Period  3Q13/9M13

Actual vs. Expectations 3Q13 results came in below our expectation but were within consensus as the 9M13 core net profit of RM270.6m made up 73% of our full-year FY13 estimates and 80% of market consensus.

 The variance between our estimates and the actual results was due to weaker than expected NFO ticket sales.

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

Dividends  A third interim NDPS of 5 sen was declared, firming 9M13 NDPS to 15 sen vs. 8.3 sen paid in 9M12.

Key highlights  The 3Q13 core earnings contracted by 9% QoQ to RM64.8m from RM71.4m in 2Q13 as the preceding quarter still included the MPHBCAP earnings. Based on the NFO alone, its 3Q13 PBT surged 42% to RM104.9m from RM73.7m as estimated prize payout ratio (EPPR) normalised to 62.9% from 67.3% previously. 3Q13 ticket sales improved slightly to RM701.7m from RM699.6m in 2Q13, although it had one draw day lesser (43 vs. 44) as a result of higher Jackpot 1 snowball prize in 3Q13.

 YoY, 3Q13 core earnings declined 10% from RM72.4m previously. 3Q13 NFO’s pre-tax profit jumped 32% YoY from RM79.4m in 3Q12 as EPPR was higher at 67.3% a year ago. On the other hand, 3Q13 ticket sales dipped 6% YoY from RM813.6m as it only conducted 43 draws as opposed to 45 draws in 3Q12.

 YTD, 9M13 core earnings slid by 4% to RM270.6m from RM281.8m while revenue fell 8% to RM2.40b from RM2.62b previously. 9M13 NFO’s PBT leapt 32% as the EPPR recovered to 63.4% from 67.6% previously. The YTD ticket sales dropped 4% to RM2.44b from RM2.55b as the number of draws conducted was 133 versus 134.

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

Change to Forecasts Cut FY13, FY14 and FY15 estimates by 5%, 7% and 9% after we lowered ticket sales growth from 4% to -1% in FY13 and 2% for FY14 and FY15.

 Raise FY13 NDPS to 20.0 sen (82% payout) from 16.7 sen (65% payout); reduce FY14-FY15 NDPS to 19.0 sen -19.6 sen from 20.5 sen - 21.6 sen, based on unchanged 80% earnings payout

Rating Maintain OUTPERFORM

MAGNUM is our TOP PICK in the gaming sector.

Valuation  Post earnings downgrade, new price target is now RM3.68/RNAV share from RM3.89/RNAV share previously.

Risks to Our Call A rise in gaming tax by the government

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

Source: Kenanga