The Edge

BERJAYA Sports Toto Bhd (BToto) will continue to hold the dominant market share of between 40% and 41% given the large number of its games available and greater outlets network compared to its competitors, said RHB Research.

It estimated that as at 4Q08, BToto's market share was 40%, followed by Magnum Corporation Bhd at 36% and Tanjong plc at 24%.

"This is an increase from a year ago, which saw BToto's market share at 39%, followed by Magnum at 37% and Tanjong at 24%," it said.

RHB Research maintained its outperform recommendation on BToto at RM4.78 with a reduced discounted cash flow-based target price of RM5.20, based on unchanged weighted average cost of capital of 9.75%.

The research house said it was positive on the number forecast operators' (NFO) and BToto, adding that the sector would be a good one to turn to in the current economic conditions, given the relatively inelastic demand for 4D and lotto games due to its small ticket pricing.

"In addition, BToto's sustainable gross dividend yield of 8% to 9% per annum will provide investors with a stable minimum return.

"In fact, as a testament to its stable returns to shareholders, BToto has seen its foreign shareholding level increase over the last few months, rather than decrease, as has been the case with other gaming companies in Malaysia. Current foreign shareholding level is now at about 20%, up from 17% to 18% at end-CY2007," it said.

RHB Research, however, reduced its forecasts for BToto by 1.5% to 3% per annum for FY09 to FY11 after making changes to the number of draw days and revenue per draw assumptions.

It said BToto, along with other NFO players had yet to receive any word from the Ministry of Finance as to the number of special draws to be allocated to them this year, unlike normal circumstances where such approvals were given at the beginning of the calendar year.

"As we had in our original forecasts assumed the number of total draws for BToto for future years to be similar to FY08 (164 inclusive of eight special draws), we are now revising our forecasts to 156 draws, projecting zero special draws for the next few years," it said.

The research house said despite the lack of special draws, revenue per day for BToto was still growing, and that in 4QFY08 the company's revenue per draw rose about 7.6% year-on-year (y-o-y) increasing 9.9% y-o-y for the full year.

"So far, in 1QFY09, management has seen revenue per draw still growing at a single-digit percentage, and expects average growth of about 5% to 6% y-o-y for FY09, assuming no special draws.

"We believe this growth rate is not too ambitious, as it is lower than the average revenue per draw compound average growth rate of 8.9% per annum registered over the last five years. Nevertheless, in our forecasts, we have projected revenue per draw growing at a more conservative 4% annually over the next few years," it said.

The research house also did not rule out the possibility of future capital management via the cancellation of treasury shares or the payment of special dividends via capital distribution as practised previously.

BToto fell 10 sen to close at RM4.68 yesterday.