto: Poorer Results Buried Promising New Venture

Technical Outlook (Latest)

In early March, BJToto broke above its downtrend line at RM3.20. The breakout could be due to foreign fund buying or a belated reaction to its latest venture in Vietnam (see below). The rally peaked on March 18 (after it made a high of RM3.47) and thereafter the share price began to roll down. The catalyst for the correction was a disappointing quarterly results announced in the evening of March 18.

From the chart below, the share price has tested the downtrend line again. The downtrend line may provide some support to absorb the selling. Beyond that, BJToto needs to form a base for a possible recovery.


Chart 1: BJToto's weekly chart as at Mar 28, 2016 (Source: Tradesignum)

Latest Corporate Development
  
Berjaya Corp Bhd (BCorp) and its subsidiary Berjaya Sports Toto Bhd (BToto) have won an exclusive 18-year contract to operate a nationwide computerized lottery in Vietnam.

The project, estimated to cost US$210.58mil (RM923.65mil) would be carried out by Berjaya Gia Thinh Investment Technology Joint Stock Company (Berjaya GTI) - a company 80% owned by BCorp and 20% by BToto.

Berjaya GTI expects to launch its first game, a Lotto Jackpot game, by mid-2016, followed by a digit game thereafter. The project would initially be launched in Ho Chi Minh City and would be rolled out progressively to cover the whole of Vietnam within the next five years with some 10,000 terminals. For more, go to the Star newspaper report (here).

Results Update

For QE31/1/2016, BJToto's pre-tax profit dropped by 17% q-o-q or 44% y-o-y to RM58 million while its revenue slipped 8% q-o-q  but remained relatively unchanged y-o-y at RM1.323 billion.

Revenue dropped q-o-q mainly due to lower contribution from H.R. Owen while the decrease in pre-tax profit was mainly due to the poorer results of Sports Toto, H.R. Owen and PGMC. Sports Toto's pre-tax profit dropped 17.9% q-o-q mainly due to higher prize payout. PGMC reported lower pre-tax profit of 9.6% q-o-q mainly due to higher operating expenses incurred as well as unfavorable foreign exchange. H.R. Owen reported pre-tax loss of RM6.3 million as compared to pre-tax profit of RM1.9 million in preceding quarter due to a higher drop in revenue to RM456.1 million from RM562.3 million in the preceding quarter as a result of lower new car sales volume (due to lower supply of new model cars by certain manufacturers as well as unfavorable foreign exchange).


Table: BJToto's last 8 quarterly results

A closer look at BJToto's earnings for the past 4 years revealed a slow but steady slide. This appeared to be picking up steam in the past 3-4 quarters, with margin slipping below 6%. This poor margin couldn't be offset by higher revenue. This downtrend would probably remain in place even with the new Vietnamese venture due to large initial capital outlay.


Chart 1: BJToto's last 46 quarterly results

Valuation

BJToto (closed at RM3.13 yesterday) is now trading at a PER of 16.5 times (based on the last 4 quarters' EPS of 19.00 sen). Its dividend yield is fairly attractive at 6.1% pa. While the dividend yield is still compelling, BJToto is deemed fairly valued at the current PER.

Conclusion

Despite the bullish technical breakout and the positive Vietnamese venture, BJToto is only rated a HOLD due to its poorer financial performance and full valuation.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, BJToto.