Period  2Q13/1H13

Actual vs. Expectations  2Q13 results were within expectations with 1H core net profit of RM205.8m making up 56% of our full-year estimate and 57% of market consensus.

 Our FY13 estimates include a 6-month period of discontinued operations from MPHBCAP (NOT RATED) which was listed on 28 Sep.

Dividends  A second interim NDPS of 5 sen was declared, firming 1H13 NDPS to 10 sen vs. 3.8 sen paid in 1H12.

Key highlights  The reported 2Q13 net profit was only RM0.6m after deducting a total of RM70.7m loss arising mainly from a one-off RM69.8m disposal loss from the MPHBCAP’s listing. Stripping out the RM70.7m loss, 2Q13 core profit would have plunged 47% to RM71.4m QoQ from RM134.4m in 1Q13.

 The weaker QoQ 2Q13 comparisons were mainly attributable to fewer days in 2Q13 (44 vs. 46 in 1Q13 and 44 in 2Q12) and unfavourable luck factor as the estimated prize payout ratio (“EPPR”) was 67.3%. In fact, the luck factor was exceptionally good in 1Q13 as EPPR was 60.9% besides a seasonally strong quarter on the Chinese New Year factor. In 2Q12, the EPPR was 68.9%.

 Average ticket sales dropped to RM17.3m per draw in 2Q13 from the seasonally strong 1Q13 of RM20.0m. But it is still a 8% YoY contraction from RM18.7m recorded in 2Q12.

 Overall, the 1H13 result is satisfactory as the EPPR at 63.6% is only slightly higher than our assumption of 63% and the 1H13 ticket sales of RM1.64b made up 49% of our full-year estimates.

Outlook  Luck factor remains the earnings deciding factor as the prize payout ratio is not consistent on a quarterly basis.

 Dividend could surprise on the upside as the 1H13 NDPS is already at 10.0 sen against our full-year FY13 assumption of 16.7 sen.

Change to Forecasts  No changes to our FY13-FY15 estimates

Rating  Maintain OUTPERFORM

MPHB is our TOP PICK in the gaming sector.

Valuation  Adjusted for the capital repayment, our price target is now RM3.89/ RNAV share.

Risks  A rise in gaming tax by the government

 Weaker than expected ticket sales and a higher than expected EPPR.

Source: Kenanga