Results

• FY17 core PATAMI of RM252.8m (-15.5%) came in within our expectations, accounting for 97.9% our FY17 forecast, but below consensus expectation at 93.6% of full year forecast.

Deviations

• None.

Dividends

• Declared 4 th interim dividend of 3.0 sen at a payout ratio of 75% (FY16: 85%), bringing YTD dividend of 14.0 sen (FY16: 19.0 sen), translating to an annualized yield of 5.4% at current price.

Highlights

• YoY, revenue was down by 0.5% while core PATAMI declined 37.2% due to high base effect in the previous year (exceptionally low prize payout) for Sports Toto and lower rental income from PGMC due to higher opex, mitigated by stronger performance from HR Owen on higher sales.

• QoQ, revenue was up by 6.8% while bottom-line increased by 15.9% due to stronger performance from HR Owen and lower effective tax rate.

• FY17 , revenue increased by 3.4% mainly contributed mainly by HR Owen. However, core profit was down by 15.5% due to GST adjustment, higher payout as well as higher operating expenses, offset by better performance by HR Owen.

• The uncertainty on interpretation of the GST Act by the Royal Malaysian Customs Department and the increase in tax liability due to non-deductible expenses remain as key downside risks.

• Looking into FY18, management expects the NFO business to be challenging with intense competition from illegal gaming activities, rising cost and weak consumer sentiments.

• We believe going online with similar platform like dmcGo is a possible growth strategy to tap into underserved areas and grow the business moving forward.

Risks

• Higher-than-expected prize payout ratio.

• Cannibalization from Magnum and PMP.

• Hike in pool betting duty/gaming tax.

Forecasts

• Unchanged.

Rating

HOLD ↔

• No fresh catalyst in view of the saturated NFO business and shrinking dividend amidst challenging operating environment and rampant illegal operators. There are also uncertainties in the ongoing disputes on the interpretation of GST and non-deductible expenses for taxable income.

Valuation

• Target price is maintained at RM2.87 based on DCF valuations with WACC of 9.27%.

Source: Hong Leong Investment Bank Research - 21 Jun 2017