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PETALING JAYA: Christmas cheer has come early for Berjaya Sports Toto Bhd (BToto) this year in the form of approval from the Ministry of Finance (MoF) for number-forecast operators (NFOs) to lower their cash prizes for the 4-Digit (4D) Big Games in Malaysia.
BToto, the leading NFO by virtue of its 40% market share in the country, had been betting on getting the Government's approval for a lower prize payout to ease the pressure on its profit margin.
This followed after the Government, in the middle of this year, decided to increase the pool betting duty by an additional two-percentage points to 8% with effect from June 1.
That decision was a dampener to NFOs' earnings capacity.
For instance, in its first quarter ended July 2010, BToto's net profit fell 36.4% to RM63.9mil from RM100.5mil in the corresponding quarter last year.
For the quarter in review, BToto's revenue actually registered a marginal growth of 1.1% year-on-year (y-o-y) to RM835.4mil.
The decline in the company's net profit then was due mainly to the higher duties that it had to fork out. Its earnings were also impacted by the huge prize payouts for the quarter.
BToto's earnings for the second quarter of its financial year ending April 2011 remain squeezed.
On Friday, it revealed that its 2QFY2011 net profit had fallen to RM65.1mil from RM102.5mil in the previous corresponding quarter.
Nevertheless, analysts expect the company to see reprieve coming in the subsequent quarter as a result of the lower prize payouts for its 4D Big Game variant, known as the 4D i-Perm Big.
To recap, the MoF last week approved the revision of the special prizes for 4D Big Games from RM200 per RM1 bet to RM180 per RM1 with effect from Dec 15 this year.
BToto, together with other NFO players in the country, had actually applied for such approval to compensate for the pool betting duty hike in June.
This was because a lower prize payout would help them achieve higher savings, and that would ultimately result in an improvement in their bottom lines, or at least help them regain their previous profit margins of around 10% or more before the implementation of the pool betting duty hike.
According to analysts' computation, BToto's earnings for the next three financial years would likely grow between 4% and 13%, as a result of the new prize structure for its 4D Big Game.
A Bloomberg poll of 24 research houses showed there were 12 BUY calls on the company's stock. Nine others had a HOLD call on the counter, while three called for SELL.
The average target price for BToto was tagged at RM4.57, compared with its Friday closing at RM4.13.
BToto, as it stands, is the most profitable business for its parent company Berjaya Corp Bhd, whose interests are found in a diversified range of industries from the consumer marketing, food and beverage to automotive, leisure and financial services.
BToto contributes a steady source of earnings of RM350mil to RM450mil to the group each year.
BToto is one of the 50 largest companies listed on Bursa Malaysiabased on its current market capitalisation of around RM5.6bil.
The company was one of the 30 members of the FTSE Bursa Malaysia KLCI until it was replaced by newly-listed Petronas Chemicals Group Bhd at the end of last month.
BToto presently helmed by Tan Sri Vincent Tan's son, Datuk Robin Tan, who took over the company's CEO position from his father in 2006.
BToto currently operates around 680 outlets throughout Malaysia, offering the most comprehensive range of lotto games, compared with its rivals Magnum Corp Bhd and Pan Malaysian Pools Sdn Bhd.
BToto also has ventures overseas.
It operates in the Philippines through its subsidiary Berjaya Philippines Inc which is listed on the Philippine Stock Exchange.
It also has operations in the United States through its subsidiary International Lottery & Totalizator Systems, Inc.
In the Philippines, BToto offers eight lotto games through its chain of 2,400 outlets in Luzon, while in the US, its business is in the provision of computerised wagering equipment and systems to the online lottery and pari-mutuel racing industries worldwide and voting jurisdictions in the US.
Gaming is a relatively resilient industry even in times of economic turmoil.
For this reason, BToto is favoured among many investors as a defensive play, which also offers steady dividends.
The company declared an interim dividend of eight sen per share for the three months to July despite its net profit being significantly lower compared with the corresponding period last year.