Period  1Q14

Actual vs. Expectations  At 28% of our full-year FY14 estimate, we consider the 1Q14 net profit of RM98.8m as to be within expectation. This is because we expect a weaker 2H14 after stripping out c.20% of earnings from Sep-13 onwards upon the listing of its STM Business Trust in Singapore as Berjaya Sports Toto Bhd (“BJTOTO”) only owns 80% of the trust. On the street, the net profit accounted for 24% of the consensus’ full-year estimate.

Dividends  A 4.0 sen NDPS was declared in 1Q14 which is the same quantum in 4Q13 but lower than the 6.5 sen paid in 1Q13. The 1Q14 NDPS, which implies a 54.1% payout ratio, is payable on 17 Oct with entitlement date of 3 Oct.

Key highlights  The 1Q14 net profit of RM98.8m surged 31% sequentially from RM75.6m recorded in 4Q13, thanks largely to better luck factor although revenue normalised, dropping 6% from the seasonally strong 4Q13 which included the Chinese New Year celebrations. The estimated prize payout ratio (EPPR) improved to 57.7% in 1Q14 from 61.2% previously. Average ticket sales declined 4% to RM21.2m in 1Q14 from RM22.2m in 4Q13, causing total NFO ticket sales to drop 7% to RM933.0m from RM998.8m. Number of draws were fewer by 1 to 44 in 1Q14.

 YoY, the 1Q14 net earnings contracted 11% to RM98.8m from RM110.7m, attributable to: (i) lower interest & other incomes by RM13.0m (-59%) and (ii) lower ticket sales (-4%) although EPPR improved from 59.2%. Average ticket sales also dropped by 4% from RM22.0m per draw with number of draw remaining at 44.

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  No changes to our FY14-FY16 estimates.

Rating   Maintain UNDERPERFORM

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

Valuation  Maintain our price target at RM4.02/share, at a 10% holding company discount. Post the RM0.49/share cash distribution, the target price will be adjusted accordingly to RM3.58/share. (refer to valuation table on page 3)

Risks to Our Call

 (i) Stronger than expected ticket sales

 (ii) Lower than expected EPPR.

Source: Kenanga