BJTOTO Full Year Gross Dividend to 29sen or 77% Payout

Result within expectations. 4QFY09 net profit came in at RM107m (+76% y-o-y, +10% q-o-q), bringing full-year earnings to RM411m (+18% y-o-y), within our and consensus expectations. Lower prize payout of 61% (-7ppty-o-y, -4ppt q-o-q) offset weaker revenue (flat y-o-y, -18%q-o-q). There were 6 less draws q-o-q but revenue/drawgrew 2% y-o-y and -6% q-o-q as the seasonally stronger Chinese New Year fell in 4QFY08 and 3QFY09.

Gearing up to fund large dividend payout. BST ramped upits final dividend to 11sen (tax exempt), bringing full year gross dividend to 29sen or 77% payout (vs 75% dividend

policy). Including additional interim dividend of 19sen (tax exempt) for FY10 and its maiden treasury shares distribution, FY09 net dividend amounted to 80sen or 16% net yield. BST plans to take on RM380m of new debt, raising its net gearing to 86% from 7% and reducing FY10F earnings by 5% (assuming 5% interest rate). Repayment (likely over 4 years period) should be supported by strong operating cashflow of ~RM500m p.a. BST still has a balance of 5m treasury shares.

Share price appreciation may be capped. Although there could be a knee-jerk reaction to BST’s bumper dividends, upside could be limited by:

(i) potential share overhang as BLand realizes the value of its share dividends, and

(ii) potential conversion of BLand’s exchangeable bonds to

BST shares if share price exceeds RM5.16 (BLand’s stake in cash-cow BST could be diluted to 37% from 51%). BST is currently trading at 14.1x FY11 PE, 1-SD above mean. We

raised our earnings by 3-6% after imputing stronger revenue/draw growth of 3-4% (FY09: 13%) given improving risk appetite and consumer sentiments.