Period  4Q13/FY13

Actual vs. Expectations The results came in below our expectation but were within market consensus as the FY13 core net profit of RM326.7m was 7% and 3% below our estimate and market consensus, respectively.

 The main variance between our estimate and the actual results was due to higher prize payout ratio (EPPR) of 67.0% in 4Q13, bringing FY13 EPPR to 64.4%, which was higher than our assumption of 63.0%

 Our FY13 estimates also included a 6-month period of discontinued operations from MPHBCAP (NOT RATED) which was listed on 28 Sep. As such, consensus may have excluded this.

Dividends  A final interim NDPS of 5 sen was declared, raising FY13 NDPS to 20 sen which was the same as our estimates. Ex-date for the 5 sen NDPS is 13 Mar and payable on 28 Mar.

Key highlights  The 4Q13 core earnings contracted by 11% QoQ to RM56.1m from RM64.8m despite revenue rising 6% over the period. This was attributable to poorer luck factor as the EPPR jumped to 67.0% from 62.9% which brought the NFO’s PBT margin to 11% from 15% previously. The higher revenue achieved in 4Q13 was mainly driven by: (i) higher average NFO ticket sales per draw of RM17.9m from RM17.7m and (ii) more draw days of 45 vs. 43 in 3Q13.

 While 4Q12 results were inclusive of MPHBCAP earnings, 4Q13 registered a flattish YoY net profit mainly due to the abnormally high EPPR of 68.9% in 4Q12. In fact, the YoY change in revenue/average ticket sales per draw/number of draw days were the same between 4Q13 and 4Q12.

 Stripping out the MPHBCAP earnings, FY13 core earnings declined 3% to RM326.7m from FY338.2m in FY12 as revenue contracted 8% over the year. This was partly attributable to lower ticket sales by 3% to RM3.25b in FY13 from RM3.36b while FY12 had 179 draws compared to 178 draws in FY13. Luck factorwise, EPPR in FY13 dropped to 64.4% from 69.2%.

Outlook  Luck factor remains the earnings deciding factor as the prize payout ratio is not consistent quarter to quarter.

Change to Forecasts We trim FY14-FY15 estimates by 6% on the back of: (i) average ticket sales per draw reduced by 0.7% to RM18.8m-RM19.2m from RM18.9m-RM19.3m and (ii) effect from the house keeping of balance sheet item. However, our EPPR assumption maintains at 63.0%. We also cut NDPS by the same proportion based on unchanged 80% earnings payout.

Rating Maintain OUTPERFORM

Valuation  Post earnings downgrade, new price target is now RM3.59/DCF share from RM3.68/DCF 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