Maintain BUY call and MYR2.24 DCF-based TP
BST hosted a post-2QFY6/22 results conference call
. Positively, Sports Toto Malaysia (STM) sales/draw continues to recover despite the recent Omicron wave. While Cukai Makmur will weigh on 2HFY6/22 earnings, we had expected this. Longer term, we are positive that BST intends to be a pure gaming company which implies that it will sell its non-gaming assets (e.g. H.R. Owen). We continue to like BST as a high dividend yielding recovery play.
STM sales/draw at c.85% of pre-COVID-19 levels
BST stated that despite the recent Omicron wave, STM sales/draw has continued to recover to c.85% of pre-COVID-19 levels from 70-75% in 2QFY6/22. This confirms our belief that Malaysians are still inclined to participate in gaming despite the risk of being infected with COVID-19 as long as the risk of serious health complications is low (link). Thus, we maintain our estimates which assume that STM sales/draw will recover to 75%/90%/92% of pre-COVID-19 levels in FY22E/FY23E/FY24E.
Cukai Makmur will have an impact in 2HFY6/22
BST stated that although it has unutilised tax losses from Malaysian sources amounting to MYR8.5m as at end-FY6/21, it still expects to incur Cukai Makmur in 3QFY6/22 and 4QFY6/22. We suspect that the unutilised tax losses are not attributable to BST’s principal subsidiary, STM which has historically generated >80% of group earnings pre-COVID19. That said, we have already incorporated Cukai Makmur into our forecasts and estimate that it will cost BST a one-off MYR10m in FY6/22.
To spin off H.R. Owen in the long run?
BST also proposed to change its name to ‘Sports Toto’. BST stated that it wishes to be a pure gaming company going forward. Recall that Jalil Rasheed, Group CEO of Berjaya Corporation (BC MK, CP: MYR0.25, Not Rated) has stated that he plans for H.R. Owen to be sold to BC. Yet, BST stated that it will wait for H.R. Owen to complete its large showroom in Hatfield and build its distributorship network first. If the disposal were to materialize at a reasonable price, we would view it positively.