Berjaya Sports Toto Bhd (Sept 15, RM4.21) Maintain hold at RM4.23 with target price of RM4.53: BToto's last recorded lotto revenue per draw was RM2.5 million. The last time lotto revenue was this high was way back in December 2008. Of its three lotto games, Supreme Toto 6/58 (6/58) has of course been the most successful. Due to its huge jackpot which currently stands at RM42.8 million, the largest ever offered, 6/58 alone recently recorded revenue per draw of RM2 million. As it has a larger matrix (the jackpot is more difficult to strike), we believe that 6/58's run will continue.

Historically, we observed that higher lotto revenue also led to higher 4D and other non-lotto revenue. Higher visitations to outlets driven by large jackpots also encouraged punters to bet on 4D and other non-lotto games. FY2011 should be no different with year-to-date lotto revenue already 43% higher year-on-year (y-o-y) due to the reasons stated above.

We revise our FY2011 total revenue/draw/outlet growth assumption from 2% to 8% to reflect the stronger lotto revenue growth. It basically assumes that lotto revenue, which has less than 10% revenue share, will grow at 50% y-o-y while non-lotto revenue will grow at a more tepid 5% y-o-y. We continue to assume total revenue/draw/outlet growth of 2% per year thereafter. We therefore upgrade our earnings estimates by 6% to 8%. Our discounted cash flow-based target price (TP) is raised by a mere 3% to RM4.53. On that note, we maintain our 'hold' call on BToto for now.

That said, we foresee a significant re-rating catalyst going forward. BToto and Magnum (77% combined market share) have lobbied the Ministry of Finance to reduce the 4D non first prizes to exactly offset the two percentage point hike in pool betting duty introduced in June. Reducing the 4D first prize will allow illegal operators to wrest market share with higher prizes. Therefore, we expect minimal if any negative impact on 4D sales from the prize payout reduction for 4D non first prizes. If their proposal is approved, we will upgrade our earnings estimates and TP by another 10%. Investors who believe that the prize payout reduction will be forthcoming may want to 'buy' BToto now in order to position themselves for the actual event itself. - ECM Libra Investment Research