Period     4Q13

Actual vs. Expectations   The 4Q13 results came in slightly below expectations with the FY13 core earnings of RM376.2m at 7% below our estimate and 10% below that of the market consensus. The variance between our estimate and the actual results was due to the depreciation and interest costs being higher than expected.

Dividends    A 4.0 sen NDPS was declared in 4Q13, bringing FY13 fullyear NDPS to 28.0 sen (dividend payout of 96.9%), which was higher than our assumption of 24.8 sen.  

Key highlights    The 4Q13 net profit declined 12% QoQ and 17% YoY to RM75.6m largely due to a weaker luck factor as the estimated prize payout ratio (EPPR) was higher at 61.2% from 58.9% in 3Q13 and 60.9% in 4Q12. The company conducted 45 draws in 4Q13, which was the same as 3Q13 but was a draw higher than that in 4Q12. The average ticket sales per draw rose 5% QoQ to RM22.2m from RM21.2m previously due to the CNY factor, and was also 1% higher YoY from RM22.0m a year ago. 

YTD, the FY13 headline net profit contracted 4% to RM385.0m from RM401.7m partly due to a higher share of associates losses (+RM2.8m) and taxation (+RM8.2m). The luck factor was flat at an EPPR of 59.4%. There were 179 draws in FY13 vs. 177 draws in FY12 while the average ticket sales per draw dipped slightly to RM21.8m from RM21.9m last year.

Outlook    The forward sales/profits remained resilient but the company’s net earnings and dividends are set to decline post the listing of STM-Trust as BJTOTO only owns c.80% of the Business Trust.

Change to Forecasts   We have adjusted our earnings estimate for the Business Trust in Singapore where we have assumed the listing to be in Aug. Thus, we have cut FY14-FY15 estimates by 15%-22% and our FY14 NDPS to 23.8 sen (payout assumption: 90%) from 25.5 sen (88%) and FY15 NDPS to 22.6 sen (90%) from 27.0 sen (90%). We are, however, keeping our other key assumptions such as 176 ticket draws a year, EPPR of 60% and 3% ticket sales growth unchanged.

We are introducing our FY16 new estimates where earnings are expected to grow by 3.8%. The key assumptions for the year are 176 ticket draws a year, an EPPR of 60%, a 3% ticket sales growth and a dividend payout assumption of 90%. 

Rating  Maintain UNDERPERFORM

We maintain our view that the spin-off of its NFO business to be listed as a Business Trust in Singapore may not be value-accretive and will lead to a de-rating of the stock by the market.

Valuation     We are now using c.80% of the NPV for the NFO business to value BJTOTO. We apply the same 10% discount to the valuation as a holding company discount. Thus,  our new price target is now at RM4.02/share from RM3.88/share previously. Post the RM0.49/share cash distribution, the target price will be adjusted accordingly to RM3.58/share  

Risks    The risks to our estimates are stronger than expected ticket sales and a lower than expected EPPR.

Source: Kenanga