Is Berjaya Sports Toto Bhd 7% Yield Good Enough?

Berjaya Sports Toto Bhd (BToto) is one of the few licensed Toto betting entities in Malaysia. Presently, it remains popular among dividend seekers as BToto is a stock known for its long-term track record of generating stable cash flows, high return on equity (ROE), and dividend payouts to its shareholders. What if, I say, you can earn 6.93% in dividend yields from BToto if you invest in it today?

Would you go for it?

If your answer is Yes, please read on. You’ll discover a handful of useful lessons to assess stock deals, find true gems, and avoid potential lemons when you are investing in the stock market. Here, I’ll revisit BToto’s fundamentals, provide an update on its latest financial results and valuation figures. Thus, the following is a list of 8 things to know about BToto before you invest.

1. Gaming
   BToto’s gaming division is involved in Toto betting operations mainly in Malaysia and the Philippines and remains as the main source of sales & profits to the group. For the last 10 years, this division had experienced falling revenue and segment profits. Revenues fell from RM 3.68 billion in 2009 to RM 3.25 billion in 2018. Meanwhile, segment profit dropped from RM 612.9 million in 2009 to RM 420.8 million in 2018.
   
   
   

Source: BToto’s Annual Reports

1. Motor Vehicle Dealerships
   BToto owns H.R. Owen Plc via its interest in Berjaya Philippines Inc, its gaming entity listed in the Philippines. H.R. Owen operates a luxury car dealership in the United Kingdom, where it has 14 sales franchises and 17 aftersales franchises for brands such as Aston Martin, Audi, BWM / MINI, Bentley, Bugatti, Ferrari, Lamborghini, Lotus, Maserati, Pagani & Rolls-Royce.
   
   H.R. Owen was acquired in the middle of financial year (FY) 2014 by its subsidiary, Berjaya Philippines Inc. Its contribution of sales have grown from RM 1.89 billion in 2015 to RM 2.34 billion in 2018. This is resulted from an increase of car sales volume during the period. Segment profit has increased from RM 27.3 million in 2015 to RM 42.7 million in 2018. Profits in 2016 had dropped slightly as H.R. Owen incurred higher costs as it set up more car showrooms and bought additional facilities in that financial year.
   
   
   

Source: BToto’s Annual Reports

1. Group Profitability
   In a glance, BToto had achieved continuous growth in group revenues, up from RM 3.70 billion in 2009 to RM 5.66 billion in 2018. Its increase was due to the inclusion of H.R. Owen’s revenue starting in FY 2014. Its group shareholders’ earnings, however, have continued to fall over the past 10 years, down from RM 413.6 million in 2009 to RM 229.7 million in 2018. This is because the fall in gaming profits had exceeded growth in profits from H.R. Owen as motor dealership profits remains small.
   
   
   

Source: BToto’s Annual Reports

1. Return on Equity (ROE)
   In 2018, BToto has generated ROE of 30.88%. It means, it had made as much as RM 30.88 in annual earnings in 2018 from every RM 100.00 in shareholders’ equity. It is a decline from ROE of 85.63% in 2009. This is due to BToto’s continuous decline in earnings and continuous increase in shareholders’ equity for the last 10 years.
   
   
   

1. Cash Flows Management
   From 2009 to 2018, BToto had generated RM 3.67 billion in cash flows from operations, collected RM 120.8 million in interests, and has raised RM 472.2 million in net long-term debt. Out of which, it has:
   
   – spent RM 283.4 million in capital expenditures (CAPEX)
   – paid out RM 2.70 billion in dividends to its shareholders.
   
   
   BToto has increased its cash reserves steadily from RM 230.5 million in 2009 to RM 415.3 million in 2018. Evidently, BToto remains a company that is strong in cash flow generation and has the ability to continue to pay out dividends to its shareholders.
   
   
   

Source: BToto’s Annual Reports

1. Dividends Per Share (DPS)
   BToto has reduced DPS from 29.0 sen in 2009 to 16.0 sen in 2018. This is in line with its drop in earnings and lower cash flows from operations during the 10-year period.
   
   
   

Source: BToto’s Annual Reports

1. Latest 12-Month Financial Results
   From Q3 2018 to Q2 2019, BToto has made RM 5.66 billion in revenue and RM 241.6 million in shareholders’ earnings, comparable to BToto’s financial results in FY 2017 and FY 2018. Its earnings per share (EPS) for the latest 12 months is 17.9 sen.
   
   As at 31 October 2018, BToto has reported to have RM 179.9 million in non-current liabilities, thus, has a gearing ratio of 22.6%. Meanwhile, it has current ratio of 0.82 with cash balance dropping to RM 360 million, from RM 415.3 million as at 30 April 2018.
   
   
   
   Figures in RM Million unless stated otherwise

Period	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Total
Revenue	1,404.3	1,400.7	1,500.8	1,352.5	5,658.4
Earnings	59.2	35.2	86.9	60.3	241.6
EPS (Sen)	4.40	2.61	6.45	4.48	17.9

Source: BToto’s Quarterly Reports

1. Stock Price Movements
   BToto’s stock price had dipped from RM 4.27 in July 2013 to RM 2.31 in February 2019, nearly a 50% drop in 5 – 6 years. Its decline is in tandem with BToto’s drop in profits, cash flows and dividends in that period. If I placed its stock price graph together with its graphs on earnings, DPS & cash flows from operations, we would find that the drop in stock prices is ‘inevitable’ as stock prices, in general, do mirror financial results over the long-term.
   
   
   
   

Source: Google Finance

Source: BToto’s Annual Reports

VIA’s Verdict

As I write, BToto has the following valuation figures:

– P/E Ratio: 12.91 (Below 10-Year Average)

– P/B Ratio: 3.92 (Below 10-Year Average)
– Dividend Yield: 6.93% (Above 10-Year Average)

In a glance, BToto looks attractive if it is solely based on valuation figures. But, as a value investor, it is more important to invest in stocks which are strong in their fundamentals (grow profits consistently) in our portfolio as it is not about making ‘the best dividend yields or capital gains’ from a single stock purchase. But rather, stock investing, I believe, is about building a portfolio which is able to grow dividend yields and achieve sustainable capital appreciation in the long run. Never sacrifice quality for yields and wild capital appreciation.

Happy Investing!

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